5 Lessons for Keeping Your Nonprofit Open – From Organizations That Closed

A troubled economic climate means that nonprofit organizations face a decrease in contributions—at the same time that their customers rely on nonprofit services more than ever.

And while many organizations seek ways to streamline expenses or to merge operations, a number will inevitably close their doors. Within Chicago’s arts and culture sector, 39% of the nonprofits registered with the IRS in 1990 had ceased operations by 2010.

A recent longitudinal study of the 40 small arts organizations who participated in The Chicago Community Trust’s SMART Growth grant program from 2007 to 2009 included interviews with the 4 groups who have closed in the intervening years. Their leadership offered a candid look at the factors that contributed to their closure—and the hard-earned insights they wish they’d reached sooner.

• Boards need to provide financial oversight—in good times and bad. Financial health should be made consistently transparent to board members, and checks and balances put in place. Three of the four organizations identified a lack of stringent financial oversight as a precipitating factor in their closing.
• Meanwhile, keep boards engaged in the vision too. The nonprofit leaders interviewed agreed that strong board engagement in approving the programming vision is essential for producing work that remains true to the mission, relevant to the audience, and financially viable.
• Hiding financial challenges from funders blocks out opportunity. Organizations in distress understandably fear revealing their weak spots to foundations and other funders. But funders are invested in your success, and can help seek solutions—if you open up the dialogue.
• Candid conversation comes first. As soon as pitfalls appear, all key stakeholders should become part of the discussion. Don’t keep board or staff leadership in the dark while you work to perfect and present a solution. Of the four defunct organizations, three reported that their boards confronted too late the issues that would eventually precipitate closure, and that being blindsided into crisis mode made closing less orderly than it could have been managed.
• No “sacred cows” allowed. When an organization is experiencing crisis, board and staff members must be willing to openly discuss and consider all possibilities for survival, without walling off options solely for tradition’s sake.

The Chicago Community Trust’s SMART Growth initiative was designed to help small arts organizations develop sustainability in the face of economic shifts and organizational transitions. Coupling three years of grant support with a detailed evaluation developed by the Arts & Business Council of Chicago to provide strategies for improved resilience, SMART Growth welcomed its third cohort of nonprofit organizations in 2015.