Your organization is really in trouble, and the usual planning processes aren’t enough. It happens. Maybe the mission and strategy no longer fulfill expectations, your cash is running out, leadership can’t agree on what to do, or some combination of these. One thing is for sure: you literally need to turn things around.
Turnarounds reverse downward spirals. These projects are complex and data-driven, and call for difficult decisions. They may require restructuring, finding a stronger competitive position, a change in leadership or program and/or budget cuts. A turnaround requires strong individual leadership as well as a leadership team that can function well together, and fast.
Seek an Experienced Turnaround Leader
The importance of experience in a turnaround leader shouldn’t be underestimated. Whether you decide to bring in an interim executive director, a consultant, or a new permanent executive director, remember that experience with turnarounds is likely to make the difference between a smoother, more successful process and outcomes that fall short of success. In the worst, although not uncommon, case, someone without turnaround experience may wind up repeating some of the same ineffective strategies as the person replaced. This means that you will have to disclose enough of the depth of the crisis to solicit people with relevant experience; otherwise you will be less likely to find the right candidates.
If you already have an interim or new permanent executive director in place, a turnaround consultant can work with and transform the board of directors while the executive director is working to fix the operations. In addition, if you are seeking other assistance, such as a financial or fundraising consultant, 501 Commons may also be able to help.
Make sure your search for turnaround leadership highlights the need for someone with significant organizational change experience, including restructuring, cost cutting, and revamping internal systems. Disclose the known problems to the finalist(s) in order to discuss the candidate’s fit and interest prior to hire, whether a permanent or interim executive.
What to Expect
With board support, the first step is to form a transitional leadership team. This transition team will partner with the turnaround consultant(s) to lead the organization through the project. The next step is a deep assessment of the situation and fundamentals of the organization. If the organization is still deemed viable, then an action plan will be put in place to address pain points. This plan will go beyond rearranging the deck chairs, so expect changes to staffing and the board. However, if the challenges are too widespread, it may be more practical to merge or shut the doors. Your turnaround consultant will walk you through it.
Engaging turnaround consultants may seem like a big expense, especially at a time when the organization is strapped for cash. But keep in mind that this is an investment to getting back on track—well worth the value in the long run.
If an organization is at risk of going out of business it is important to develop a close-down plan. Here are the major steps for a close-down plan
- Identify all the liabilities the organization has, including last paychecks, contributions to retirement accounts, unpaid employment taxes and contractual obligations like leases.
- Put the amount needed to pay these obligation is a separate saving account - your "shutdown account" and do not touch them until you are winding down. Doing this protects the board from liability for unpaid obligations.
- If you do not currently have the funds to pay for an ethical shutdown that will not leave unpaid creditors, the board members need to contribute the funds necessary for the shutdown. You may be able to negotiate partial payment of some business creditors but will need to pay core obligations like salaries, contractors and taxes in full. Board members should make these donations proactively, when the problem of insufficient shutdown funds is identified. Do not wait until shutdown is in process.
- Next, calculate your monthly "run rate," the level of expenses needed to operate the organization for one month. Identify the certain revenues that will come in over the next 6-12 months . Count grants only if you have received them on an ongoing basis or have been told you have a very strong likelihood of receiving the grant. Determine how many more months you can continue to operate without an infusion of additional funds.
- Reduce expenses to the bare minimum needs of the organization. This likely includes laying off staff. Consider if giving up office space is an option or moving to co-working space.
- Talk to donors and funders to see if you can raise sufficient funds to cover operating expenses for the next yea, while maintaining the shutdown account.
If you are going to close the doors of the organization, research the requirements for "dissolution" of a nonprofit. Consult with your state's Secretary of State and Department of Revenue to determine their requirements. Here are some additional resources: