This is part of our seven part series. This series covers when to close a nonprofit, methods of dissolving, methods of reorganizing, insolvency, deepening insolvency, receivership, and tips for nonprofits involved in receivership cases.
Has COVID 19 dramatically impacted your ability to achieve your mission? Has your revenue dried up during the pandemic? Unfortunately, many nonprofits are feeling the impact of these unprecedented times, and are unsure of what to do next. Closing a nonprofit is a difficult decision, but in some cases, it’s the right choice to ensure that your mission is preserved and your legacy is a positive one. There is more than one way to close a nonprofit and more than one way to determine if it is time to close a nonprofit, and our staff are here to guide you in the best option for you to ensure that your organization leaves behind a wonderful legacy.
What are the signs that it’s time to close your nonprofit?
- Mission Accomplished
In the best-case scenario, if you have accomplished the mission of your nonprofit, it could be time to close. As highlighted in a New York Times article, the nonprofit group Out2Play decided to cease its operations after helping to set up more than 100 playgrounds at New York City-area public schools. Its board members considered their mission accomplished when they ran out of locations to set up more playgrounds.
If your nonprofit is unable to pay money it owes to a person or company (which is called being insolvent), it is time. Insolvency can take two forms: cash-flow insolvency and balance-sheet insolvency. Cash-flow insolvency is when your nonprofit does not have enough liquid assets to cover its debts when they are due. Balance-sheet insolvency is when your nonprofits liabilities outweigh its assets. In either scenario, it’s time to dissolve the nonprofit. If you continue operating the nonprofit past the point of insolvency, then you may deepen the insolvency and be subject to personal liability from creditors, putting you on the hook financially.
- No Incoming Revenue
Even if the organization is not insolvent, if the revenue sources have dried up, it could be time to close up shop. While ups and downs in funding are to be expected, if your revenue sources are disappearing entirely, closure could be on the horizon.
If one or more of these apply to your nonprofit, see our guide on methods to close a nonprofit organization or contact our office to schedule an initial consultation with one of our attorneys about your specific circumstance. Dissolving a nonprofit is a difficult process, but Charitable Allies is here to ensure that the process is as painless as possible.
Leave a legacy you are proud of by closing your organization at the right time with integrity and dignity.