After the whirlwind of 2020, more nonprofits are turning to collaboration with other nonprofits to pool resources, gain efficiency, and better serve their mission. Nonprofits can merge their back offices to enjoy lower overhead cost, enter into a joint venture to expand their offerings or service area, or even merge completely into one complete entity. But navigating which option is right for your nonprofit can be challenging. The first step is to understand the differences between the types of collaboration.
Mergers are the most formal process in this list. A merger can involve completely combining two nonprofit entities, or one larger nonprofit entity adding a smaller nonprofit to the organization to add a new program or service area. The merger process range from short and simple to lengthy and complicated. But it is always important to do your due diligence during a merger. Many nonprofits use a consultant during the process to help perform due diligence and implement best practices. When you’re ready to officially merge after the due diligence process, it’s important to have an attorney who is knowledgeable about nonprofit law. While a volunteer attorney may be well meaning, there are differences in how the law handles nonprofits and for-profit entities, so an attorney who works primarily with for-profit companies or individuals could put your organization at risk of noncompliance.
2. Joint Ventures
A joint venture is historically used when two nonprofits want to collaborate on an isolated program or project. This can be beneficial in a variety of ways. A nonprofit can enter into a joint venture with another nonprofit organization, like a youth-serving organization and a horse rescue, coming together to create a free horse-riding summer camp for foster children. But a nonprofit can also enter into a joint venture with a for-profit company. Overall, joint ventures can increase your impact by allowing you to take on more than you might be able to normally. Joint ventures can be extremely helpful, whether it provides you with an opportunity to increase the geographic reach of a program, add more resources or expertise, or creates a new programmatic offering.
3. Fiscal Sponsorship
We have details about fiscal sponsorship in one of our previous posts, but at its most basic level, fiscal sponsorship allows a fledgling charitable program to be incubated by an established nonprofit organization. Charitable Allies acts as a fiscal sponsor to several growing charitable programs, but we’ve also seen fiscal sponsorship work in other instances. One example is a new ministry being operated under the “umbrella” of a church before the ministry is ready to break off and become its own nonprofit organization. This arrangement is ideal for a new charitable program and a more well-established nonprofit organization.
People use the word “partnerships” to mean many things, but in this case, we’re referring to a formalized agreement between 2 or more nonprofits that has a specific goal, and can be ongoing, unlike the defined timeline of a joint venture. Partnerships can allow your nonprofit to pool resources with another organization to help you reach your goals. A good partnership help increase efficiency and/or number of resources for both parties involved. Partnerships can also allow two charities to apply for joint funding in some instances. Many grant funders are fond of nonprofit partnerships because it can allow them to provide more services at a lower cost.
No matter what type of collaboration you pursue, it’s always important to do your research about the organization you’re looking to collaborate with. While the impact of a successful partnership, joint venture, fiscal sponsorship, or merger can be great, the implications of one of these methods going poorly are also great. It’s also important to define the terms and goals of the arrangement formally, so be sure to get the appropriate agreements or contracts created by an attorney competent in nonprofit law. The Charitable Allies team is happy to help with any of these methods of collaboration, so please reach out to us if you have questions or would like to schedule a consultation.