How to Know When It's Time to Close Your Nonprofit

As a nonprofit leader or board member, it's essential to understand when to close your organization. As we know, the U.S. is a capitalist nation, and, as a result, just like the people who first founded this nation, Americans are used to trial, failure and resilience. The reality is that with more than 1.5 million nonprofits in the U.S., there's a lot of duplication.

As the number of organizations increases, and technology, social norms and ideas evolve, the competition gets more challenging. With so many organizations popping up, donors are more selective, which means you must work twice as hard to give them a reason to provide you with their hard-earned money. 

In my view, nonprofit leaders who continue to work when it's time to close their organizations are missing an important point. Just because the nonprofit is failing doesn't mean its people are a failure. It's simply the failure of an idea or its execution. The best entrepreneurs and founders know when it's time to close and move on. 

So, let’s explore six reasons that tell you when it’s time to close your nonprofit.

1.  You're Too Small for Success

As I mentioned, there are more than 1.5 million nonprofits in the U.S. But that's not all. Younger generations (e.g., millennials and Generation Z) aren't big supporters of traditional institutions. In fact, their sensibilities are very different from earlier generations that supported nonprofits. For instance, they don't mind investing in impact investment funds, supporting cause-related marketing or for-profit companies that offer them something in return.

2.  The Only Way You'll Get More Funding Is by Being Bigger

With many nonprofit organizations and competition from businesses, smaller nonprofits are having a more challenging time. In addition, fewer donors are giving to nonprofits. Sure, we’re used to seeing annual giving in the billions of dollars for individual donors. However, giving’s buoyed by billionaire giving. Many middle-class families and smaller-dollar donors tightened up their giving. Inevitably, the fundraising landscape is changing.

3.  It's Hard to Compete With Already Successful Nonprofits

Once a nonprofit has been around for a long time and has successfully attracted donations and support, it can be difficult for new organizations to compete. A few years back, a colleague of mine researched the number of nonprofits in the city where she lived. As l recall, she was looking for youth development organizations and found dozens doing many of the same things with overlapping services. What's more, most earned very little money. So, of course, the most significant support went to the nonprofits that managed to scale.

4.  You’re Working Against Yourself

Ultimately, this decision comes down to how much time and money you want to invest into something that doesn't work out. The amount of money you put into something is directly proportional to what type of return you'll get back from it. In other words, if you put a lot of effort into something but don't see any results, then chances are there isn't much hope for success in the future either. So, if you see your nonprofit treading water and not making a difference, it may be time to close shop.

5.  The Operating Costs of Your Nonprofit Are Too High

The cost of operating your nonprofit is too high, your nonprofit's mission is outdated or no longer relevant, or your nonprofit isn’t capable of growing its programs and services to accommodate the demand for its services. In this case, you need to consider closing your organization and influencing change for the greater good for a nonprofit that's thriving. In other words, you could reach out to a nonprofit that's your competitor and speak about their organization absorbing your nonprofit. Ultimately, you could make an impact by giving them your information, knowledge and expertise.

6.  You're in a Conflict of Interest With Your Nonprofit

A conflict of interest is when a person or company has a personal interest that could influence their decision-making for the better or worse. If you're in a situation where your interests could impact how you make decisions as a nonprofit, it’s essential to disclose that to your board members and team. It's also important to do what you can to separate yourself from any potential conflicts of interest by recusing yourself from any decisions. If you can't do it, you need to resign from your position; if not, close the nonprofit.

Closing a nonprofit for the right reasons isn't easy. It all comes down to assessing your organization and determining if you're going in the right direction. The best way to do this is by conducting a thorough self-evaluation for your  organization. Should you decide to close your nonprofit, you should do so before the end of the year to save yourself the regulatory headaches of unwinding the organization in the following tax year. You should also take care of your financial obligations, especially taxes, nonprofit registration, banking, staff severances, outstanding loans or credit card bills, etc. 

Nonprofits exist to help society, and if they don't reach their goal, people need to move on. Some nonprofits can achieve their goals within a specific time frame, but typically it takes longer than that. Nonprofits need to stay relevant and continue growing to maintain donors' trust in them.

The sooner you decide to close it, if that's the reality you face, the easier it'll be. And remember, closing your nonprofit doesn't mean you'll forget the cause you love. For instance, you can continue to support your cause in other ways. However, as a matter of good for donors and the mission, close your nonprofit, especially if the writing's on the wall.