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Issues and events that shape Long Island's economic and legislative landscape.

Friday, October 31, 2014

Nonprofits Merge to Survive

Within the past year, some nonprofits on Long Island have gotten hitched, and not necessarily out of love.

As the economy continues to stall, mergers and acquisitions are trending up, with more organizations realizing they can't make it solo. Take SNAP Long Island, an organization focused on adolescent pregnancy prevention and services for pregnant adolescents and their families. Last November it was acquired by the Economic Opportunity Council of Suffolk, a Patchogue-based organization that now offers SNAP's services among its broader programs to assist families and children in need. Also last fall, Family Residences and Essential Enterprises of Old Bethpage entered into affiliations with the Stephanie Joyce Kahn Foundation and the Child Development Center of the Hamptons. This has allowed FREE to efficiently broaden the services it provides to certain populations among its clients with disabilities.

Want more on the urge to merge front? The Nassau and Suffolk chapters of the American Red Cross will cut costs when they complete their merger to form the American Red Cross on Long Island.

According to the Long Island Not-for-Profit Survey 2010, conducted by the Bohemia accounting firm Cerini & Associates, 4 percent of organizations were in the process of merging with another and 8 percent were considering it. "We are going to see more mergers over the next couple of years," said John Kemp, CEO of Abilities! in Albertson, which provides education and training for people with disabilities. Kemp said a subsidiary of Abilities! is engaged in active merger talks with another nonprofit with a complimentary mission and business objective. "The merger would allow us to enjoy greater efficiencies through unified functions such as accounting and technology," he said.

Long Island's nonprofits must adjust to a new normal, with the combination of resource scarcity and increased demand for services requiring they do more with less, said Pearl Kamer, chief economist for the Long Island Association. "If the situation doesn't change – and I don't think it will change too quickly – some nonprofits will have no alternative but to go out of business or partner with others to share costs," Kamer said.

But merging isn't as simple as it sounds. "We're not talking about simple lemonade stands on the corner," said Gwen O'Shea, CEO of the Hempstead-based Health and Welfare Council of Long Island, which works with more than 300 health and human services agencies in Nassau and Suffolk. "There's a process involved. It's time-consuming and there are costs, and the needs of the community have to be considered."

While tying the knot may make financial sense, many organizations are hesitant to give up the single life. "In Long Island, nonprofits feel committed to their own missions, and they find the idea of mergers and collaborations difficult," said Fran Karliner, president of the Long Island chapter of the Association of Fundraising Professionals and director of development for the Long Island Crisis Center in Bellmore. "But the message is getting across that organizations have to be more proactive about finding ways to save costs."

Though the number of merger talks is likely to grow, there will not be a sea change in which hundreds of small nonprofits are gobbled up by huge conglomerates, said Theresa A. Regnante, CEO of the United Way of Long Island in Deer Park. "For nonprofits to cease operations, boards of directors have to get to a place where they realize they don't have the resources to execute their mission," she said. "That is not a typical reaction to a short-term economic downturn."

However, some nonprofits are finding they have no choice. Last fall, the Suffolk Community Council, which provided community and advocacy services, decided to dissolve the organization after 75 years. "It's a year-long process," said Regnante, noting that United Way of Long Island is managing the oversight of the dissolution and has taken over the contracts for SCC's active programs in the short term, while the Health and Welfare Council, which also provides advocacy services, will fill that role for the region.

What will be more common than mergers is sharing of resources, particularly on the administrative side, Regnante said. "We'll see more sharing of staff, such as human resources, information technology, finance and administration, among agencies that provide similar functions," Regnante said.

The climate is necessitating nonprofits take a careful look at the costs involved in the services they provide and whether those services are core to their mission, said Ken Cerini, partner in charge of nonprofit services for Cerini & Associates. "So many nonprofits followed the money – if they got a grant to start a program, they started it, but the program wasn't necessarily core to their mission," Cerini said. In cases where programs have become costly to continue, nonprofits should investigate jettisoning non-core programs. "If a for-profit company is losing money on part of its business, it's not going to continue it," Cerini said.

The Long Island Association for AIDS Care in Hauppauge has long collaborated with EOC of Suffolk and Seafield Inc., which provides substance abuse services, to expand the services it can offer to its clients. "Funders want to see those collaborations, because they combine the expertise of several organizations to benefit clients," said Catherine Hart, chief operating officer of LIAAC. Abilities! has begun looking to its association relationships to see if it can take advantage of group buying power for everything from paper towels to technology products, Kemp said.

Nonprofits are starting to look to diversify revenue streams to a greater extent, which good businesses do, Cerini said. Organizations that have been heavily dependent on government funding find themselves in heavy seas as dollars are being cut and government bodies are taking longer to pay. This problem is particularly acute for the 41 percent of nonprofits with less than 90 days of cash on hand, as reported in the Long Island Not-for-Profit Survey 2010.

Nonprofits have employed an array of solutions to cut expenditures on staffing, asking employees to forego wage increases or take pay cuts and make greater contributions to medical plans, Karliner said. Additionally, some are instituting furloughs and part-time hours. Recruiting more volunteers has been a focus for some, such as Long Island Cares Inc.-The Harry Chapin Food Bank of Hauppauge, which saw an increase in its volunteer base after dedicating a full staff position to coordinate volunteers, said Robin Amato, director of development and communications.

But existing staff can only do so much. "The notion that nonprofits are doing more with less is antiquated," O'Shea said. "The fact is, we're doing less with less."

As the economy continues to stall, mergers and acquisitions are trending up, with more organizations realizing they can't make it solo. Take SNAP Long Island, an organization focused on adolescent pregnancy prevention and services for pregnant adolescents and their families. Last November it was acquired by the Economic Opportunity Council of Suffolk, a Patchogue-based organization that now offers SNAP's services among its broader programs to assist families and children in need. Also last fall, Family Residences and Essential Enterprises of Old Bethpage entered into affiliations with the Stephanie Joyce Kahn Foundation and the Child Development Center of the Hamptons. This has allowed FREE to efficiently broaden the services it provides to certain populations among its clients with disabilities.

Want more on the urge to merge front? The Nassau and Suffolk chapters of the American Red Cross will cut costs when they complete their merger to form the American Red Cross on Long Island.

According to the Long Island Not-for-Profit Survey 2010, conducted by the Bohemia accounting firm Cerini & Associates, 4 percent of organizations were in the process of merging with another and 8 percent were considering it. "We are going to see more mergers over the next couple of years," said John Kemp, CEO of Abilities! in Albertson, which provides education and training for people with disabilities. Kemp said a subsidiary of Abilities! is engaged in active merger talks with another nonprofit with a complimentary mission and business objective. "The merger would allow us to enjoy greater efficiencies through unified functions such as accounting and technology," he said.

Long Island's nonprofits must adjust to a new normal, with the combination of resource scarcity and increased demand for services requiring they do more with less, said Pearl Kamer, chief economist for the Long Island Association. "If the situation doesn't change – and I don't think it will change too quickly – some nonprofits will have no alternative but to go out of business or partner with others to share costs," Kamer said.

But merging isn't as simple as it sounds. "We're not talking about simple lemonade stands on the corner," said Gwen O'Shea, CEO of the Hempstead-based Health and Welfare Council of Long Island, which works with more than 300 health and human services agencies in Nassau and Suffolk. "There's a process involved. It's time-consuming and there are costs, and the needs of the community have to be considered."

While tying the knot may make financial sense, many organizations are hesitant to give up the single life. "In Long Island, nonprofits feel committed to their own missions, and they find the idea of mergers and collaborations difficult," said Fran Karliner, president of the Long Island chapter of the Association of Fundraising Professionals and director of development for the Long Island Crisis Center in Bellmore. "But the message is getting across that organizations have to be more proactive about finding ways to save costs."

Though the number of merger talks is likely to grow, there will not be a sea change in which hundreds of small nonprofits are gobbled up by huge conglomerates, said Theresa A. Regnante, CEO of the United Way of Long Island in Deer Park. "For nonprofits to cease operations, boards of directors have to get to a place where they realize they don't have the resources to execute their mission," she said. "That is not a typical reaction to a short-term economic downturn."

However, some nonprofits are finding they have no choice. Last fall, the Suffolk Community Council, which provided community and advocacy services, decided to dissolve the organization after 75 years. "It's a year-long process," said Regnante, noting that United Way of Long Island is managing the oversight of the dissolution and has taken over the contracts for SCC's active programs in the short term, while the Health and Welfare Council, which also provides advocacy services, will fill that role for the region.

What will be more common than mergers is sharing of resources, particularly on the administrative side, Regnante said. "We'll see more sharing of staff, such as human resources, information technology, finance and administration, among agencies that provide similar functions," Regnante said.

The climate is necessitating nonprofits take a careful look at the costs involved in the services they provide and whether those services are core to their mission, said Ken Cerini, partner in charge of nonprofit services for Cerini & Associates. "So many nonprofits followed the money – if they got a grant to start a program, they started it, but the program wasn't necessarily core to their mission," Cerini said. In cases where programs have become costly to continue, nonprofits should investigate jettisoning non-core programs. "If a for-profit company is losing money on part of its business, it's not going to continue it," Cerini said.

The Long Island Association for AIDS Care in Hauppauge has long collaborated with EOC of Suffolk and Seafield Inc., which provides substance abuse services, to expand the services it can offer to its clients. "Funders want to see those collaborations, because they combine the expertise of several organizations to benefit clients," said Catherine Hart, chief operating officer of LIAAC. Abilities! has begun looking to its association relationships to see if it can take advantage of group buying power for everything from paper towels to technology products, Kemp said.

Nonprofits are starting to look to diversify revenue streams to a greater extent, which good businesses do, Cerini said. Organizations that have been heavily dependent on government funding find themselves in heavy seas as dollars are being cut and government bodies are taking longer to pay. This problem is particularly acute for the 41 percent of nonprofits with less than 90 days of cash on hand, as reported in the Long Island Not-for-Profit Survey 2010.

Nonprofits have employed an array of solutions to cut expenditures on staffing, asking employees to forego wage increases or take pay cuts and make greater contributions to medical plans, Karliner said. Additionally, some are instituting furloughs and part-time hours. Recruiting more volunteers has been a focus for some, such as Long Island Cares Inc.-The Harry Chapin Food Bank of Hauppauge, which saw an increase in its volunteer base after dedicating a full staff position to coordinate volunteers, said Robin Amato, director of development and communications.

But existing staff can only do so much. "The notion that nonprofits are doing more with less is antiquated," O'Shea said. "The fact is, we're doing less with less."