Tuesday, April 12, 2011

Unlucky 13 Merger Red Flags from the Nonprofit Times

The popularity, or maybe necessity, of mergers in the nonprofit sector has been viewed from many angles. Some have worked well, others not so, and any can bring an array of benefits and drawbacks. In his book "Nonprofit Mergers & Alliances," Thomas A. McLaughlin, a management consultant and long-time contributing editor to The NonProfit Times, offers advice about mergers, including financial red flags.

Some of those red flags are:
1. Balloon loan payments coming due. This is not necessarily a deal-breaker. McLaughlin offers two questions - 1. Are you aware that you will owe an unusually large debt payment in the future?; and, 2. Do you have a plan for paying it back? If you can answer yes to both questions, it is possible to move ahead.
2. General records disarray.
3. Indispensible staff. If a partner organization seems to work mostly because of one or two people, remember that those people might be lost in a merger.
4. Lapsed insurances.
5. Loss of (pick one): license, accreditation, large donors, large payer.
6. Maxed-out line of credit.
7. Nonfinancial "liabilities." A disgruntled officer, bad media story, for example.
8. Payroll taxes unpaid.
9. Qualified audit opinion.
10. Unacknowledged and serious CEO-staff conflict.
11. Unexamined accounts receivable.
12. Unreported litigation.
13. Low or negative net assets.

Add your comments or red flags. 

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