Do you ever wonder whether ‘googling it’ will get to a useful answer? Sometimes it is helpful… but not always. Sometimes there are gaps, urban myths and assumed knowledge.
Where to start?
A search for “charity closure” brings up a good range of advice on the steps and actions needed to wind-up and close operations – but there’s nothing about considering the alternatives or even challenging whether that’s the right course of action. The search response assumes quite a lot of thinking has gone on in the background before that particular search was run.
Sometimes closure is unavoidable, but frequently there are opportunities to take another look and find a solution that allows some or all of the activity to continue. This is particularly where your stakeholders would say that the service has really helped people who needed it, regardless of whether it made a profit. Equally, there are times when we find that clients are updating their strategy such that activities they’ve been doing for a while are no longer a top priority and they want to focus energy elsewhere (perhaps closing an activity to do so)
The value that you may not be able to access
Closing an activity (or even the organisation) may be a sensible option, but would others see value and want to acquire and use what you are seeking to close? What about the assets, such as know-how and other intellectual property? Could they be used sustainably to deliver social good elsewhere?
For instance:
- It could be that they have an aligned business activity that is core to their strategy and would benefit from additional scale, or that your activity would sit well alongside theirs as a new income stream.
- It could be that investment and expertise is needed to grow the business and your priorities lie elsewhere… but someone else might be able and keen to deliver that.
- There could be organisations seeking to move into the market as new entrants as you’re planning to leave it. If you don’t offer them the option, neither they, nor you will know that there could have been a different outcome than closure.
Stewarding Loss
I found some thought-provoking observations in Stewarding Loss[1] around planning for endings as the final stage of transformation. They encourage thinking about how to manage a closure process to meet all those involved, including recognising the emotional significance of an ending alongside the ‘business decision’.
A decision to close needs to be carefully thought through and intentional rather than a knee-jerk response to a crisis. Sometimes that may mean assessing how to prioritise resource to bring some things to a close to allow others to flourish. Certainly it means allowing time for a positive and dignified ending, and that, in turn, opens the subject of how charities set their reserves policies (for which there isn’t space on this blog entry!).
Taking the time to stand back and think creatively about a range of options and to evaluate them for financial and social value to your charity and its beneficiaries is always a helpful first step at any time of strategic change. This thought process lines up with the duty of charity trustees to protect the value of their assets. Businesses or other activities (even loss-making ones) may have better prospects, and value, under someone else’s ownership. Accessing that value through a sale or merger of the operation is, arguably, better than bearing the unavoidable costs of closure and losing a chance to allow your activity to flourish (and achieve positive social impact) elsewhere.
Considering options and a range of alternatives
At Sonnet, we regularly help charities that are considering their options for the future of trading operations to think about a range of alternatives. This can include sale of business units to other charities, sale to corporates, joint ventures, and raising finance to invest to grow what they are already doing in a sustainable way. We also help charities that are seeking to grow to evaluate their options for achieving that, whether it is through investing in opening a new business or investing to acquire an existing one (and sometimes raising finance to accomplish that).
In my last blog, I mentioned the example of Tech Nation and how we helped to structure a transaction that balanced financial and public interest value. Before reaching the point of structuring the transaction, we helped them to assess the options that they might consider for the future of the business. We also helped them to evaluate these before picking the preferred option to seek to transfer the organisation to a new owner.
Matt Brigden, Planning and Strategy Director of Tech Nation observed:
“[Sonnet] supported us to design and implement a robust process, enabling us to effectively and efficiently assess our options and reach a recommendation for Board approval. Their deep commercial, financial and legal expertise meant we were able to effectively manage all our internal, external and public sector stakeholders, throughout the process enabling us to move at speed to meet our critical deadlines. They were fundamentally instrumental in helping the Management Team and Board achieve the best possible outcome for Tech Nation.”
If you are thinking about growing your organisation in new or existing activities, moving away from an existing activity or considering a merger, do get in touch to talk through the range of options that you might have. You might also want to consider the following questions:
- What implicit/unstated assumptions have you made about the future of this organisation/activity (e.g. it is loss-making for us, so we assume it will be the same for others)?
- Is there anyone else (or ideally several organisations) who does something similar that might be interested and able to re-configure the activity to make it work for them?
- What plans have you made, and have you planned for the work streams involved, to manage the change ahead of closure?
If you’ve answered these three questions and would like to talk through your responses to get an independent perspective, do get in touch with us.
Chris Theobald, Director
[1] Stewarding Loss is a Field-building organisation, hosting a range of initiatives that are building the capacity of civil society to do endings
