Forming an alliance with a like-minded organization can be a smart, strategic move for a not-for-profit organization, but it is important to think things through thoroughly before making the leap. The process begins with examining the organization’s motives and then determining whether a joint venture or a strategic alliance would be more appropriate. Once you have determined reasons for uniting goals, identifying and performing due diligence on the other organization becomes essential.
The motives for joining forces should make good sense. Then, once you and your potential partner or partners have a specific alliance in mind, your accountant should perform a cost analysis to make sure that financial expectations are on track.
A joint venture in the not-for-profit world involves a contractual arrangement with another not-for-profit, for-profit entity or governmental agency. The two entities become engaged in a single enterprise without incorporating or forming a legal partnership. A joint venture is similar to a business partnership, except that the relationship has a single focus and is often temporary.
For example, a few years ago the American Institute of Certified Public Accountants (AICPA) teamed up with the London-based Chartered Institute of Management Accountants (CIMA) to form a joint venture (the Association of International Certified Professional Accountants), to develop and promote a new global management accounting designation. The AICPA owns 60% of the joint venture, and CIMA owns 40%. The board of directors is split evenly between the organizations, with CIMA and AICPA leaders rotating in the role of chair.
Strategic alliance is a term typically used among not-for-profits to represent a wide range of affiliations, including joint ventures. Like a joint venture, a strategic alliance can involve a relationship with another not-for-profit, a for-profit or a governmental entity.
The motivations for forming a strategic alliance can vary greatly. In one instance, a Midwest homeless shelter aligned itself with a community center that offered free classes. By referring its residents to the center, the shelter expanded opportunities for the homeless and the community center now reaches more people in need.
No matter what type of alliance you make, you should look into the other organization’s finances. Ensure that the entity that is pursuing you or the entity you are pursuing has sufficient means. Make sure the organization has a good net asset balance and can live up to its financial commitments. There is no synergy to be had if one of the partners is going to bear the full burden of the arrangement.
Also consider if the other organization’s values align with yours. Make certain the entity has a similar sense of business ethics and strong internal controls. Two working as one requires a great degree of openness and trust between the two organizations. You will be sharing credit and responsibility for initiatives, and because the reputations of both are at stake, the two entities need to be jointly accountable.
Careful planning is essential before teaming up with another organization, as is careful oversight of all activities once the two entities have begun the cooperative effort. Patience and hard work will be necessary. It usually takes a significant amount of time before the new venture can reach its highest level of effectiveness, but the rewards are often significant to both organizations.
If you have more questions about forming an alliance with another not-for-profit organization, please contact Marva Harris at [email protected] or call her at 312.670.7444.