Nonprofit Bankruptcies – Bridging the Gap or Delaying the Inevitable? – Brian C

We recently discussed the bankruptcy of the San Antonio Symphony in class. This was a case study from The Electronic Hallway titled The Bankruptcy of the San Antonio Symphony: Background and Financial Statements (2005). We built the discussion around mission sustainability. It begs the question, should a nonprofit enter bankruptcy, or does it mean its mission cannot be sustained if bankruptcy is the only option? All individuals who have a vested interest in an organization seek its survival. If an organization has been brought to the brink of bankruptcy, does this mean that the mission the organization originally set out to accomplish is no longer sustainable? Nonprofits are certainly having trouble in the current economy. Governments at every level are reducing funding and private donors have reduced their contributions as well. Everyone is tightening their belts. This has put nonprofits in a tough spot. Many nonprofits provide some sort of social or human service. Because of the recession, there is an increased demand for these services just as funding is drying up. Many nonprofits have debts for facility upgrades or program expansions that must be paid for with these same dwindling funds. Bankruptcy is an option, but bankruptcies can be lengthy and expensive. David Greco definitely doesn’t believe that bankruptcy is an acceptable option. He believes that the communities must find ways to keep nonprofits solvent for the benefit of society (Greco). Mr. Greco’s position is admirable, but there is only so much a community can do to replace funding that has been reduced by government or private donors. Donors that still might give do not want to give to an organization that is faltering. There is a sense their gift will be made in vain or will not be spent on the intended purpose.

There are consequences to bankruptcy as well. It may seem like an easy option to ease the burden of the obligations that are weighing the nonprofit down. However, declaring bankruptcy will not, in my opinion, make donors open up their pocketbooks. A bankruptcy filing will not ease their minds that the nonprofit is on solid footing. The same funding problems will still exist, and the damage to its image has been done. The image of a nonprofit is extremely important to the community, and bankruptcy has a very negative connotation in the eyes of the public. The usual assumption is that the organization was not managed effectively. This may not be the case, but perception is a powerful tool. A nonprofit may not be able to overcome the stigma of a bankruptcy. This begs the question then, if a nonprofit must declare bankruptcy, should it simply dissolve instead. This will save the costs involved in bankruptcy, and those funds could be given to another nonprofit to help the community. The nonprofit should also reassess its mission. Maybe there is not enough demand for its mission anymore. Therefore, donations are being reduced, and the community does not feel as engaged to offer support. A bankruptcy may help a nonprofit continue to operate. But if that bankruptcy stains its image to the point where it cannot be effective, then maybe the best option is to dissolve to ensure the funds remaining are put to the best use and not spent on a bankruptcy process that only delays the inevitable.

References

The Bankruptcy of the San Antonio Symphony: Background and Financial Statements.

(2005). The Electronic Hallway.

Greco, D. (2011). Bankruptcy Isn’t a Solution to Nonprofit World’s Woes. The Chronicle

of Philanthropy. Retrieved June 11, 2011, from http://www.philanthropy.com/blogs/money-and-mission/bankruptcy-isnt-a-solution-to-nonprofit-worlds-woes/27777.html