Tips and Answers to Your Questions
Financial Issues

Calculating Costs and Savings of a Merger

Sometimes the idea of merging two or more nonprofit organizations may prompt executives to dream of savings and cost reductions for all involved. While mergers can represent significant long-term savings for some, a merger should not be pursued merely for this financial possibility. Instead, you must consider the strategic implications, as well as how the savings, if any, could further enhance the organizations' ability to accomplish their missions while improving their marketplace position.

In our experience nonprofit mergers involve both one-time and recurring costs and savings.

One-time costs stem from both the initial exploration and negotiation process, as well as the implementation of the merger. Some of these one-time costs include:

• Consulting fees (including legal and other specialized services)
• Severance packages (especially for departing executive directors)
• Design and printing costs (new logo, stationery)
• Moving costs
• Systems Integration costs (consultants, hardware, software, training)
• Merger celebrations and related events

Recurring costs include:

• Salary raises (when appropriate; often needed to equalize pay between the two merging organizations)
• Growth-related costs (new programs, new space)

The savings that many merging organizations hope for tend to be the result of economies of scale, and the result of bringing together administrative functions. Some of these savings might include:

• Salary and benefits for one ED position instead of two or more
• One yearly audit instead of two or more
• Rent reduction, if consolidating office space
• Reduced insurance costs (general liability and D & O)
• Reduced administrative costs, if there are efficiencies to be gained by consolidating "back office" functions such bookkeeping, information management, human resource management, copier or phone system rental, etc.

When you sit down to project your one-time and recurring costs and savings, keep in mind the following tips:

• Be prepared to call around and get estimates and quotes for various line items
• Many times you'll have to work with only the best estimates available
• It's OK to do "guess work" and not have hard figures, just be sure to let everyone know that is how this was done
• Whether accurate figures or best guesses, footnote the source of your information
• List the costs and savings you identify in "one-time" and "recurring" columns for comparison purposes