For many not-for-profit organisations, one challenge continues to come up in our conversations: funding simply isn’t keeping pace with the cost of delivering services.
In many cases, external or government funding increases are falling below increases in award rates and other employment costs.
For organisations where employees represent the majority of expenditure, even a relatively small difference between funding growth and wage growth can create a significant financial gap.
And it compounds.
An organisation might receive a modest increase in funding, but at the same time face higher award rates, superannuation, insurance, technology, rent and supplier costs. The result is that maintaining the same level of service can cost considerably more – without the revenue increasing to match.
This is particularly difficult for organisations operating in funded environments where there is limited ability to simply increase prices.
We are also hearing about other pressures, including uncertainty around the NDIS and participant plans, changes in government policy, the additional cost of delivering services across large geographic areas, and increasing complexity as organisations grow.
So, what can NFPs do?
Revenue: reduce reliance on a single funding source
Diversifying revenue is becoming increasingly important.
Depending on the organisation, this could include:
- Developing a more structured fundraising strategy
- Building corporate partnerships and sponsorships
- Exploring social enterprise or fee-for-service opportunities
- Reviewing grants and other funding opportunities
- Making sure surplus cash is being appropriately managed and invested rather than unnecessarily sitting idle
The goal isn’t necessarily to replace government funding, but to reduce the organisation’s exposure when one funding stream fails to keep pace with costs.
Expenses: look closely at how the organisation operates
Cost reduction doesn’t have to mean cutting services.
There can be opportunities to review organisational structures and determine whether resources are being used in the right areas.
Automation and better use of technology can also remove repetitive administrative work and allow employees to spend more time on activities that directly support the organisation’s purpose.
Existing supplier arrangements should also be regularly reviewed. Insurance, software, professional services, banking and other recurring costs can gradually increase without being challenged. Renegotiating existing agreements or testing the market can uncover meaningful savings.
Cash: make existing resources work harder
Strong cash reserves are important, particularly when funding timing can be unpredictable.
But organisations should also understand exactly how much cash they need to retain for operations, upcoming commitments and appropriate reserves.
Where surplus funds genuinely aren’t required in the short term, there may be opportunities to manage or invest those funds more effectively within the organisation’s risk appetite, investment policy and regulatory obligations.
The bigger question
There is no single solution to the funding gap.
For most organisations, it will require a combination of revenue diversification, disciplined cost management, better use of technology and stronger forward financial planning.
The organisations that understand the gap early have more options.
Rather than discovering at year-end that margins have disappeared or reserves have been depleted, forecasting allows boards and leadership teams to see where the pressure is coming from and make decisions while there is still time to act.
For NFP leaders, the question is increasingly becoming:
If our funding doesn’t keep pace with our costs over the next three to five years, what are we doing now to close the gap?
If your organisation is facing funding pressures, rising costs or uncertainty about what the next few years look like financially, our team can help.
Book an initial consult with the Next Dimension Accounting team to discuss your current position, and identify ways we can help to strengthen your organisation’s financial sustainability.
