NFPs in Australia and New Zealand are facing mounting challenges, from government funding cuts and a difficult fundraising environment to staff retention problems and more onerous governance requirements. The problem may be particularly acute in New Zealand, which has about 28,000 registered charities – one of the highest charity-to-population ratios in the world, at roughly one charity for every 180-190 people.

Some NFPs are reconsidering their future: whether they should merge with another NFP to better deliver on their mission, restructure their services or even cease operations altogether.

Financial pressure and governance

Financial pressures include unstable or short-term funding. For example, in Australia recent government price caps to the National Disability Insurance Scheme (NDIS) may mean NFPs are no longer able to offer the services because the caps are too low to cover costs.

While financial pressures are the most obvious reason for an NFP to rethink its structure, Adelaide-based Damian Papps FCA, executive director at See Differently with the Royal Society for the Blind, says workplace and governance issues can also play a role.

He explains that the charities sector employs a lot of people who are deeply committed to their organisation’s mission, which can make them prone to burnout. It’s also becoming more difficult to find directors: increased personal liability that comes with all directorships, including NFP volunteer boards, can be a deterrent to potential directors. There are also increased reporting and compliance obligations attached to federal government programs.

A common cause

Finally, some NFPs see that they’re duplicating services in a crowded market, prompting them to consider whether merging could help them deliver their services more effectively. For NFPs considering merging with another, the most important factor is alignment of mission, so that economies of scale can be best achieved.

“If you're constrained by capital and other resources including skilled personnel, then it makes sense that you might look to advance the mission through a merger, because at the end of the day, you know everybody in the mission-based NFP environment wants to achieve an outcome for clients,” Papps says.

Vanessa Rowe CA, national not-for-profit sector lead at BDO New Zealand, says increased governance requirements introduced under the updated Incorporated Societies Act 2022, may have prompted smaller NFPs in New Zealand to reconsider their future ahead of the April 2026 deadline for complying with the changes. Ongoing financial pressures may also continue to contribute to those decisions.

But while some organisations may look to merge, she says this will only be appropriate where there is strong alignment of purpose and community need.

“A lot of it’s going to come back to purpose and what the organisation exists to do, and whether there is a similar organisation in the community with a similar purpose that they could sensibly merge with,” she says.

“We wouldn’t generally recommend a merger where the only driver is financial distress because all you’re doing is passing on the problem to another organisation.”

Don’t wait for a financial crisis

Natasha McDowall CA from Tael Solutions has helped many NFP clients consider whether they would be better off continuing as they are, or closing or merging. Many of these conversations are reactive, she says. Boards don’t consider their organisation’s future structure until they are presented with a set of accounts that tells them they have only a few months’ worth of funds.

“We try to get them thinking about this stuff a bit earlier,” she says, explaining that her team advises boards to receive management accounts, rather than just annual accounts. This gives them time to raise additional funding or cut services before they face deep financial difficulties.

Sometimes, the solution is to reduce the number of people the organisation supports to bring its services in line with available funding.

Meanwhile, organisations that are performing well and have a clear understanding of their financial position are often looking ahead, considering whether a different structure could better help them fulfil their mission. McDowall says they might ask themselves: “Should we be looking at other organisations within our area that are trying to deliver the same services, but not doing as well?”

Sometimes, she says, funders are driving these conversations, telling an NFP that it’s delivering more than a similar organisation and should consider taking it over.

The case for greater scale

Alongside the financial benefits, merging can also deliver strategic advantages. In the competitive fundraising market, a larger organisation is able to offer a stronger, more unique proposition and potentially win a larger share of donations.

“In a lot of cases you are relying on discretionary income and discretionary support, which is really where you’ve got to have something that moves people to decide that you are the organisation of choice,” says Papps.

Organisations with scale also have a better chance of attracting the attention of government and major donors, and tend to have better bargaining power, which can help them lock in multi-year funding, boosting their certainty to execute their mission.

“It’s pretty hard to attract the attention of Bunnings, so size and your capacity do matter,” Papps says.

There are also operational benefits, such as reducing duplication in back-office functions including human resources and finance. Additionally, larger organisations can offer more attractive career pathways to staff.

What happens when merging isn’t the answer

Scale, however, isn’t a solution in itself. A merger needs to strengthen an organisation’s ability to deliver its purpose, rather than simply make it bigger.

For boards, that means considering the organisation’s financial position alongside its mission, services, people, governance and future funding prospects. It also means having difficult conversations early, before financial pressures leave the board with limited choices.

For some NFPs, the right answer may be a merger or partnership. For others, it may be restructuring, reducing its footprint or, ultimately, an orderly wind-up.

Whatever the decision, early planning gives boards more options and a better chance of ensuring the organisation’s resources can continue to support the communities it exists to serve.