Not-for-profit (NFP) organisations in Australia and New Zealand are carefully managing their resources as high inflation pushes up the cost of carrying out their missions and impacts donor income.

More individuals and families are seeking support from these organisations, while at the same time inflation has significantly increased the cost of operating and delivering their services.

Errol Burn CA, managing director of Lynch & Associates and a member of CA ANZ’s Auckland For-Purpose Special Interest Group, says donations from individuals are holding up, particularly where the charity or organisation is communicating well with its donors.

However, he says “decreases and tightening in the level of corporate donations and sponsorships have been observed.”

Organisations that do not have a considered or consistent strategy for raising funds and donations are more likely to be experiencing a downturn in funding, says Burn.

Additionally, organisations that are heavily reliant on government funding in many cases are struggling with a higher level of uncertainty, as well as funding contracts being reduced or not being renewed at all.

“The tightened funding environment is also creating greater competition for funding between entities within the sector,” Burn says.

“There has been an increased reliance on volunteers and increased level of fundraising activities across NFPs, and some NFPs are seeking increased support from members such as increased membership fees or members contributing to fundraising events.”

New funding opportunities

In the current climate, Burn says NFP chief financial officers are placing greater emphasis on prudent balance sheet management and strengthening capital base through investment strategies. They also have a keen focus on the level of maintainable reserves as cash is being drawn down over an extended period.

Meanwhile, accountants and finance teams are providing input into expense management, cost control reviews, budgeting, scenario planning and in-depth reporting, particularly where organisations have multiple operational units or divisions, Burn says.

He suggests that NFPs contending with higher costs and lower donations explore new and additional funding opportunities, and notes there is a wide variety of funding sources available to the charity space.

Burn adds that NFPs should develop strategies and actions to grow their capital base to build resilience over the medium to long term and anticipate further funding shocks in future years. In particular, they should try to reduce their reliance on government funding.

“Build strong personal connections and relationships with funders – ensure they really understand your purpose and impact and enjoy working with you,” Burn says.

“Be very clear on your organisation’s unique value proposition, the results it is delivering and the need in your area of activity.”

A snapshot of giving: Australia and New Zealand

In Australia, data from the Australian Charities and Not-for-profits Commission (ACNC) shows cost-of-living issues negatively impacted charities in 2022–2023, with increases in expenses and liabilities outpacing increases in revenue and assets.

The ACNC’s latest Australian Charities Report states that total revenue in the sector increased by A$11 billion to a record high of just over A$200 billion, but expenses increased by A$22 billion in the same period.

Donations and bequests grew by 4.4% in 2022. This was lower than the 5.3% increase in donations reported the year before. Likewise, government funds, including grants, increased by 5.6%, compared to 9.5% in 2021.

Meanwhile, research from Philanthropy New Zealand (PNZ) / Tōpūtanga Tuku Aroha o Aotearoa in 2023 found more than 80% of philanthropic and grantmaker member organisations expected to maintain the levels of their funding distributions or increase them that financial year. However, almost one-fifth expected funding levels to decrease, largely due to high demand for funding and the financial environment within which they were operating. PNZ found some funders had reduced the number of projects they supported or shifted focus to funding core costs for existing organisations, limiting support for new initiatives. Even those maintaining funding levels reported receiving more applications than they could fund.

On a more positive note, data published by Inland Revenue shows that charitable giving by individuals in New Zealand has grown by more than 29% in the past decade. In the 2023 tax year, the IRD reported NZ$949 million in donations for which donation tax credits were paid.