Where would Australians be without our 300,000-odd not-for-profit (NFP) organisations? As the NFP sector faces rocky times, it’s a question we need to tackle.
NFPs are the beating heart of Australian civil society, supporting and connecting our most vulnerable individuals. Whether enjoying a hit of cricket at your local sporting club or engaging in disability support programs, NFPs shape our communities and help provide equitable access to social and health services. But the sector is struggling to keep up with shape-shifting funding models, forcing the closure of some of the country’s biggest operators.
According to new research by Australian Communities Foundation, only one in four Australian NFPs feel financially stable, meaning 75 per cent are without adequate capital reserves for long-term survival. This insecurity is affecting even the most-established organisations, with some parts of the sector feeling it worse than others.
Take disability services, for example. Ability Roundtable, Australia’s peak body for disability service organisations, recently found that NFP providers had sustained a median operating loss of about 12 per cent over the last five years – a trajectory that is categorically unsustainable.
So, how did we end up here? As the CEO of Australian Multicultural Community Services (AMCS), an NFP that has been supporting multicultural Australians for over 40 years now, I’ve seen firsthand how shifts in funding models can affect long-term stability and planning. And for the sector to survive (and thrive), a new approach is urgently needed.
Times (and funding models) are changing
One of the biggest drivers of instability in the NFP sector is the shift in funding models, and the uncertainty isn’t going away.
The last few decades have seen a sharp shift away from the traditional “block funding” model, where government grants covered services for a set period. In areas like aged care and disability, this has largely been replaced by a consumer-pays model, such as the NDIS. Here, funding goes to the client, who chooses the provider, and the provider claims payment after delivering services.
While this approach empowers individuals and increases accountability, it has created major challenges for NFPs. Instead of guaranteed income, organisations often face delays and cash flow issues. Larger providers can absorb this risk, but smaller NFPs often struggle without financial reserves.
Meanwhile, the block funding that does still exist generally has much shorter time frames and tight overhead margins. In fact, The NFP Resilience Report found that 60 per cent of NFPs in Australia continue to rely primarily on short-term grants or philanthropy, which is equally unsustainable.
How do we ensure the future of Australia’s NFP sector?
NFPs simply must be more creative and strategic when it comes to funding. For AMCS, this meant investing with the Australian Communities Foundation’s NFP Future Fund – an endowment fund designed specifically for NFPs – to achieve an above average return and, importantly, to ensure that our investments were driving positive environmental and social outcomes to accurately reflect our values and ESG commitments.
By holding our reserves in a Future Fund, we’ve been able to continually increase our savings and raise capital for a $7 million redevelopment project – Millennium House, a vibrant hub for multicultural services and events in Melbourne that honours and preserves its rich Polish roots.
In 2025, 80 per cent of our funding at AMCS comes from Commonwealth aged care funding, and the other 20 per cent is made up of grants and philanthropy. But, as is the case for any NFP, this is an ever-changing landscape. I’m often surprised by how few NFPs are even aware of endowment models like the Future Fund, and the opportunity that such a pathway can provide towards the sector becoming more resilient and financially independent. For AMCS, it has assured a rare degree of certainty, allowing us to forward plan with clarity and invest in the future.
As Australia’s population ages and grows, we face a future in which there are competing needs and priorities, with less money and resources to go around. Communities are relying on the NFP sector to successfully navigate this uncertainty. And this will require a shift away from the status quo.
The hope is that, with new financial tools and more creative approaches to funding, our sector can emerge from survival mode and continue to deliver impact for generations to come.