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Why NFPs need to diversify their income streams

Why NFPs need to diversify their income streams

In February 2022, we surveyed senior professionals at not-for-profit organisations to develop a deep understanding of the sector. In this article, you’ll discover why alternative forms of income are becoming more important for NFPs.

Survey findings at a glance

NFPs expected change in funding sources between 2022-2025:

  • 8% reduction in NFPs expecting Government to be their primary income source by 2025
  • 13% increase in the number of NFPs expecting investment income to be their top three funding sources in 2025
  • 7% increase in NFPs expecting commercial activities will be one of their top three income sources by 2025

Income sustainability

Although donated support from the private and public sector continues to dominate the income sources for NFPs in absolute terms, the expectation is that alternative forms of income will grow in importance.

Becoming financially self-sustainable is the ultimate goal for an NFP. Although this remains elusive for many, the survey points to a gradual improvement in this area.

When asked about NFPs expectations regarding changes in their funding sources between today and 2025 the responses highlight an 8% reduction in the number of NFPs expecting government funding to be their primary income source.

This said, government funding will continue to dominate as an important funding source for some time, with little reduction in the number of organisations rating government funding as one of their top three current funding sources.

The number of NFPs expecting to rely on donations and fundraising as one of their top three income sources remains relatively unchanged between 2022 and 2025.

As we emerge out of the pandemic, this result was somewhat surprising, as many would have expected fundraising to see a substantial jump, as event capacity and social interaction increase following the restrictions of COVID-19.

Some articles providing sector commentary suggest a ‘gradual shift by NFPs to focus on winning more major donors and reducing the effort to chase smaller donors.’

Encouragingly, this reduction in government reliance and stagnation in fundraising is in part due to the implementation of self-funding mechanisms.

There was a 13% increase in the number of NFPs expecting investment income to be one of their top three sources of income by 2025 and a 7% increase in the number of organisations expecting commercial activities to be one of the top three sources of income by 2025.

Although these alternative funding sources are coming off a low base, it shows increased confidence in the ability to develop long term financial sustainability.

What this means for you:

When considering income sustainability:

  • Work with professional advisers to test and model business strategy in developing alternative income streams.
  • If establishing an Investment Reserve, ensure that governance frameworks and resources are put into place to effectively oversee its operation.
  • Ensure sufficient resources are allocated to branding and promotion to assist in attracting public and private funding.

Return to the not-for-profit survey insights hub here.

This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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