State and federal government budget cycles, and shifting political priorities, create an inherently unstable financial environment for many charities and not-for-profits (NFPs). Effective programs require long-term planning and sustained funding but there is no guarantee that funds will be available from one year to the next. Short-term funding cycles also impede efforts to implement and measure the impact of long-term interventions.

The combination of austerity budgets, a housing crisis, cost of living pressures and growing demand for services has left many NFPs in a precarious situation. Of the 19,000 charities who relied on government funding in 2021 (data source: ACNC), 45% rely on government funding for more than half of their total income. 14% are reliant on government grants for more than 90% of their total income.

Many not-for-profits exist in perpetual uncertainty, with critical programs funded until the end of June and no clarity whether those contracts will be renewed. Some NFPs have the flexibility to get creative, finding ways to move money around and keep staff employed until continuity of funding is confirmed. But smaller charities with limited reserves face a cash flow crisis; forcing lay-offs and scaling back of services.

Recent changes to employment law has exacerbated this problem; shifting many NFP program staff from fixed-term to continual contracts. This is a good thing: contracts linked to funding cycles are intensely disliked by both employer and employee (and particularly brutal for the latter). But not only do government grants underpay overhead costs (aka stealing from NFPs), the organisation is left to absorb redundancy costs if staff cannot be redeployed.

Last year, a small Victorian youth counselling charity learned it had lost its funding contract as the Victorian Government’s post-Covid austerity budget kicked in. Its ACNC registration is now voluntarily revoked and the doors are – sadly – closed. 909 (mostly small) ACNC-registered charities voluntarily ceased operations in 2021.

So if governments really value the NFP sector it needs to do much better:

• a budget in May doesn’t cut it
• commit to longer funding cycles
• stop the box-ticking paper warfare
• give at least 6 months notice if funding contracts will not be renewed
• pay a fair share of overhead costs

And if Charities Minister Andrew Leigh is listening, why not support small charities with the capacity capital needed to develop strategic plans, diversify funding, recruit volunteers, collaborate, report impact and improve charity governance. The return on investment will be enormous: a more flexible, impactful, scaleable and resilient NFP sector that can better service a community that is frankly on the ropes.

I’d love to hear your experiences in managing the challenges of short term grants.