NFPs consider mergers to offset rising financial pressure: report

Managing the increasing demands of external stakeholders such as donors also emerged as a major challenge for NFPs according to a comprehensive survey highlighting key issues in the sector.

The survey conducted by accounting and business consulting group Pitcher Partners, revealed NFPs are struggling to adapt to significant operational pressures while seeking new collaborative approaches to ensure their sustainability.

The Not-for-profit survey: 2025: Collaboration and adaptation are shaping the future report found that such is the financial pressure many NFPs find themselves under, 71 per cent of organisations surveyed admitted they were considering mergers and acquisitions as a potential solution.

Key challenges affecting NFPs identified by the survey included:

• More than half (56 per cent) of NFPs cited concern at increased operating costs, a 24 per cent increase since 2022
  
  
• Concern over changing customer needs increased from 20 per cent in 2022 to 43 per cent
  
  
• More than 41 per cent of organisations surveyed said they were concerned about cyber security and data protection.

The report found the number of NFPs considering merging with or acquiring another organisation has jumped from 15 per cent in 2022 to 71 per cent this year.

“This trend reflects a proactive approach to consolidating resources, eliminating redundant variable costs, and optimising fixed costs to enhance operational efficiency and increase resilience,” according to the report.

The report found mergers and acquisitions could be seen not just as a survival tactic but as a forward-thinking strategy to amplify impact and ensure long-term sustainability.

“By uniting with like-minded organisations, NFPs can navigate economic uncertainties more effectively, streamline operations, and continue to fulfill their missions with greater efficacy.”

The report was not all doom and gloom for the sector.

The number of organisations concerned about attracting and retaining talent fell from 78 per cent in 2022 to 56 per cent in 2025.

Similarly, angst over non-government funding sustainability fell from 48 per cent to 37 per cent.

Competition from other NFPs is also seen as a less pressing concern than three years ago, falling nine per cent from 21 per cent in 2022 to 12 per cent.

The report found that as the sector continued to evolve, organisational resilience and adaptability have become essential qualities for NFPs looking to thrive.

“The most successful organisations are those developing innovative strategies that balance mission fulfillment with operational efficiency, leveraging collaborative opportunities while strengthening their capacity to respond to an increasingly complex operating environment.”

The study also revealed that the financial pressure on many NFPs had led to a significant shift towards consolidating services, with almost 40 per cent of organisations becoming more targeted in their approach.

The result was a marked departure from the 2022 survey, which showed NFPs were more open to expanding their operations.

More than a quarter (27 per cent) of NFPs said they were considering outsourcing elements of operations to save costs, “a notable increase” from 18 per cent in 2022.

“This strategy is seen as a viable way to manage costs without compromising on service delivery while making an organisation more responsive to its operating environment by being able to dial capacity up or down more rapidly.”

A cautious approach to artificial intelligence

The report found that while generative AI technologies have made significant inroads across industries, the NFP sector was approaching the digital revolution in a measured way.

While recognising AI’s potential to improve operations and engagement with external stakeholders, adoption of the new technology remained cautious but deliberate, with clear recognition of both benefits and challenges.

“This cautious optimism mirrors the sector’s approach to other digital innovations – focused on practical applications that directly support mission fulfillment rather than technology adoption for its own sake.”

However, issues such as data accuracy and data protection and privacy were seen as significant concerns for NFPs.

“These priorities underscore the uniquely sensitive position of NFPs, where trust is a fundamental currency and where organisational reputation can directly impact funding and community support,” the report found.

“For a sector often working with vulnerable populations and sensitive information, these concerns represent significant barriers to wider AI adoption.”

Pitcher Partners principal Madhavi Perera said it was clear from the survey that the sector was facing sustained financial pressure.

“Rising operational costs – particularly non–staff related – are now the most commonly cited challenge, with 56 per cent of organisations identifying it as a top concern (up from 32 per cent in 2022),” she said.

“This signals a clear shift in the cost landscape and highlights the growing strain on NFPs to maintain service delivery under tighter budgets.”

Perera said the increased interest in mergers and acquisitions was a significant trend that reflected a broader shift toward structural consolidation.

“This isn’t just about growth; it’s about long-term sustainability and resilience in a challenging funding environment.”