"You should diversify your funding." It's one of those pieces of advice that gets handed to small charity leaders constantly.

Here's what diversified funding actually means, why it matters more than it used to, and a real starting point for figuring out what it could look like for your organisation specifically.

What diversified funding means

Diversified funding means getting your income from different sources, rather than relying on just one. It's not a strategy of chasing every dollar in every direction, it's not ten income streams running at once, each one half built and unsustainable. It's a small number of carefully selected income streams that genuinely fit your organisation — your skills, your resources, and the time you actually have.

It's not putting all your eggs in one basket.

Diversifying your funding reduces risk, increases stability and gives you more flexibility in how you run your organization. If you rely on an annual grant that you usually get, what happens when the eligibility criteria changes and you no longer qualify? Something entirely outside your control. You're left starting from zero.

But diversifying only works if it happens before you need it to. It's too late to start building alternative income streams once trouble actually strikes. Once a grant falls through, there's no time left to test an idea, build a relationship, or establish something new. Diversifying has to be planned ahead, while things are still stable, not scrambled together in a crisis.

Getting your income from different sources creates a strong foundation for your organisation. It leaves you less vulnerable to any single decision made by a funder, a government department, or a shifting set of priorities. It's about balancing immediate funding needs with long-term stability.

Why this matters more than it used to

Grant funding is becoming more competitive. More charities are applying for the same pool of money, and larger organisations with dedicated grant writers are increasingly out competing smaller, volunteer-run charities for the same funds.

At the same time, funding priorities shift. A cause area that's well funded this year can quietly drop down the list next year through no fault of the work itself, just a change in government or philanthropic focus.

If your organisation's income depends entirely on grants, its stability depends on decisions made by other people, in other buildings, for reasons outside your control. Diversified funding doesn't remove that risk. It just means one funding decision doesn't threaten everything at once.

What this looks like in practice

Here's an example of what starting to diversify can actually look like.

Picture a small charity running a community meal program, funded entirely by a state government grant. The grant covers the program as it's always run and nothing about that changes.

Alongside it, the charity starts a small, separate offering: a paid catering service, using the same kitchen and the same staff, cooking for local business events and corporate lunches a few times a month. It's a completely separate activity from the grant funded meal program.

That catering work might bring in $10,000 to $15,000 a year. It's nowhere near what the grant provides, and it doesn't need to be. It just needs to be enough to keep things running if the grant doesn't come through on the next round. That's the  point, not replacing your biggest source of income, just making sure the organisation isn't left with nothing if it disappears.

And if the grant does come through, as it usually will, the catering income is simply extra, on top of what the organization already had. More funds means more flexibility to provide even more services and do even more good.

This same charity could also start reaching out to local businesses to partner with them for goods, services, or straightforward donations. A partnership with a local bakery offering to provide regular bread donations or cupcakes for a one off fundraiser allows funds they do have to be spent elsewhere.

Just having these three income streams running successfully, the grant, the catering, and the local business partnerships, would drastically reduce the risk of relying on any one source.

Finding your own version of this

The mistake most guidance makes is presenting diversified funding as a menu of options: ;corporate partnerships, individual giving, fee-for-service, earned income, without helping you work out which one actually fits your organisation.

Here's a more useful way to think about it. Ask yourself three questions:

What are we already equipped to do? Look at the skills, facilities, and relationships your organisation already has, rather than starting from a blank page. The catering example above works because the charity already had a kitchen and cooking staff and the new income stream used existing capacity, not new investment.

What fits alongside our current workload? Diversifying isn't about adding five new projects that you don't have the skills for or can't find time to maintain. It's usually about redirecting some of the time already spent on lower probability grant applications (the ones you know you probably won't get) towards something that builds more reliable, repeatable income instead.

Can we test it small before committing? Start with the smallest possible version. A handful of paid spots for a workshop, one pitch to a local business, one email sent to gauge interest, before building anything more formal around it. Once you start reaching out you'll find what gets interest and what doesn't.

A grounded starting point, not a strategy overhaul

Diversified funding doesn't mean walking away from grants, and it isn't a sign you're doing something wrong if most of your income currently comes from one source. Grants remain, for good reason, the primary funding source for a lot of small charities, and that's unlikely to change quickly.

What diversifying changes is the fragility, the security of your organization and the ease at which you can operate if you're always operating comfortably.

It doesn't need to start big. One small, well fitting addition is enough to start.

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In the next piece, we'll walk through exactly how to identify and test that first addition for your organization, step by step. Real guidance on how to get this started.

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This is part of our ongoing series on diversified funding for small Australian charities. If you've already started diversifying — successfully or not — we'd love to hear how it's gone.

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