It is a common misconception that endowments are just for large nonprofits such as universities and hospitals. But endowment funds can be started for nonprofits of any size. With an endowment, facing the ups and downs of the economy and fundraising becomes easier. And there’s no time like right now to get started. Why? Because donors care more than ever about helping their favorite organizations and causes to become sustainable well into the future.
What is an Endowment?
An endowment is a fund that is restricted. Only the interest from the fund can be spent, not the principal that anchors the endowment. Usually, only a portion of the interest or earnings from the endowment (typically five percent) can be spent annually to make sure that the original funds grow over time. Professional money managers often oversee endowment funds, investing the money in stocks, bonds, and other investments.
Leaving Your Legacy
An endowment stands as a lasting reminder to your children and succeeding generations of the values and charitable works that are most important to you
Research Financial Strategies leverages decades of experience managing investments for a wide range of institutions to help our endowment and foundation clients
The Advantages of an Endowment
Small and new nonprofits often only think about the current fiscal year or the next payroll. It is important to for them to get out of that financial trap as soon as possible. An endowment helps diversify the organization’s income and reduces their vulnerability to every economic crisis.
The Disadvantages of an Endowment
You might be criticized for having an endowment or for having an endowment that seems too large. Some renowned universities have come under attack for growing huge endowments while claiming not to have funds for other uses.
Small nonprofits may be criticized for not spending every dime on current needs. Even funders such as foundations might slight an organization that already has plenty of money. However, donors usually think well of organizations that show the ability to stash away money for the future.
How to Get Started With an Endowment
First, reflect on how much you want to have in your endowment ultimately. You might look at the amount of money needed to fund your organization annually. You know that some of that money comes through your regular fundraising efforts and some through fees from your clients.
How much do you want to come from your endowment? One expert recommends that you have at least three times your annual operating budget as a minimum endowment.
Raising the Money for Your Endowment
Explain to potential donors why you are setting up an endowment. How do you plan to use the fund and its earnings? Answer any questions in all of you fundraising materials for the endowment, provide them on your website and include them in the content you supply to your volunteers (such as board members) who will “sell” the endowment to prospective donors.
Find out if other organizations similar to yours in your community have endowments and how they use them. These facts will be helpful to show that what you are doing is not unusual, much less illegal. Explain your endowment building as good stewardship ensuring that your organization continues doing good in your community for many years to come.
Endowment donors want to leave a legacy and provide for the long-term future of your organization. Set up a planned-giving program to keep up your endowment fundraising. Market it through different materials, seminars, events, and a legacy society.
Build a persuasive case for your endowment. Why should your donors make a long-term investment in your organization? How will their gift change lives, even save lives well into the future? Explain how your organization will be a good steward of your donors’ gifts. Provide lots of ways for people to make their donations and explain how you plan to recognize them or what benefits they will receive.
Why You Should Get Started Now
Just like any savings program, starting early works. Even in less than ideal economic situations, you start working on building an endowment. It is not a task or goal that you can achieve overnight. Begin now so that you can create much more stable financial position years down the road.