Some believe that endowments are exclusive to large nonprofit organizations such as universities and hospitals. In reality, nonprofit organizations can create an endowment fund regardless of their size, especially since it serves as a future insurance document capable of addressing economic fluctuations and contributing to fundraising efforts more easily.

Donors seek to help their favorite organizations achieve sustainability in the future. According to experts, older generations tend to pass on resources to younger generations, where it is likely that their resources may reach $10,000 a day upon retirement, equating to $30 trillion over the next thirty to forty years. Therefore, nonprofit organizations should devise a plan that aligns with these data to be part of the endowment campaign.

What is an Endowment?

An endowment refers to limited funds that represent the capital contributing to the continuation of the endowment, therefore, its yield or the amount derived from its investment is utilized instead of being employed or disposed of directly. Generally, about five percent of the interest or profits generated from the endowment is spent annually to ensure that the original funds grow over time, and account managers oversee the endowment funds and invest them in stocks, bonds, and other investments.

What are the Benefits of an Endowment?

  • An endowment helps nonprofit organizations diversify their resources and income, reducing the likelihood of failure during economic crises.
  • The endowment impresses donors as it serves as a testament that your nonprofit manages its financial resources well, thus capable of facing any economic hardship.
  • The endowment represents a gift that can be utilized in the long term, and for this reason, donors prefer to provide this type of donation as it supports the organization's current needs such as operations and funding programs.

What are the Drawbacks of an Endowment?

Some nonprofit organizations may face criticism due to the number or size of the endowments they possess, as some well-known universities have been attacked for trying to increase massive endowments while complaining about the lack of funds for other uses.

In fact, small nonprofit organizations may be criticized for not spending their financial resources to meet daily needs instead of accumulating them to create an endowment. However, donors often prefer those organizations that can save money for future use.

How Can You Start Creating an Endowment for Your Nonprofit Organization?

  1. The organization should consider how much money it wants to invest in the endowment, which can also cover the organization's annual budget. Therefore, this option should be well studied as the funds to be invested are the result of fundraising efforts.
  2. The future income that the endowment will provide needs to be determined; experts say that the potential revenue from the endowment should be at least three times the organization’s annual operating budget as a minimum.
  3. The organization needs to gain the sympathy of many donors in the long term to ensure the size of the endowment, as many endowment donations may result from the endorsement of a donor.
  4. The board of directors should establish rules for the endowment; for example, you will need to name the endowment, restrict its use, and provide guidelines for the amount of interest that can be utilized annually, as well as the exceptional circumstances that may drive the organization to utilize it.
  5. The organization must choose between creating an endowment that belongs to the organization or one that is separate from it according to the laws governing nonprofit practices.
  6. Creating an endowment may not be costly or difficult at the beginning, but the organization will need to obtain some help from community institutions to maintain it.
  7. The organization should work closely with its accountant and lawyer to ensure that the endowment complies with national requirements.

How to Raise Money for the Endowment?

  1. The organization should explain to potential donors the reasons behind establishing the endowment, in addition to the program the organization will follow for using the fund and its profits.
  2. The organization should answer questions related to endowment fundraising sources and publish them on the organization's website and incorporate them into the content provided by the organization's staff who will in turn persuade potential donors to contribute to this endowment.
  3. It should be identified whether other organizations have endowments and how they employ them, as this information can demonstrate that the endowment project at your nonprofit is not a gamble or an unusual or illegal matter.
  4. The benefits of the endowment should be explained, as the assets will be managed to ensure the continuity of your charity organization’s activities.
  5. Always ensure that the organization has sufficient money to support annual expenses before fundraising for the endowment.
  6. Donors should be selected in a way that guarantees covering the cost of the endowment in the long term.
  7. A program should be prepared to identify necessary donations and divide them into installments to be paid on specific dates.
  8. Such a project can be marketed through seminars and other means to convince potential donors of the project.
  9. The organization should provide an explanation of the ways it intends to recognize those who contributed to this endowment.

Source:The Balance

Author: Scott C. Stevenson