An endowment is an organization’s key to a more secure financial future. Endowment funds are invested for future needs, but can also provide a steady revenue source today.
There are no firm criteria to determine if your organization is ready to establish and build an endowment. However, it is important to conduct an organizational self-assessment to help you make this decision. Here are the most important considerations.
Creating an endowment begins with staff who are dedicated to building resources for the organization, including the endowment.
Successful endowment building begins with the commitment of the board and staff. They must believe establishing and building an endowment is a priority for the organization. Further, the leadership should be stable, knowledgeable and have the time and talent to participate.
The organization should have a clear mission and a history of gaining and building support for it.
A comprehensive and long-range development plan to generate broad support from the community is a fundamental building block for an endowment.
A balanced operating budget is essential to overall financial health. Organizations that are consistently operating at a deficit should undertake steps to balance the budget prior to planning and raising funds for an endowment. Endowment donors want to know that your organization is meeting current/operating needs.
It is often the donors closest to your organization who will consider a gift to an endowment, whether it is a gift during their lifetime or an estate gift.
Knowing the capacity and inclination of potential and current donors is important for predicting endowment support.
It is important to develop a long-range strategy for how you would use a sustainable resource like an endowment.
Estate plans support endowment-building strategies. As described later in this guide, planned gifts are a common option for building your endowment program.
Building an endowment requires that donors are aware of the fund and the role it serves in helping your organization build for the future.
If your organization is not yet ready to establish and build an endowment, consider which areas need bolstering. Then create a plan to prepare to successfully build for the future needs of your organization and the community you serve.
An organizational endowment, or agency fund, is a fund established by a nonprofit organization to ensure its long-term fiscal health. An endowment can be created with donations and/or assets under the control of the organization’s governing body.
Community First Foundation is the legal owner of the funds. All funds entrusted to the Foundation are subject to the Bylaws of the Foundation. According to the Bylaws, the Board of Directors, as the governing body of the Foundation, controls all funds.
The governing body of the agency may use the income for any purpose. The fund purpose outlines the use of distributions from the fund. Sometimes an organization establishes a fund with a specific purpose, such as building maintenance or continuing education for employees. In such instances the income is restricted to the specified designation and the organization will be required to certify the use of the funds to the Foundation.
Yes. A fund established by an organization that is also the recipient of distributions of that fund must be a permanent endowment. Otherwise, the fund could be considered a vehicle for short-term investments.
Source: The Foundation for Enhancing Communities 6/2005