Five Steps to Building a Successful Endowment Fund for Your Organization

Before the coronavirus seriously impacted the whole world, some nonprofits never thought about building an endowment. But this pandemic forced all expenses to rise. But even without this global problem we’re experiencing now, the changes brought by many factors can hit our economy, decreasing annual fund donations.

During this challenging time, nonprofit institutions need other potential sources of income, besides annual fund campaigns, to fund key programs, daily operations, and pay employees. And an endowment is a perfect way to overcome these issues.

What Is Endowment?

It is the act of donating money or property by donors to a nonprofit organization that utilizes the income of this fund when invested for particular purposes. The goal of an endowment is usually to maintain the principal money intact while using the investment income for charitable activities or programs that align with the donors’ wishes.

Consultants play a vital role in raising a nonprofit’s endowment. They assist trustees and key decision-makers in developing a review of their portfolio’s investment policy, guidelines, and objectives. Also, they provide expert planning services, like the pre capital campaign planning by Alexander Haas, to ensure nonprofits have successful fundraising.

When looking for consultants, ensure that they have diverse experience, fiduciary, and customized techniques.

How to Start and Grow an Endowment Fund

Develop Policies and Guidelines While Involving Your Donors

Before you solicit contributions for your endowment fund, you must have clear policies and guidelines, contracts with the donor, and acceptance procedures. These should also include the investing and spending policies of the endowment fund. In short, how will you manage and invest it?

Keep in mind that organizing everything necessary before approaching potential contributors will make them believe you are reliable. Though they don’t usually interfere with how the money must be invested, ensure to ask for their recommendations. If they have specific instructions on putting the money, it’s important to honor their requests.

If creating an endowment plan becomes too difficult for your nonprofit, consider getting professional services. Click here for more information.

Set a Clear Goal of Your Endowment

Generally, donors are motivated to give because they are passionately interested in your mission. Make sure to have a clear and relevant goal for your endowment and discuss to your prospective contributors why it matters. They need to know why it’s important and that your organization can make a difference.

Budget Appropriately

Implement organizational business strategies with responsible financial planning and management. Another reason why contributors provide is because of your credibility and goodwill. For example, match your expenditures to your expected realistic profit.

Moreover, your organizational income is more than just money that is directly spent on your operational expenses. You need to consider non-monetary contributions that help reduce costs, such as professional services, special skills, and supplies or properties. Meaning, raise an income before establishing expenses because your efforts will become useless if you raise funds to cover money already spent. 

Have a Reserved Cash

Whether it’s donated or not, reserve a portion of your income and account for them properly. This fund should be restricted and is only accessible for emergencies or specific reasons. And if you have an excess fund, put it directly right into your reserve. This tells your potential donors that your organization has an endowment of any kind and also encourages more donations or donors.

Look for Experienced Investment Managers

Look for registered and reputable investment advisors who can give your company suitable investment guidance. Select experts that always act in your best interests. Be wise in choosing fund managers because they are the ones who make most investment management decisions.

Though market forces influence your investment’s outcomes, an investment advisor’s abilities are also a contributing factor. Pick an active or alpha manager that can lead your fund to beat your competitors and their benchmark indexes.

Make a Fundraising Project

Raise extra income from fundraising programs. This is one way to increase your organizational profit along with the revenues of your endowment’s investment earnings. Even if your nonprofit is small, this is a desirable goal.