How to Establish a Nonprofit Endowment Fund
Since the beginning of the decade, organizations have learned the importance of having a nonprofit endowment fund. In the early days of COVID-19, many organizations with an established nonprofit endowment were able to maintain operations by drawing upon their endowment funds when fundraising activities to support annual operating expenses were diminished.
Organizations that did not have an endowment before 2020 soon recognized the importance of having available funds beyond reserves to keep operations and programs afloat if something transpires that prevents or restricts fundraising efforts.
According to the National Council of Nonprofits, a nonprofit endowment is described as assets set aside and invested to grow over time with the earned income used to support an organization’s financial stability or designated programs.
For organizations looking to establish a nonprofit endowment fund here are some actions to consider:
How will you provide seed money for your endowment?
Do you have a donor or donors who may be interested in securing your future and could be the first to contribute to an endowment fund? Do you have a capital campaign or special fundraising initiative in which you could include raising funds for your endowment?
What endowment policies will you establish?
Some organizations want to build on their endowment and will often establish a minimum balance before they begin to spend endowment funds. Is an endowment established to support a particular program, staff position or as another revenue source to support general operating expenses? Establishing a purpose for your endowment will help nonprofit leaders determine how the funds are spent and communicate the case for support to donors. It is often helpful to indicate how much of your endowment returns you will spend annually. On average, nonprofits budget 3 – 6% of their endowment balance to support their identified needs.
Who will manage your fund?
Do you have a close relationship with a financial institution that could hold your endowment fund? Some community foundations will also manage local nonprofit endowments and may include tax benefits for donors who contribute, such as the Endow Iowa Tax Credit Program.
Who will oversee endowment activity?
In addition, to which institution will manage your endowment fund, nonprofits may want to consider an internal audience to review investment activities, make investment adjustments and allocate endowment funds to designated needs. Often, nonprofits establish an endowment committee comprised of the nonprofit executive director, finance director, board chair, board treasurer and other volunteers with financial expertise such as investment planners, tax advisors, attorneys, etc.
Want to learn more about securing your organization’s future with a nonprofit endowment? Contact one of our fundraising consultants at AMPERAGE Marketing & Fundraising, 319-268-9151 or email@example.com.