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Endowment Fundraising – Weighing the Options
Endowment Fundraising – Weighing the Options
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Perhaps the most confusing terms in the fund raising universe is “endowment.”  It seems there are as many perceptions and definitions for the word as there are people talking about it.  How do you personally define endowment, the nature of an endowment gift, or an endowment campaign?
I recently led a session on endowments at the South Carolina and North Carolina Planned Giving Council Conference at the Kanuga Conference Center in Hendersonville, NC.  The discussion focused on helping to clarify some of the issues around the meaning of endowment, and addressed questions including:
  • Is an endowment like a foundation?
  • If you have an endowment, are you required to give away money?
  • If an organization receives an endowment gift, they can’t spend it…right?
  • Doesn’t an endowment function like a mortgage?
  • With an endowment, does that mean the money is all in bonds?
  • Can’t the board spend an endowment if they want to anyway?
  • Does endowment money all have to be one place?
  • Does an organization have one big endowment fund or can there be several smaller ones?

 

There are also a number of confusing myths attached to endowments.   Advancement officers must be prepared to address common misconceptions about endowments as part of internal conversations as well as with donors and stakeholders.  Consider the following:
Myth:  Organizations with endowments are too “rich.”
Reality:  The endowment “protects” the effectiveness of current and future gifts.
Myth:  Restricted endowments are difficult to manage.
Reality:  Restricted gifts are a fact of life so you need the system to be able to manage them.  Work with donors to liberalize the use of funds.
Myth:  By asking for endowment gifts, you are “robbing Peter to pay Paul.”
Reality: Annual gifts, campaign gifts, and endowment gifts each have different purposes and cases for support.  Be sure you can provide arguments for the importance of each to your organization, and have separate written case statements to support you discussion.
Myth:  Endowment improves financial stability.
Reality: Endowment funds bolster your balance sheet but may have little positive effect on the P&L statement.  Endowment revenue can be substantial but budget realistically in anticipation of this earnings income.
Myth:  Endowment management is a burden and requires special staffing.
Reality: This is a “problem” you want to have. Use your finance committee and investment advisors to manage the funds along with your reserve funds.
Myth:  Endowment funds are used as part of loan covenants.
Reality:  Banks may not be able to access these funds in the event of a default; as a result, restricted endowments do not assist in financing.  Board directed endowments, however, can and often are used as collateral for loans.
So, how do you know if your organization is ready to consider an earnest and dedicated endowment campaign?  For starters, here are six characteristics common to organizations well suited for this type of fund raising.  If your NPO reflects the majority of these elements, the time may be right to start the conversation with your leadership.
  1. Your organization has been in operation 10+ years.
  2. Your mission and need for your services are enduring.
  3. Your annual income is relatively stable over time, rather than being cyclical or at risk during certain periods.
  4. While your organization faces increasing operating costs, you are prepared to address them.
  5. Your organization is not dependent upon government or private grants for its viability.
  6. Your donor base is stable and growing and is supported by a strong advancement operation.
In general, devoting advancement office time and resources to raising endowment funds – the kind where only the earnings are spent based on donor directed priorities – should be carefully considered. 
Your takes:
  1. Be sure you accurately understand the nature of an endowment gift and an endowment fund as they relate to your organization as well as your prospects and donors. 
  2. Be prepared to address head on the many myths about endowments.
  3. Think long and hard about undertaking an endowment fund raising initiative.
For more information about Copley Raff and its spectrum of not for profit consulting services, please see www.copleyraff.com.
 
Have a development, executive recruitment, or campaign strategy or management challenge?  Let’s talk!  Click here to connect with Rebekah Kaufman, Director of Consulting Services at CRI.

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