Is my nonprofit ready for an endowment?

A few months ago, I spent a lunch hour with the Nome Rotary club waxing on and on about the power of endowment.

Halfway through the presentation, a local business owner raised his hand and asked,

Why would a nonprofit establish an endowment?

Unfazed, I launched into a detailed explanation of the flexibility of unrestricted funding streams; how creating a “savings account” for your nonprofit provides financial stability and consistency; and, how an endowment comforts your donors because it signals you are planning to address the needs of your community for the long-term.

He was smiling and nodding and I was feeling pretty good because I was able to eloquently explain the power of endowment. In the millennial world, it was a #win!

He then asked,

So, how would a nonprofit know it’s ready to establish an endowment?

Well shoot. How would you know if your nonprofit was ready for an endowment?

It got me thinking. So, I did some research.

According to the Chronicle of Philanthropy, it’s all about your mission.

Chronicle of Philanthropy author Dione Alexander suggests that before heading down the endowment path, your board should tackle the questions:

  • How do you use income to achieve your mission?
  • Is the mission one that could be achieved in the short-term?
  • Do you need flexible, consistent funding to meet your mission?
  • Does your mission need donors?

Scott Stewart at Guidestar takes a more practical approach by asking “How are your cash reserves?”

Stewart offers a five-step approach to addressing the financial fitness of your nonprofit. He then goes on to state that even with ample working-capital, nonprofits with short-term missions or without a strong donor base may not be endowment suitable. He leaves his readers with the question:

  • Is your nonprofit meeting it’s day-to-day operational obligations and does it have enough in working-capital to adequately compensate if a funding stream runs dry?

Stewart also asks: Is your Board on board?

Step 2 in Stewart’s five-step approach focuses on your board. Stewart says an endowment can signal many things to a donor, but it’s your Board that will be championing its purpose.

The Community Foundation of North Florida promotes developing a growth strategy before promoting your endowment.

A great resource, the Community Foundation of North Florida offers several concrete suggestions on how to include fundraising for your endowment in your annual fundraising campaigns, capital campaigns and other activities.

And in Nonprofit Quarterly’s article, “Should Your Nonprofit Build an Endowment,” author Mark Hager asks the hard question:

“Are you really ready for an endowment?”