Every nonprofit wants to create lasting impact. Whether your mission is feeding families, preserving the arts, or improving healthcare, the goal isn’t just to make a difference today; it’s to ensure your organization can continue serving the community for years to come.
An endowment can help make that happen.
At its core, an endowment is a long-term commitment to your organization’s future. But before opening an account or accepting a major gift, it’s important to lay the right foundation.
If you think you may be ready to set up an endowment, here are five things I encourage nonprofit leaders and boards to think through before getting started.
1. Start with a strategy — not just a fund.
One of the biggest misconceptions I run into is that people think nonprofits should open endowments as soon as someone makes a significant gift.
In reality, the most successful endowments begin with a clear vision. The organizations starting them can answer questions like: Why are you creating an endowment? What role will it play in supporting your mission? What does success look like five, 10, or 20 years from now?
An endowment works best when there’s real intention behind it. Organizations that build successful endowments often launch them as a strategic initiative, with board support, fundraising goals, and a plan for mobilizing donors.
If your organization isn’t quite ready, that’s okay. A board-designated fund or quasi-endowment can be a great step in the right direction while you build the momentum and infrastructure needed for a permanent fund.
2. Make sure your organization — and your donors — are ready.
Not every nonprofit is in the right place to establish an endowment, and the age or size of the organization aren’t necessarily the deciding factors.
Instead, I encourage organizations to look at the strength of their donor relationships. Do you have supporters who have faithfully given month after month, year after year? Do you have major donors who believe deeply in your mission? Both groups can play an important role in the success of your endowment.
Longtime supporters are often the people most interested in creating a lasting legacy by writing your organization into an estate plan. At the same time, major donors may have the financial means to help get an endowment off the ground.
It’s also extremely important to consider whether your staff and board have the bandwidth to make an endowment successful. Like any strategic initiative, an endowment requires ongoing communication, donor engagement, and stewardship. Before getting started, ask whether your organization has the time and people to invest in growing it, while continuing to meet current demands.
3. Put proper policies in place.
An endowment carries a different level of responsibility than other organizational assets.
When managing an endowment, you’re serving as a fiduciary over someone else’s dollars. Those funds are entrusted to your organization with the expectation that they will be managed wisely, following fund guidelines and best practices.
That’s why every endowment should have a well-crafted investment policy statement that includes a spending policy before assets are invested. Those documents outline how funds will be managed, how distributions are determined, and who is responsible for making decisions.
Just as important, they provide more seamless transitions as board members and leadership inevitably change over time.
4. Choose the right partner.
Managing an endowment isn’t the same as managing a personal investment portfolio. The regulations, fiduciary responsibilities, and long-term objectives are different, which makes finding a trusted partner with experience in the foundation and endowment space especially important.
I also encourage organizations to resist the temptation to oversee investments internally or divide assets among multiple advisors. While that may seem like a way to increase oversight or diversify risk, it often creates unnecessary complexity for boards and staff and makes performance more difficult to evaluate.
Instead, look for a trusted investment partner with experience serving nonprofit organizations. Ask for (and review) references, and make sure they understand the unique responsibilities that come with managing endowment assets.
5. Remember that an endowment is about tomorrow as much as today.
The challenges your organization tackles each day likely aren’t going away. The beauty of an endowment is that it allows you to think beyond the current fiscal year and, instead, enjoy the peace of mind that comes with knowing your impact can continue well into the future.
Some years, an endowment may help fund operational improvements or upgrades to office space. In others, it may address a more visible need in the community you serve. Either way, an endowment creates a lasting source of support that isn’t dependent on a single fundraising campaign. Ultimately, establishing an endowment takes some upfront planning and ongoing maintenance, but the benefits can be substantial. For nonprofits that are ready to take that step, thoughtful planning on the front end can help ensure their mission continues making an impact for generations to come.
Tracey Smith is a relationship manager at The Trust Company of Tennessee
