How to Start an Endowment

Endowments are funds used by non-profit organizations like colleges, churches and charities to further their work. An endowment differs from other types of funding in that the principal of the fund is not spent. Interest the endowment earns from investments is used to provide funding for various purposes. In this way an endowment can provide a stable income for non-profit, fund special projects, or support a particular purpose. We sometimes think of endowments as being the sort of thing large organizations like colleges do. However, the majority of endowments are actually created by and for smaller non-profit organizations. Read on to learn more about how to start an endowment.

Things You'll Need

• Cost analysis to determine fundraising goals
• Attorney

Instructions

1. Decide what type of endowment you need. You may want to start an endowment to provide general funding for your non-profit operating expenses. Other endowments are set up for specific projects, such as adding new buildings for a growing university or church. In some cases an endowment is created to fund a special purpose such as providing scholarships for deserving students pursuing their educations.

2. Set up the structure and rules to start an endowment. A cost analysis is the first step to actually start an endowment. The amount of money required for the given purpose needs to be determined. From that the size of the endowment (your long range fund raising goal) can be estimated. You will need an attorney to help draw up the rules in cooperation with the non-profit’s Board of Trustees. Rules governing how much of the fund’s earnings are to be spent and how much will go back into the fund to maintain continued growth need to be determined, along with the specific items the money can be used for.

3. Realize that when you start an endowment it is normally a long-term project to raise the required funds. Occasionally an endowment is created with full funding. For example, a bequest may set up a scholarship for students who pursue a course of study the donor feels is important. But most endowments will take years to reach full funding and you will need to set up an organization to oversee the process. Some non-profits create a separate organization for this purpose and to promote long-term relationships with donors.

4. Keep priorities in order. However desirable the purpose of the endowment, it cannot b e the first priority in your fundraising efforts. The normal operating expenses and other commitments of the non-profit must be met first before focusing on the endowment.

5. Develop a strategic plan to promote the endowment fund. One way of doing this is to set up a planned giving program for donors. Encouraging one time donations and bequests are also effective tools for raising funds. Take care to make sure the endowment is set up and operated in a professional and transparent manner, with clear financial statements and the services of a professional fund manager. This will not only help ensure the endowment money is used effectively, it will reassure and encourage donors.