How to establish and grow an Endowment Fund

An endowment is a fund put aside as an insurance policy for the future, also known as funds put aside as a good financial plan for sustainability of an organisation to be able to fulfil its mission.

Step 1: Base your foundation’s/association’s on sustainable financial planning and management

• Manage your finances from income and work in real time rather than managing from your expenses and after receiving expenditure receipts.
• Lower expenses through for example; leveraging your reputation in some instances
• Anticipate expenses and match them with a realistic budget (cushions from stressful efforts trying to cover already spent money)
• Administration, programs and personnel spending percentages need to be adjusted to match the organisations’ income. Thus, there is need for a vigorous working capital to support the spending adjustments as and when needed.

Step 2: Ensure that before you introduce the idea of creating and/ or growing your endowment, your working capital is enough as agreed by the Board or Funding Partners to fulfil your mandate within the set timeframes

• Before pitching for an endowment fund, ensure that the organisation has at least three-six months of working capital.
• Discuss with your board how much you want your endowment to be in relation to your annual budget
• If the bulk of your funding is from grants, then at least about a years’ working capital should be available, in the event of a late, reduced or cancelled donation, before you start establishing an endowment fund.

Step 3: Create a plan of action (informed by the organisations’ cause, supported by the board)

• Create an endowment establishment plan which clearly states the responsibilities of staff and the board, a strategy on how to build and grow the endowment, create an investment policy, usage and withdrawal policy, gift acceptance plan and a marketing plan.

Tips of how to raise money (where is this income coming from?)

Sustainability plan

Step 4: Set up both the cash reserve and endowment

• Put aside any amount from your income and put it in a ‘quasi-endowment’ fund
• If your cash reserves keep growing, direct the excess amounts to a ‘quasi-endowment’ fund which can be availed for emergencies.
• As long as you set aside any amount of cash or assets as ‘off-limits/ restricted’, whether donated or accumulated, it is an endowment.

• Note:

  an endowment is not money for a ‘rainy day’, however, a certain percentage can be taken (usually 5%) from the fund only if the endowment is in excess or generates interest (a sufficient endowment is usually three-times as much as your annual budget).

Step 5: Source for Investment advisors and advocates with portfolios, who can offer sustainable strategies to maintain your endowment and to mitigate financial risks

• This helps mitigate unforeseen financial risks on your funds
• These professionals also aid in strategies that help grow the funds e.g. investments in other assets, bonds or stocks

Step 6: Leverage your cash reserve and endowments into your regular fundraising efforts, flaunt your financial management portfolio to grant makers

• This ensures that donors recognise the value their money will make in terms of generating support and making positive contributions to your organisations’ cause instead of showing them your weaknesses and pitching about your needs for funds.
• It is a crucial element in fundraising as it indicates that you have long term plans to fulfil your mandate and donor funds are coming in as a support structure.
• Remember an endowment is a long-term goal thus donors and grant makers need to be cultivated as most endowments come in the form of planned to give and bequests. Thus, relationship building with donors is key, encourage them to include you in their wills
• To grow your endowment, clearly state the cause the endowment fund will be fulfilling i.e. that you will be able to carry on the good work you do within your community will continue for a long time and market it on various platforms and events

*Ensure that endowment fundraising does not take priority over fundraising for your immediate needs