Most nonprofit organizations reach a point in their fundraising programs when they consider creating an endowment fund. Some of the challenges they face are: How and when should a fund be started? And, where are resources to help guide them through the creation of an endowment?

There are four basic things that must be examined, and worked through, if a fund is going to be established. They are the four fundamental “P’s” of an endowment – and they are each essential if your organization is going to have an effective fund.

Working through the four “P’s” is both a simple and complex task. It is simple in that the steps aren’t terribly difficult. It is complex in that it is often hard for a nonprofit organization to objectively work through the complete process and at the same time maintain a focus on the overall development program. It is often very helpful for an organization to use an outside consultant to lead them through understanding development, strategic planning for fundraising, a basic audit of their program, and the formative “P’s” that will establish the endowment.

So what fundamentals must be effectively in place if your fund is to succeed?

1. PURPOSE

Why are you creating an endowment? Just because it’s a nice idea to have some guaranteed income this is not sufficient reason to head into such an endeavor. Creating an endowment fund may decrease annual or regular giving so consider your purpose very carefully

Some key purpose questions are:

• Does your organization have sufficient regular income to adequately support your programs? (Or is an endowment being considered to augment gift income?)
• Does you organization have a constituent base that would likely have the means and interest to give to an endowment fund (above and beyond their regular support)?
• Does you organization have a specific program(s), facility(ies) or project(s) that could be endowed? (Just creating an endowment isn’t usually very effective.)

2. PLAN

Some times nonprofits do “okay” in the purpose department, they get excited, and they launch their endowment with little or no planning. Effective funds are well conceived and well thought out.

Good planning is essential when creating an endowment. Are all the board members and key staff on the same page? Is everyone supportive of the fund? Is there a clearly articulated purpose for the fund? What kind of gifts will go into the endowment? And, how will the endowment fund be integrated into the overall development program? These are some of the key planning questions that must be considered.

Prior to going very far down the endowment road, it is a good idea to conduct some strategic development planning. This can be done in several ways, one of which is a board and staff retreat. Other formats can also be used effectively.

During the planning phase, it is important to consider the organization’s overall fundraising program. There should be a good understanding of fundraising in general and an overview or basic audit of your program that supports the planning process. Using an outside consultant to lead a strategic planning of this type can be invaluable.

3. POLICIES

It’s time for the nuts and bolts. Don’t create an endowment fund without first establishing the policies and procedures – and get them down in writing.

Basics should include:

• What is the fund’s name?
• What kind/type of gifts will be accepted or declined?
• How will the fund be managed (internally or externally)?
• Who will manage the funds and what qualifications are required?
• What income objectives will the fund have?
• How and when will proceeds be dispersed?
• Will there be a minimum amount required before any disbursements will be made?
• How will the fund be audited and reported?
• How will restricted funds be handled?
• What will happen to the fund in the event of financial problems at the organization?

The time spent, in advance, establishing fund policies will pay big dividends. Potential donors will only support an endowment that is professional, well managed and offers the likelihood that it will exist and accomplish its objectives in perpetuity. It is not enough to open a bank account and call it an endowment fund. Again, a consultant can be an invaluable resource to an organization in identifying and completing the needed policies.

4. PROMOTION

Many an organization has stumbled in the creation of their endowment by skipping from step one purpose to step four promotion without good planning or policies. This creates a number of problems. Still another group of nonprofits find that their funds sit with little or no investment because they fail to understand the last part of the endowment process, the last “P” -- promotion. They have “Field of Dreams” endowments. If you start money will come.

Handling the first three “P’s adequately creates an environment is which promotion naturally follows. If there is a clear and compelling case for the fund, it is much easier to present to prospects. Good planning will spur prospect development and will include strategies for fund promotion. Effective policies create the stability necessary for a potential donor to seriously consider a gift.

Promotion includes both front and back-end considerations. On the front-end, there is a need for budget, staff and resources to adequately inform and motivate prospects. On the back-end there must be a carefully devised recognition program that will not only thank givers, but also will hold up examples of endowment gifts in a way that encourages future donations. Key to both ends is concerted effort, time, energy, strategy and resources aimed at marketing the endowment. Good promotion doesn’t happen by accident and when done consistently, it brings in funds.

Endowments aren’t magical, mystical things. They are in-fact a simple and highly effective development tool that can yield big dividends. They do require a clear Purpose, effective Planning, professional policies and Promotion among donors and prospects. With this four “P’s” approach a success fund should within most organization’s grasp.