| by Cynthia M. Adams, CEO, GrantStation
Initial Decision-Making: Why You Need an Endowment
Part Two
Before I began volunteering my time on the Advisory Board,
the organization had already made the decision to pursue
building an endowment. So, it was easy to move into the second
phase, which included making several very important decisions.
We held a sub-committee meeting (three folks from the Advisory
Board who volunteered to explore the endowment idea further)
to discuss:
1) Why the organization needed an endowment; and,
2) How we would structure and manage the fund.
First, in our advisory capacity we needed to determine the
purpose of an endowment fund so we could make a recommendation
to the Board of Directors. Why should this organization want
to build an endowment at this moment?
This simple question gene rated more discussion than you
might imagine. Financial stability was only the tip of the
conversational iceberg. Delving deeper, the more interesting
discussion revolved around the use of the endowment income
to fund risk ventures. As you know, new or innovative projects
or programs are often discounted because they are determined
to be too risky. Endowment income gives organizations the
freedom to fund new initiatives without risking their financial
safety.
Financial control is another reason for establishing an
endowment fund. Every other source of income – grants, membership
dues, special events, and even earned income – is difficult
to forecast. There are good years and bad years for each
of these revenue streams. However, unrestricted endowment
income is predictable and can become a bedrock of security
and power for any organization.
The very existence of an endowment fund communicates your
organization's intention to be around for a long time. Because
they indicate the permanence and longevity of the organization,
endowment funds create a strong incentive for prospective
donors to contribute.
After all the discussions about why we should establish
an endowment fund, the working committee of the Advisory
Board came up with this statement:
The creation of an endowment fund will support and
enhance the mission of the organization for decades to
come, and serve as a vehicle to attract cash and planned
gifts which people desire to leave as a legacy for sustaining
the work of the organization.
Now that the Advisory Board has articulated the rationale
for establishing an endowment fund at this time, we can incorporate
this statement into a recommendation (in the form of a draft
motion) to the Board of Directors.
Next week, we'll take up the issue of how to structure and
manage the endowment fund. |
