How to Get Started With an Endowment

First, think about how much you want to have in your endowment ultimately. You might look at the amount of money to fund your organization annually. You know that some of that money comes in through your normal fundraising efforts and some through fees from your clients. How much would you want to come from your endowment?

Then calculate how much endowment would produce enough interest to fund that amount. For instance, say you need at minimum $500,000 annually to support your mission. Perhaps you would like one-fifth of that to come from your endowment, or $100,000. If you think you could get 5 percent interest (a reasonable, but still conservative, expectation) from your endowment, you know that you need $2 million in your endowment.

That is a lot of money but not out of reach if you have a cadre of loyal donors and supporters.

An endowment can be started with any amount of money, however small. But to build an endowment of any size is a long-term project. You will need to cultivate donors over time since many endowment gifts come as a result of a bequest upon the donor's death.

Your board will need to set up the rules of the endowment. For instance, you will want to name the endowment, restrict its use, and provide guidelines for how much of the interest can be used yearly and when the endowment principal might be tapped if needed under extraordinary circumstances. The endowment can be set up in your current nonprofit corporation, or it can be spun off into its own organization. Although it is not expensive or difficult to start an endowment, you will want to get some help. Your community foundation may be able to help you, including holding the endowment for you. Also, work closely with your accountant and attorney so that your endowment is in compliance with your state's requirements.