Sometimes nonprofit organizations know that they want an endowment fund, but they aren’t sure how to use the endowment fund to their benefit. What are they ways that a nonprofit organization can benefit from having an endowment fund?
Benefits of Having an Endowment Fund
First off, an endowment fund creates a continual source of income for the organization.
Since the corpus, or principle, of an endowment fund is never touched by the organization, and endowment fund will always be a source of income from the interest earned on the principle. Additionally, if your organization only allots 5% of the interest to be used each year, there could be 2%, 3%, or 4% of the interest that is added to the principle amount each year, increasing the interest that can be used in years to come.
Secondly, having an endowment fund will relieve stress on the annual fund.
Your annual budget can be buoyed by the money that your endowment fund provides through it’s interest. Since your annual budget will typically get larger, it would be idea for your endowment fund to get larger as well by not spending all of the interest earned each year. This will help support your annual budget into the future.
Thirdly, an endowment fund increases the stability of an organization.
In many ways, an endowment fund proves that your organization is dedicated to long-term success. You are not constantly trying to stay alive one more year or even one more month, but you are looking forward to the future of the organization.
Fourthly, an endowment fund can put donations where donors want their money to go.
Typically, a donor wants their donation to go directly to the programs of an organization. There is a mentality among some donors that they do not want their donations to be used for overhead. Well, having an endowment fund allows an organization to put donations received directly to programs. How? They can use the endowment fund to pay for salaries, advertising, and other overhead expenses.
Finally, an endowment fund offsets fundraising goals.
Every nonprofit organization depends on raising funds in order to survive (at least to some extent). But, not every organization needs to rely so heavily on fundraising, especially if they have an endowment fund. The money that comes from an endowment fund to an organization is money that you don’t have to fundraise each year. This can save time, effort, and expenses that an organization would typically spend on certain fundraising activities.