Tapping into your endowment is risky business

Just as market declines, inflation and job worries have individuals considering their overall resources as potential spending sources, your organization and other nonprofits may be doing the same as you seek to meet the community's increasing needs in a cautious and concerning environment. 

Rightly so, the quantitative penalties, such as 10 percent for retirement account withdrawals before age 59 and a half, give many individuals pause. So does the prospect of selling devalued assets in a downturn, which individuals know can compromise or undermine their long-term savings goals. Your instincts may be telling you that your organization's endowment fund, similar to your own stock portfolio and retirement funds, perhaps also ought not to be disturbed no matter how bad the cash crunch may get. Your instincts are correct: Endowments must be handled with care. 

For nonprofits, the penalties or considerations that accompany accessing endowment funds are potentially harsh. As your colleagues and board undoubtedly understand, this is because of the restrictions set by donors or by the board itself. That is why it is so important to carefully craft and review donors' gift instruments; that is, the documentation that can include both the solicitation (how your organization intends to use the funds) and also the restrictions spelled out by the donor. If you've established an endowment fund, you are certainly aware of the risks associated with ignoring the all-important notion of “donor intent.” If a donor intends for a gift to be invested in an endowment, and that intention is well-documented, your organization must respect those wishes. 

So, during the giving season this year, rather than spending time and effort defensively, why not go on the offensive by redoubling efforts to obtain new, renewed or increased gifts? Time and time again, in both nonprofit and for-profit spaces, organizations have reduced or shuttered their outreach, marketing or advertising in questionable times, only to later realize that those areas should have been fed, not starved. 

Despite the times, capable and impactful donors remain viable. Further, reaching them by phone call or letter with a warm and genuine ask is inexpensive, and has high potential. Other communications tactics can be adjusted, and to paraphrase an age-old maxim, it's easier to get gifts from existing donors than new ones. 

By making more asks, not fewer, and by resisting the temptation to access your endowment or reserve funds, your team might be pleasantly surprised by the level of funding you are able to secure to continue delivering on your mission and serving the community. And, chances are, you'll be building an even larger and more loyal donor base than you had before, thanks to the unexpected opportunities you'll discover along the way. 

This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

For more information on agency endowment funds, contact Brian Reitz, Agency Endowment & Engagement Officer, at breitz@akroncf.org.