Agency endowments can provide security during uncertain times

KNOX You know the old adage: "Slow and steady wins the race." And because 97 nonprofit agencies have established an agency endowment fund at the Southwest Florida

Community Foundation, they have taken a huge step in ensuring long-term sustainability for their agencies' futures. Here are a few of the most commonly asked questions about an agency endowment.

What is an agency endowment fund? How do we explain the fund to our supporters?

An agency endowment fund is a permanently endowed fund that is established exclusively for the longterm and future needs of a 501(c)(3) non-profit. It is money set aside for the future needs of the agency. The agency may choose to receive a percentage payout each year from the endowment or may leave the payout in the fund to grow. Over time, as the agency increases the principle, the amount of the payout grows also, thereby creating a permanent income stream for the agency.

Is an endowment the same thing as a reserve fund?

No. A reserve fund is an account that holds a specific amount of money that can be accessed quickly by the agency in case of an emergency. For example, some agencies have a three-month reserve fund that is not accessed unless it is needed. The agency's board usually creates policies that will determine the conditions under which the reserve fund is accessed. A reserve fund is held and managed by the agency. By contrast, an endowment fund is set aside by a third-party entity for perpetuity; only a specified percentage may be expended each year.

How do we continue growing the fund?

For those agencies with an existing agency fund, the hardest part was getting started. Someone affiliated with the organization had the foresight to establish an endowment fund at the Southwest Florida Community Foundation, or one of its two divisions, the Bonita Springs Community Foundation or the Good Neighbor Community Foundation of Sanibel Captiva. Here are some suggestions to help grow the endowment.

1. Set your mindset. The dollars you set aside today will grow to meet the needs of the agency tomorrow. The funds committed today may not seem immediate, but over time, contributions will grow. A $20,000 contribution today (assuming a 6 percent rate of return and compounding) will be $64,142.71 in 20 years (not including fees or distributions). You cannot predict your agency's needs in 20 years, but you can at least help future staff and board members be prepared by providing a steady income stream to carry out your mission.

2. Stay focused and positive. Even in the most critical times, agencies can set aside dollars for endowment. Make sure your board is budgeting each year for endowment dollars, even if the amount seems small. Make saving a regular practice, no matter how small or large the amount.

3. Donor Intent. Many donors are familiar with the agency endowment concept. In fact, many donors would rather provide funds for an endowment than operating. By providing a choice, donors will appreciate the option to give where most needed and to the area of their liking.

4. Planned gifts are a natural fit for your endowment fund. Look at your gift acceptance and finance policies. What would you do with a $250,000 windfall from a planned gift? Make sure that a percentage of incoming planned gifts will be earmarked for agency endowment fund.

Every nonprofit agency should carefully consider the reasons and mechanisms behind establishing an endowment. Requests for proposals should be sought from any third-party entity offering to manage an agency's endowment and the investment strategy should reflect the long-term goals of the agency.

— The Southwest Flori da Community Foundation has been supporting the communities of Lee, Charlotte, Collier, Glades and Hendry counties for over 33 years. Through 323 endowed funds, the Community Foundation has provided more than $44 million in grants and scholarships to the communities it serves. For more information, call 274-5900, or visit www.floridacommunity.com.