Let’s Talk ENDOWMENTS

By Brandon Allen
Executive Director | Fortify Foundation

What are they?

I think one of the greatest comparisons we have is in the examples we see in parenting. We are called to train our children and prepare them for adulthood (Proverbs 22:6). If we do this successfully, we pass on knowledge and wisdom that can last far beyond our lifetimes, continuing to benefit future generations.

Endowments share a similar concept. Although they have evolved since their inception in the 16th century, the idea remains rooted in the original intent of the donor. Endowments are still often associated with philanthropic efforts, which is why they carry a certain stigma tied to charitable giving. At their core, they are legacy gifts passed on for the sake of both present and future benefits.

They provide a commitment to future generations to continue in the work that has been started by providing more stability than what might have been provided in the past. 

What do they accomplish? 

This is a broad question that could cover many facets based on original purposes, restrictions, and designations. For the sake of this article, we are going to focus on a few specific areas laid out below that will help us further grasp the concept. 

Assets vs. liabilities: When we think in terms of assets and liabilities, I imagine financial reporting quickly comes to mind. I promise we won’t give you a bigger pit in the stomach than what you may already have when it comes to financials. I want you to consider for a moment what your top 3 true assets are. For any educational institution, the first things that should come to mind ought to be two specific entities: Our studentsand our staff! It is these two assets that comprise our institutions. We must also throw in our facilities that God has blessed us with which allows us to house those students and staff. BUT out of each of these three categories, let me ask you, which of these are revenue producing? Out of our 3 main assets, only one of them produces income. The other 2, while needed and appreciated, cost us money. The key is to develop other income producing assets alongside our expenses to create a more balanced sustainable approach. An endowment does just that. 

Fully Funded: We like to use the term fully funded here at Fortify Foundation. Why? Because this is part of the vision we want to cast for every Christian non-profit organization in America! Imagine fully funding your projects so you never have to worry about them becoming a financial liability again. Whether this is paying for your science labs, athletic jerseys, teacher supplies, utility bills, bonuses, scholarships, band equipment… well, you get the point. An endowment can be a ticket to fully fund any of these categories, so you never have to worry about them being a drain on your budget again. 

Financial Flexibility: I’m tempted to say freedom here, but do we ever really experience financial freedom? Well, a recent conversation with a multi-millionaire determined this was a no. However, one of the beautiful outcomes of an endowed institution is that it creates financial flexibility where they can focus their revenue streams in other areas. Perhaps it’s overcoming other challenges or finally being able to accomplish some goals that you’ve had your eyes set on for a while now. Anytime a liability is covered through an asset, the outcomes provide us with greater support that often leads to a lesser need to generate the same amount in revenue (note: adopting the same attitude that Robert Kiyosaki presents as the “rich dad” in his famed book “Rich Dad, Poor Dad”). 

No doubt it would be a blessing all around if we had the ability to stagnate our tuition increases or perhaps even lower them due to the true assets we’ve built in endowment. 

Types of Endowment: 

Through the years, endowments have shifted a bit in concept. While you may discover more options, there are typically 3 main categories. 

Term: This is probably the easiest to understand based off its name alone. A term endowment is focused on locking up the monies contributed to the fund for a set period of time. It functions as an endowment for all intents and purposes until the end of said time in which the entire principal can be withdrawn and used in its entirety. Sometimes a donor may set up additional restrictions where the remaining amount is still used for a specified purpose. 

Quasi: The concept behind this strategy is to take advantage of some of the endowment benefits while still leaving some flexibility to withdraw whatever amount from the fund as the recipient or funder pleases. In our cases, we would most likely call this a board directed or at-will fund. The board has full rights to determine the present or future of the fund by drawing on the principal as they please.

True: Finally, there is the true endowment fund concept. The focus of this strategy is to create a true multi-generational fund that will create a perpetual income stream for the life of the organization. This occurs by establishing a principal and creating dividends from its returns. The one area of confusion is if the fund drops below the established principal amount, will there still be income derived from the fund? The answer to this is a resounding yes IF there is a reasonable spendable balance AND an effective strategy is built into the fund thereby guaranteeing an infinite income stream.

Do I need one? 

I think the real answer to this question is… Do I need one, two, three, or more? The reality is, and I don’t say this lightly, EVERY school needs at least one! If your school has been around for any length of time OR intends to be, then you need to consider setting up a general endowment fund. As with any investment fund, you can never start too early, but you can miss out on some great opportunities if you wait. 

Don’t look at this to solve all your immediate problems but it will change the FUTURE financial trajectory of your school.

As you explore the concept of endowment, we would love to have a conversation with you and your board about how this can create a more sustainable future for your school! Contact us at 803-615-3037 ext. 1 or Click HERE to schedule a call.