A non-profit endowment is a fund that consists of donations such as cash, stocks, and other similar types of assets. Typically the future of the endowment is secured because the principle remains untouched. Assets drawn from gains must be well-documented and the reasons adequately supported.
Many organizations will even restrict how much is drawn from the available funds in a non-profit endowment in order to enable the endowment to grow as much as possible. Often cash donations will be invested as well. Overall, the fund is meant to be a long-term investment that ensures the financial health of the organization.
Donations to a non-profit endowment can vary, depending on the needs of the organization and the kinds of donors it attracts. A fund with many wealthy contributors will tend to consist of several gifts of stocks, bonds, and other invested capital, in addition to large donations of cash. Organizations that tend to be supported primarily by the general population will be more likely to have a higher percentage of cash donations and in more modest amounts. Many endowments consist of a combination of the two.
A non-profit endowment can be especially helpful to an organization that is fairly new. This kind of financial resource can ensure that the non-profit lasts long enough to secure a good base of regular contributors and other financial resources. An endowment also increases public confidence in the longevity of the organization, thus encouraging more donations.
How much to put into a non-profit endowment and even whether to have one at all can be a complex decision for an organization. While such a fund can increase the stability of a non-profit, it may also threaten it financially in other ways. Potential donors may choose an organization without an endowment over one that has one because of the perception that the latter group does not have as great a need for funds. Donors can also be critical of less-established or smaller organizations with endowments because not all available funds are being directly applied to its goals.
All financial records related to a non-profit endowment must be made available to the public. Each debit and credit applied to the fund must be supported with an acceptable cause for the transaction. The organization must also make clear the purpose of the endowment, how it is to be run and by whom. These requirements are meant to help preserve the integrity and legality of the fund.
