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Jan 6, 2011

Designing a Fundraising Program:

Annual Giving, Endowments and Planned Giving

A nonprofit board’s first duty is to be a reliable provider of a service that fulfills its mission. Fulfilling that duty has a clear prioritization: Assuring sustainability over the next year must come before establishing it over the next five years, which must be assured before tackling sustainability over the next 50 years. So how does annual giving, endowments and planned giving fit into these priorities?

Traditional annual giving is the most appropriate source of funding to meet short term needs. Unlike other forms of funding, generated revenue can be immediately used to support the current operations of the organization. Unfortunately, the amount of funding generated each year can vary—and fundraising events foiled by weather may hinder the organization’s ability to maintain services throughout the year. Endowments and planned giving can be a source of supplementary funds; however, such methods may not counteract an organization’s vulnerability to fluctuations in giving and weather-dependent events gone wrong.

Raising an endowment is a decision to tap today’s donors to provide resources for the distant future. As a general rule, about 5 percent of the endowment gift will be generated each year in interest and can be used to support operations. However, this cash flow usually cannot begin much before the third year after the gift is made. Consider this math: A donor who could give $10,000 to be used today is asked to give $10,000 that can never be spent. This will not produce spendable income for the next three years, and thereafter may provide only $500 per year. Will this amount truly offset short-term fundraising problems?

Planned giving is an excellent means to raise funds over the long term. However, bequests that come from these programs are uncertain from both a timing perspective and the amount of monies that are eventually received. If a nonprofit has adequate staff, focusing on a planned giving program can make sense. But if it is struggling to balance annual budgets and maintain stable annual revenue, it must devote all available fundraising capacity to annual giving.

A nonprofit that needs to stabilize its funding and protect itself from the vicissitudes of weather-dependent events must focus its fundraising on programs that address this problem. Building working capital and accumulating a board designated rainy day reserve may be the best solution to this problem. A fundraising campaign that solves these near-term problems can then move on to the problems that endowments and planned giving can solve.

For more information on fundraising and how to design your fundraising program, reference the Challenges in Philanthropy chapter on pages 157-197 of More Than Just Money.