If there was ever a time to start focusing on building a rainy day source of funding for your nonprofit, that time is now.
If you’re not sure why you should do this, ask yourself the following questions:
- How have you fared during the pandemic? Did you bring in less revenue than expected? Did more donors lapse than you anticipated?
- How do your prospects for the foreseeable future look?
- Do you scramble every year to bring in sufficient funding to assure you don’t have to shut down programs?
- Do you have room to grow?
- Have you deferred capital campaigns or maintenance for too long?
- Do you have the ability to offer salaries and benefits that will attract the top talent?
- Do you have funding to outsource tasks that would be better performed by dedicated experts working on contract?
- Do you have funds to treat your staff fairly, give them raises when deserved, and send them to trainings that will improve staff retention and boost your nonprofit’s morale and bottom line?
If answering these questions made you realize that you do need to establish a rainy day fund, please keep reading.
And if it hasn’t, I recommend you keep reading anyway! You never know when you’ll find yourself dealing with an unexpected financial hardship.
Building your rainy day fund
You need to build a source of rainy day funding. Now. Before the next crisis hits.
What makes up a rainy day fund
When I talk about a rainy day fund, I’m talking about two things:
- Endowment – invested principal from which you can draw an income stream every year.
- Legacy giving program – a program that will yield a steady stream of bequests, more or less annually, over time.
Wouldn’t it be nice to have a plan to accrue passive income that would come streaming into your bank accounts in the future?
When you build an endowment and a legacy giving program, you’re proactively taking steps to secure income you can count on—without putting the pressure on your team and donors to raise those funds year after year.
This doesn’t mean you stop your annual giving program. You need that too. I’m talking about the importance of building a savings plan into your existing financial management strategy.
Tip: I’ve heard from nonprofit leaders that nonprofits shouldn’t save money in this way; they believe that money on hand should be used to fund direct services today, not secure the nonprofit’s future interests. Don’t buy into that kind of thinking! Your current fundraising efforts will take care of today’s needs. Now it’s time to think about which ones will take care of future needs.
Convincing stakeholders that you need a rainy day fund
In order to build your nonprofit’s rainy day fund, there are several things you need to do.
Persuade stakeholders that building a rainy day fund is important.
When it comes to building your endowment, first consider who you need to persuade to get on board with this idea. Is in your executive director? Your chief financial officer? Your program director? Your board chair? Your finance committee chair?
Whoever it is, think about the problems that keep them up at night and how an endowment or legacy program may help them to sleep in peace.
Here are some examples of their potential concerns:
- Your executive director is concerned with stability.
- Your chief financial officer is concerned with financial strength.
- Your program director is concerned with the ability to deliver on your mission.
- Your board chair is concerned with governance responsibilities.
- Your finance chair is concerned with prudent financial management.
Talk to your leaders about their concerns and then explain how building an endowment or steady stream of legacy gifts could help resolve some of those worries.
Tip: There’s strength in numbers, so once you persuade someone else that there’s merit in building an endowment or a strong legacy giving program, nurture them as allies and develop a mutual strategy to persuade others.
For example, often the development committee chair will be a good ally to persuade the board, as their endorsement may carry more weight than yours as a staff member. Similarly, your chief financial officer may be able to persuade your executive director if you’re unable to do so.
Gather proof that building a rainy day fund is a sound idea.
There are several ways to go about this. Here are two I recommend:
- Interview colleagues at nonprofits that you know your leaders admire. Find out what kind of endowment and legacy giving program they have in place and how much income this yields, on average, annually. Also find out how much staff time and budget they invest to achieve these outcomes.
- Find legacy programs online that look active and dynamic. If possible, try to locate organizations that work in your field, are local, and/or are similar in size. Call the development or planned giving director to ask if they’ll meet with you for a research interview. If applicable, find out how they persuaded their leadership to start their rainy day fund.
When you commit to building a rainy day fund, you accomplish two very important things:
- You and your team—and, by extension, your donors and the people you serve—can rest easy knowing that you’ve taken steps to ensure the work you’re doing today will continue in the future.
- You can start growing rather than just surviving, which will enable you to better serve the people your nonprofit is working to help.
Money enables mission—today and tomorrow.
Looking for more information? Here are some suggestions to inspire endowment and legacy giving to your nonprofit.