Looks good on paper: Boost your endowment through a creative approach to direct mail
As a nonprofit, two constants you likely face are (1) more demand for your services and (2) rising operating costs. Fundraising can help satisfy the “more demand” part of this equation, but that typically requires more budget, which means more marketing and … well, you get the point.
The community foundation team is your partner! We are here to help you grow your endowment or reserve fund at the community foundation in both traditional and creative ways. That means we’re here to help you accept and administer gifts of complex assets, such as closely-held stock and real estate, as well as help your board understand the importance of an endowment and best practices for investment and spending policies to ensure that your mission stays strong for generations.
In the spirit of celebrating traditional ways to grow your endowment, let’s revisit a tried-and-true fundraising method: direct mail. You’re well aware that in any type of sales, fundraising or otherwise, multiple touchpoints are typically required to make an impression–especially when your goal is to inspire a donor to support your endowment with a major or planned gift. Direct mail is a useful tactic to help diversify your multidimensional endowment-building fundraising program.
To that end, you might be surprised to learn that many nonprofits are exploring ways to offset rising marketing and fundraising costs and increases in postal rates (even for nonprofits) by asking donors or vendors to sponsor an occasional or ongoing direct mail program to boost the nonprofit’s endowment.
If this technique sparks your interest, here are a few potential in-kind supporters of your next direct mail campaign:
–A local supplier of paper—stationery and envelopes—who may have surplus paper stock remaining from another project or who can negotiate a favorable rate from a wholesaler or manufacturer.
–A local print production or mail house that does the actual printing and mailing. Perhaps they can reduce pricing to a per-piece rate that satisfactorily covers their labor and overhead.
–A generous donor who can cover your organization’s hard costs from their donor-advised fund at the community foundation. Though it may at first blush seem a reach, there likely are donors who will appreciate the intention and purposefulness behind your ask, knowing that the mailing’s results can help cover the increased costs that come with more demand for your overall services. And, some may appreciate a line or two of donor recognition on the piece, which can be subtle yet impactful.
Please reach out to the community foundation to dig deeper into this idea. We are happy to strategize about how you can approach existing or prospective donors to creatively fund a direct mail campaign to build your endowment, which in turn will help fulfill your organization’s mission for years to come.
How a business owner donor can help build your endowment
If you’ve not reviewed your donor lists recently to identify which donors own their own businesses, now may be a good time to do just that. Business owners make great donors not only because they understand how hard it is to build and grow an organization, but also because they have the ability in some situations to make endowment gifts of ownership shares in the business itself.
Many business owners are already thinking about an exit strategy, even if they are years away from retirement or a sale. Well before your business owner donors start putting out feelers to potential acquirers, you and your team, with the help of the community foundation, may wish to talk with the donor about the benefits of contributing an ownership interest in their business to your organization’s endowment or reserve fund at the community foundation.
Indeed, if a donor has owned a business for several years–or decades–the donor could be sitting on substantial unrealized capital gains thanks to the increasing value of the business over time. Upon a sale, capital gains tax will be triggered, reducing the proceeds the donor gets to keep. No capital gains tax will apply, however, to the sale of any portion of the business held by your organization’s endowment or reserve fund at the community foundation. Because of the favorable rules governing the taxation of charitable organizations, your organization’s fund is likely to net 100 cents on the dollar for the portion it owns.
What’s more, you may be surprised by some donors’ desire and willingness to get creative with business succession planning that wraps a charitable component into a traditionally private business venture to preserve a public benefit.
If you talk with a donor who owns a business and the donor likes the idea of potentially giving a portion of the business to your endowment, please reach out to the team at the community foundation. We can help you, the donor, and the donor’s advisors evaluate options and ultimately prepare for the transaction, including reminding advisors to secure a proper valuation for the charitable deduction at the time a portion of the business interest is contributed to the endowment or reserve fund.
Next, caution your donor to be careful not to start negotiating for the company’s sale before they’ve talked with you and with their tax advisors. Otherwise, the well-meaning donor might get caught in the IRS’s step-transaction trap that is a risk with any pre-sale gift to charity of real estate, closely-held stock, or other alternative asset.
Finally, keep in mind that gifting shares of a business could become an especially important strategy for more of your donors as the anticipated reduction (by half!) of the estate tax exemption scheduled for 2026 draws closer.
Giving shares of a closely-held business to your organization’s endowment may initially sound complex to your donor. The team at the community foundation is here to help you, your donor, and the donor’s advisors navigate the charitable components of what could turn out to be a significant boost to your organization’s endowment and long-term financial stability.
Cautions that caught our attention
Nonprofit organizations and their board of directors are constantly navigating the many IRS rules and regulations that govern 501(c)(3) organizations–both their tax exempt status and their eligibility to receive tax-deductible contributions from taxpayers. In a dynamic environment where tax rulings and reform are constant, as well as the reality of ever-present general business risks affecting for-profits and nonprofits alike, vigilance is a must.
Here are three important reminders to ensure that your organization maintains its good standing.
Private inurement is a real no-no. The IRS takes the concept of “private inurement” very seriously in its regulation of nonprofits. As in, if you do it, you’re out. Most nonprofits are well aware that they will be putting their 501(c)(3) exempt status at risk if they play fast and loose with the rules for preventing undue benefit to a private person. After all, charities are established for the public good, and public good and private profit do not mix. We really like this article because it breaks down private inurement in a fun way (if that’s possible with tax law!) while still making the point that this issue is critical for all charitable organizations.
Zero in on donor retention with planned giving. If it feels like donors are getting harder to come by, it’s not your imagination. Indeed, a recent study shows that the total number of donors in the United States fell by 10 percent, with a 3.1 percent decline in the number of major donors who give between $5,000 and $50,000. Certainly this trend is making it harder for your organization and other charities to meet fundraising goals, but you can do something about it. The study also indicated that donor retention rates fell by 3.5 percent. So, consider doubling down on efforts to retain your donors, perhaps by ensuring that every communication includes one or more mentions of your organization’s ongoing and long-term priorities and how planned giving can make a big difference. This could send a powerful signal to your donors that you view them as partners in your effort to improve the quality of life in our community, not just as supporters of annual budget needs.
Tighten up volunteer protocols. As the population ages and volunteering among seniors stays strong, make sure your volunteer practices, guidelines, and risk management protocols are in ship shape. Volunteers can make a major positive difference in your organization’s ability to deliver on its mission, and you don’t want any risk slip-ups to stand in your way.
A message from the community foundation
At the community foundation, we are dedicated to growing philanthropy in our region by engaging a broad and diverse donor base. We provide tools and services to help donors establish charitable giving plans and structures to maximize their ability to support the organizations they care about–you–now and for years to come.
A crucial component of our work is helping you and other nonprofit organizations grow your endowment funds and reserve funds by providing back office services to handle the administrative side of these funds so you can focus on your mission, fundraising, and engaging donors. For example:
–The team at the community foundation is adept at navigating the specific accounting standards that are unique to endowments, reserve funds, and donor-designated funds.
–The community foundation team can help you establish investment policies and gift acceptance policies, making it easier for you to engage donors in productive fundraising discussions.
–The community foundation is committed to offering investment options that empower your organization to exercise outstanding stewardship of the funds donors have entrusted to your board and staff to support your organization’s mission.
–The community foundation’s staff is familiar with a wide range of planned giving structures and techniques and can serve as a sounding board for your fundraising efforts.
We look forward to working with you as 2023 draws to a close and as you pursue your mission in 2024 and all the months and years ahead.
Thank you for your partnership.