Learn about the benefits, costs, and process of starting a foundation.

Starting a Foundation – Nonprofit Catalog

Starting a private foundation provides a lasting opportunity for philanthropists to donate consistently to a nonprofit and make an impact on causes they’re passionate about. If you’re considering starting a foundation or want to learn more about them, we’ll cover the basics and discuss all the important elements you’ll need to consider before diving into the process.

What is a foundation?

Instead of collecting donations from individual donors to launch their own programs and initiatives, private foundations act as the donors by giving grants to other nonprofit organizations to fund their operations. They can also provide scholarships to individuals in certain circumstances. 

Foundations are private 501(c)(3) organizations, meaning they operate independently from the government but still retain a nonprofit tax-exempt status. To qualify as a private foundation, organizations must have a defined purpose, such as:

  • Charitable
  • Educational
  • Scientific
  • Religious
  • Literary

Foundations are often started by a family or small group of people with a shared charitable interest, but they can also be started by a corporation. For example, Google provides grants for nonprofits for free advertising space to help them get their message out to wider audiences.

How do you decide to start a foundation?

Before making the decision to start your own foundation, do extensive research on the process and legal requirements. Evaluate both the benefits and costs of starting a foundation, and take stock of your existing resources. Consider the following information while deciding if you should start a foundation: 

What are the benefits of starting a private foundation?

Individuals and companies start foundations for a variety of reasons, but all foundations offer the unique ability to: 

  • Create a significant and long-lasting personal impact on the causes you care about.
  • Honor an individual or your family by creating a legacy foundation in their name.
  • Maintain legal control over your operations.
  • Access tax benefits, including tax-exempt status for your organization and individual tax deductions.

Consider how much you value each of these benefits and if you would be able to reap similar benefits from donating to nonprofits alone. 

Starting a foundation allows you to make a lasting impact and maintain control over your operations

How much money is needed to start a foundation?

Private foundations obtain funds directly from an individual, family, or corporation, instead of from a pool of individual donors. Therefore, to start a corporation, you need to have a sizable amount of funding available in your budget to set up the foundation’s endowment. Endowments are the funds your foundation uses to make grants and cover operating costs.

How to start a foundation

Ready to dive deeper? If you’ve determined that you have the resources, passion, and commitment to start your own, follow these steps for starting a foundation:

  1. Define your mission and goals. Determine a clear purpose for your foundation and exactly who you want to help. Think about what you want to accomplish and what types of organizations you want to fund. 
  2. Understand legal requirements and regulations. Research the difference between trusts and nonprofit corporations and what’s needed to establish each. Then, decide which type of foundation best fits your needs and goals. Generally, trusts have less legal requirements, but nonprofit corporations offer more flexibility. You may decide to hire a dedicated legal team to advise you on complex legal and financial matters.
  3. Identify potential trustees and staff. How personally involved do you want to be in your foundation’s day-to-day operations? Identify qualified staff members to help you run your foundation, along with the individuals who will serve as trustees. 
  4. Apply to get an Employer Identification Number (EIN), then apply to become a 501(c)(3) organization. You’ll need to complete both of these formal applications to obtain your foundation’s legal 501(c)(3) status before you begin making grants. 
  5. Set guidelines for using your endowment. Determine internal requirements for how your foundation will invest its endowment funds. For example, consider setting an annual minimum amount of funds that should stay in your endowment and a minimum amount that should be given out as grants.

Once you’ve set up your foundation legally, you can start getting familiar with the grantmaking process and considering how you want your foundation to appear to the public. Follow similar strategies for branding and marketing as other nonprofits use to ensure a positive, authentic reputation. 

Additional Resources

Learn what a nonprofit investment policy is and what to include in yours.

Nonprofit Investment Policy – Nonprofit Catalog

A nonprofit investment policy is the first step your organization should take before investing its reserve money. Creating a comprehensive investment plan will provide a clear roadmap and create continuity between your teams, ensuring that everyone’s on the same page about how to grow your funds.

If you’re creating a new investment policy or want to overhaul your existing document, we’ll make sure you understand the basic building blocks first!

What Is a Nonprofit Investment Policy?

A nonprofit investment policy is a document that outlines how an organization can invest the funds it raises responsibly. Think of it as a roadmap for your investment portfolio, guiding you toward smarter and more ethical financial management. It specifies the risks you’re willing to take, delegates responsibilities, and establishes investment objectives and guidelines.

An investment policy is not a set-it-and-forget-it type of document. Rather, you’ll need to regularly revisit it, making sure it continues to reflect your nonprofit’s priorities and needs year after year.

Why Do You Need a Nonprofit Investment Policy?

Just as there are several components to investing your reserve funds, there are also several reasons why you should invest them. For one, charitable giving is on the rise and increased an incredible 4.2% last year, according to fundraising research. Now more than ever, your nonprofit needs to curate strategies for making the most of those funds. That way, you’ll be in great shape to save what you need to take your mission to the next level.

More specifically, Infinite Giving’s guide to nonprofit investing outlines three primary reasons why nonprofits should invest their reserves and create a foolproof policy to guide their investments.

A solid nonprofit investment policy can help you:

  1. Save for the long term. Your reserves may be actively losing value if they’re sitting in a simple money market, CD, or savings account. Having an investment account along with a strong policy can allow you to grow your rainy-day funds. In other words, you don’t have to spend the money right away and won’t have to worry about inflation impacting your revenue. Then, when you do need to tap into these funds, they’ll be right there waiting for you.
  2. Build your nonprofit’s assets. Maybe you have a large project, like a capital campaign or a new program, that needs financial backing. Growing your reserves is a smart way to increase your spending power.
  3. Secure large gifts and grants. Grants Plus’ guide to grant management explains that “funders want and need to ensure that the grants they award will actually be put to their intended uses, create sustainable changes, and follow their stipulated requirements.” In other words, grantmakers and major donors want to make sure your nonprofit is a responsible steward of money. A strong investment plan can indicate that your organization’s financial standing is in good health and that you have a solid strategy for achieving your mission. Plus, an investment account will make it easier for you to accept large non-cash donations, like stocks, endowments, and cryptocurrency.

As you can see, there are multiple reasons why nonprofits should create an investment policy and open an investment account. Sound financial management practices can ultimately empower you to pursue your mission more effectively over the long run.

The Core Components of Nonprofit Investment Policies

As we mentioned, creating an official policy is vital before you actually start investing your funds. Note that your specific approach to creating your investment policy can vary based on your timeline, risk tolerance, and current assets. However, there are several components that any nonprofit investment policy should have, including:

  • Delegated responsibilities. List the specific roles, responsibilities, and limitations of anyone responsible for overseeing and handling your investment portfolio. This might pertain to your executive director, board of directors, oversight committee, and other stakeholders.
  • Goals. Clearly define your investment portfolio’s objectives, including factors like potential risk allowed.
  • Guidelines for investing. Cover which types of investment vehicles are allowed, as well as which ones are prohibited. You’ll also want to include target percentages for each type.
  • Reserve expenditures. Add guidelines for how your nonprofit reserve funds can be spent, reasons why funds can be withdrawn, and how much can be withdrawn.
  • Donor restrictions. Include a statement expressing that the investment committee agrees to any stipulations donors give regarding how their donations can be invested.
  • Reporting standards. Define the metrics and frequency at which your board members will measure performance.
This chart breaks down the components of a nonprofit investment policy.

When developing or updating a nonprofit investment policy, it’s also important to understand the legal framework that governs how charitable funds must be managed. The Uniform Prudent Management of Institutional Funds Act (UPMIFA) establishes standards for fiduciary oversight, spending policies, and investment decision-making for nonprofit organizations. Nonprofits should review UPMIFA’s core principles and how they directly inform investment policy design, donor restrictions, and long-term stewardship responsibilities.

A lot goes into creating an investment policy for your nonprofit. Fitting these puzzle pieces together will give you a solid foundation for moving forward. Just make sure to treat your policy as a living document that you regularly revisit and update based on organizational changes.

Additional Resources

Nonprofit Catalog – Read up on more nonprofit essentials by exploring our Nonprofit Catalog.

How to Accept Stock Donations: The Ultimate Nonprofit Guide – Thinking of accepting stock donations to strengthen your sources of revenue? Check out this guide to learn how to accept stock donations and why it’s worthwhile.

Nonprofit Fundraising Training: FAQs and 8 Top Resources – Improve your financial literacy and strengthen your fundraising strategies with these training tips and suggestions!

Discover how your organization can use nonprofit marketing to further its mission.

How to Use Nonprofit Marketing – Nonprofit Catalog

Both nonprofit and for-profit organizations around the world depend on marketing to communicate with their donors or customers. Strong marketing allows organizations to create meaningful touchpoints with new audiences. One of the reasons marketing is such a powerful tool is that it’s highly adaptable to your organization’s needs.

Without marketing, it would be very difficult to connect with the people who share an interest in your nonprofit’s mission. Cultivating that base of support is essential. Donors, volunteers, and mission ambassadors are the foundation of a successful nonprofit.

Let’s get started by discussing how nonprofits can use different marketing channels to reach their audiences.

What is nonprofit marketing?

Nonprofit marketing is using marketing strategies and campaigns to raise awareness, reach existing and prospective donors, and fundraise to help an organization further its mission.

Marketing can be carried out through a variety of media channels. Social media platforms, email, and video ads are a few ways messages can be distributed online. The internet is one of the most common ways to reach supporters, but don’t discount the value of other channels as well. Nonprofits also find success running campaigns through other channels like direct mail, radio ads, or print ads. The specific channels you choose to employ depend on your audience and your goals for the campaign.

The most effective way to leverage marketing is by creating one integrated marketing strategy so your organization can reach its supporters across a variety of channels. This approach is also helpful for pinpointing the channels your supporters use the most.

What are the benefits of nonprofit marketing?

While marketing can be a significant investment of time, effort, and funding for many nonprofits, it also provides a wide variety of benefits to both the nonprofit and those they serve. Let’s dive into a few reasons marketing is valuable.

Nonprofit marketing can help:

  • Spread awareness. Nonprofit marketing spreads awareness of a nonprofit’s mission, its brand, and the specific ways it furthers its mission. It’s a chance to directly communicate what your organization does and why. Just increasing the number of people who are aware of the organization can attract new donors and volunteers, and this is especially true when considering the international reach of digital marketing.
  • Raise funds. More awareness means an organization has a better chance of attracting new donors and volunteers, increasing an organization’s ability to meet its fundraising goals. Marketing is also a useful way to engage current donors and volunteers, motivating them to continue to support your organization. Promoting a specific fundraiser through sending an email or by posting on social media to existing followers is one example of how you might make the most of your nonprofit’s marketing efforts.
  • Promote programs. Marketing doesn’t just reach the donors and volunteers who help further your nonprofit’s mission. It can also be used to directly reach potential beneficiaries the organization might be able to help. Marketing materials can contain information about specific programs and how those in need can take advantage of them

Intentionally crafting a marketing strategy for your organization sets your organization up for success by giving you the means to attract and retain supporters.

This flowchart lists the steps needed to get started with nonprofit marketing.

How can organizations get started with nonprofit marketing?

Don’t let getting started with nonprofit marketing overwhelm you. Gaining a better understanding of your audience gives you the tools to implement a valuable plan. To kick off a successful nonprofit marketing campaign, there are a few key steps to follow:

  1. Research. Organizations should make sure they understand important internal and external factors before planning a marketing campaign. This involves analyzing the current market landscape as well as looking into peer organizations to understand their strengths and weaknesses. As part of this evaluation, nonprofits should also take stock of their existing donors’ traits to create a better constituent experience through a more personalized marketing experience.
  2. Define a target audience. After researching their existing donors, nonprofits should compare this donor data against their goals in order to choose a target audience that is interested in their cause. This is a good way to spur an organization’s expansion and growth.
  3. Develop strategies. Choose strategies that resonate with your nonprofit’s chosen target audience. Determine which channels will suit your target audience and choose which mediums will speak most to them. Consider methods such as emotional photos or videos, impactful statistics, and storytelling.
  4. Create the campaign. During this step, your nonprofit should create concrete deliverables that align with the strategies you outlined earlier in the campaign. This might mean creating pieces of direct mail or graphics for social media, for example.

Consider working with a marketing agency that specializes in helping nonprofits. Partnering with an agency with knowledgeable staff and years of expertise in marketing can help you create a strong marketing campaign that will deliver impactful results.

Meaningful Nonprofit Marketing

Nonprofit marketing is an essential part of maintaining and growing a nonprofit. It allows organizations to reach their intended audiences, leading to more donors, volunteers, and supporter engagement. Organizations should take the time to learn more about their field and intended audience so they can use that information to create a robust strategy and meaningful marketing campaign.

This valuable tool is accessible to almost every organization. Nonprofits of any size can use marketing, which might look like launching a free social media campaign or working with an agency to market on every available channel. Marketing at any capacity can help your organization grow and reach new supporters.

Additional Resources

Learn the basics of nonprofit endowments and how investing can support your nonprofit.

Nonprofit Endowment – Nonprofit Catalog

For many nonprofit professionals, endowments can seem like a tricky subject, causing them to veer away from creating this type of fund.

And though they’re often managed by universities and other large organizations with sizable donor pools, nonprofit endowments aren’t just for wealthy organizations. In fact, professionals at small and mid-sized nonprofits can also boost the sustainability of their work when they take the time to learn about smart fundraising strategies like managing an endowment.

We’ll explore the basics of developing and managing a nonprofit endowment fund for any-sized nonprofit.

What Is a Nonprofit Endowment?

A nonprofit endowment is a pool of donations set aside and invested, allowing it to grow and financially support the work of a philanthropic organization. After the seed money (i.e. the principal) is invested, part of the earnings is paid out as an annual distribution.

Educational institutions, religious organizations, and social-service organizations all use this type of investment fundraising to grow their assets. These funds can be used for a range of purposes, such as:

Unlike your reserve fund, endowments are planned to be grown rather than spent in full. With an endowment, your initial investment amount will stay intact and growing.

Types of Nonprofit Endowments

We can categorize nonprofit endowments into different types depending on how they can be used. Infinite Giving’s guide to nonprofit endowments breaks them down into these five categories:

These are the five different types of nonprofit endowments.
  • Unrestricted endowments aren’t subject to any restrictions regarding how and when they can be used. As the most common type of endowment, unrestricted endowments allow you to use funds whenever and wherever it’s needed most.
  • Permanently restricted (or true) endowments are subject to restrictions that never end. The principal and its earnings can only be used for the specific purpose the donor defines.
  • Temporarily restricted (or term) endowments are similar to true endowments, except that restrictions only exist for a limited period of time. During that time, funds from these endowments are subject to conditions the donor places, such as what it can be spent on. After the term expires, the principal and interest money may be used without restrictions.
  • Quasi endowments are created by the organization’s board of directors via a transfer of reserve funds. The board sets stipulations regarding when the principal amount and any earnings can be withdrawn.
  • Micro-endowments are small endowments that make endowment giving more accessible to donors. When managed effectively, micro-endowments can grow substantially and fund salaries and programs just like any other endowment.

When looking at these options, consider which types will best support your nonprofit’s needs. For instance, smaller organizations may lean into micro-endowments, attracting a range of donors.

What to Consider Before Starting a Nonprofit Endowment

Smart investment strategies can strengthen your nonprofit’s sustainability. However, there are a few aspects you’ll want to consider before committing to this approach to investing.

Benefits of Endowments for Nonprofits

Organizations of all sizes turn to this type of fundraising and for good reason. Creating an endowment for your nonprofit provides you with a stable source of income, taking the pressure off your team to meet your minimum budgetary needs. You’ll be able to grow your assets alongside your general annual fundraising practices.

Benefits of Endowments for Donors

Just as organizations are drawn to this type of fundraising, nonprofit endowments attract major donors as well. For one, it gives donors a way to stay connected with your cause over time.

What’s more, micro-endowments are a great way to attract low and mid-level donors who want to deepen their engagement with your cause. As with any donation, donors can also typically claim their endowment gift on their tax deductions.

When it comes to true and term endowments, donors have more control over their gifts. They can be confident that their funds are going to the programs they’re most passionate about.

Challenges

As with any fundraising strategy, there are some challenges you’ll want to think through before diving headfirst into endowment fundraising, including:

  • Managing a nonprofit endowment might not be financially viable if you have an immediate need for funds.
  • There’s an inherent risk when it comes to investing, so you might choose to keep part of your endowment as cash reserves.
  • You might need to outsource management to a professional investment manager or invest in in-depth fundraising training.

Luckily, modern tools that streamline investment processes have revolutionized the nonprofit world, making it easy to overcome these challenges without breaking the bank. Backed by the right tools, you can accept and manage your endowment donations with confidence.

How to Start an Endowment for Nonprofits

Follow these steps to start a nonprofit endowment.

You’ve weighed the pros and cons of starting a nonprofit endowment and decided it’s a smart move for your team. Great!

Now, it’s time to take the next step and actually create your endowment. To make sure that it meets your organization’s needs and goals, follow these steps:

  1. Craft your endowment policies. Define the endowment’s purpose, what it’ll be used for, what type of endowment it is, how it’ll be funded, and how funds will be invested and managed.
  2. Gain buy-in from your board. Your board is responsible for setting your organization’s strategic direction and ensuring proper fund management. Present your policies and explain how a nonprofit endowment can fit into your financial strategies.
  3. Choose an investment platform. An investment platform can simplify endowments significantly, enabling you to accept and invest endowment donations. Choose a provider with secure management tools, an easy-to-use interface, and trustworthy services from a Registered Investment Advisor (RIA).
  4. Set up an endowment fund. Create an account with your provider. You’ll likely need to share your application, Articles of Incorporation, and 501(c)(3) IRS Determination Letter. Once they activate your account, you can select a portfolio and your annual disbursement.

From here, you’re ready to market the opportunity to donors and start accepting donations. Your giving platform will handle the heavy lifting, so you can focus on engaging donors and soliciting gifts.

Additional Resources

Nonprofit Catalog – Read up on more nonprofit essentials by exploring our Nonprofit Catalog.

How to Accept Stock Donations: The Ultimate Nonprofit Guide – Investment fundraising is an incredible opportunity for nonprofits. Start accepting stock donations by following the guidance in this article!

Managing Nonprofit Reserve Funds: The Ultimate Guide – Explore this guide to make sure you’re prepared to weather financial setbacks by properly managing your reserve funds.