Big Picture Financial Planning for Nonprofits (part 1 of a series)

Big Picture Financial Planning for Nonprofits (part 1 of a series)

By Tom Wilson Major Gifts Guru

As the stock market and other investments have hammered nonprofit endowment funds, the FAS financial planning model for nonprofits is more relevant than ever.

FAS, initially called financial arts stabilization, developed in the 1970s as a response to a failed endowment challenge initiative by the Ford Foundation. In hopes of shoring up the finances of symphony orchestras throughout America, Ford Foundation issues a series of matching challenge grants in the late ‘60s for symphony endowments throughout the country. The challenge campaigns were successful and endowment funds boosted.

Nevertheless, 5 years after the initiative was over the orchestras were in financial trouble yet again. What happened? Why weren’t the new endowments working?

One of Ford Foundation staff members dug into the issue and discovered that budget surprises over the years had caused recurring deficits. In simple terms – endowment funds were pledged to loans to secure this new debt. The interest on the loans and the endowment distribution nearly cancelled each other out basically negated the presence of the endowment.

So what was the solution?

A financial arts stabilization model was developed and three major foundations including the Ford Foundation, Kellogg Foundation, and Charles Stewart Mott Foundation provided seed funding.

The keys to financial health were not just a big endowment fund, although part of the model includes endowment enhancement.

The keys were – a balanced budget, an operating contingency, and reserve funds.

To read the rest of the series, please see below:

Permanent Link: Big Picture Financial Planning for Nonprofits (part 1 of a series)

http://majorgiftsguru.com/2009/04/big-picture-financial-planning-for.html

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