'Management & Leadership’
New Nonprofits: Why you should consider a fiscal sponsorship to help you get started
If you’re a nonprofit just starting out you may feel a bit overwhelmed. You spent time finding a cause that you are truly passionate about, assembled a team and wrote up an action plan. Now you need financial support, but how can you get that when it seems every grant and sponsor is scared to put their money behind a nonprofit startup?
You have to start raising money. But you’re stuck in catch 22, you have just applied for your 501(C)(3) but now have to wait months for it to get approved. It almost seems impossible to get started, but it’s not.
With the help of a Fiscal Sponsor you can apply to grants, start fundraising and get all the mentoring, resources and guidance you need to help you though the beginning stages. It’s a give and take relationship that will allow you to focus more time on your cause and less on managing an organization.
With a Fiscal Sponsor You Can
- Get tax receipts if your donors give money through the sponsor's organization
- Have much needed assistance with the administrative, legal and operational aspects needed for running a nonprofit
- Your name is associated with an already successful organization, which will help in promoting your cause to new supporters
When it comes to fiscal sponsorships there are a lot of benefits, but there can also be a lot of drawbacks if you aren’t prepared going into the partnership. We’re here to help give you all the information you need to create a mutually beneficial relationship between you and your mentoring nonprofit.
Table of Contents
[Tip #1] What is a Fiscal Sponsorship and how can it benefit you?
[Tip #2] What should you look out for when beginning your mentorship?
[Tip #3] What to expect from the fiscal relationship and how to build a fair contract.
[Tip #4] What are your other options?
Benefits of a Fiscal Sponsor
A fiscal sponsor is a nonprofit organization willing to provide financial support, administrative help and act as a trustee to help build up a new nonprofit organization.
If your goal is to be a fully independent organization a sponsor will act like a big brother or sister helping guide you through the crazy world of nonprofits, and if you choose you can stay working with them or leave when the time is right. Some people stay until they are confident operation on their own but long term relationships are also an option. If both parties work well and benefit from each other why not discuss the potential of continuing the project under their wing. Whichever route you choose, there still has to be a steady line of honest communication.
A nonprofit mentor will give, but they will also take. You may have to pay fees, share volunteers, and need to get decisions approved by them before moving forward. At the end of the day if it's between you and the mentor to make a decision, they will often win as they typically have the authority in the relationship.
But there are so many benefits that you as a new NPO can get from having a sponsor, such as:
- Having access to their resources and funds
- Ability to receive grants and refundable donations, being able to apply for grants is often the sole reason starters will seek out a sponsor
- Can test out the water before jumping in and setting up your own 501(c)(3), get to work with someone who knows their stuff and you are able to figure out if the nonprofit world truly is for you
- This also opens up your donations pool beyond grants, some places won’t sponsor new NPO’s and having a bigger name to back you up can open a lot of doors
- You can have someone else work on your administrative, or infrastructure duties and in some cases it may be more cost effective too
- Another very common motive for fiscal sponsorships is if there are deadlines for obtaining funds for a project that don’t match up to the amount of time the IRS takes to process your request
Anyone starting off in a new field knows that it can pretty busy. It’s hard to focus solely on your cause when there are just so many other things going on and you get pulled in many different directions. It’s nice to have a mentor to guide you through the crazy but wonderful world of working as a nonprofit organization.
Cons of Being Sponsored
There are a ton of pro’s when partnering up but there are also some cons. Luckily, there are a few things you can do to minimize them that we’ll discuss later in the article, but if you are considering joining a fiscal sponsorship these are definitely some key points you need to know.
The first crucial point is about money. Now each fiscal sponsor is different and will have their own unique way of doing things, but most of the time they will claim a portion of the revenues raised to cover administrative fees. These fees can cost up to 40% but usually a full service professional sponsor will be between 5-12%. If you are dealing with a larger project then you might be able to negotiate a lower fee.
They are also legally responsible for everything you do, including the responsibility to meet the terms of any grants you receive. Since they are helping you operate, if you and your sponsor come to a disagreement you most likely will need to fold.
A fiscal sponsor is also not the end all solution, even with a sponsor some funders won’t consider a NPO if they don’t have their own exempt status. So take your time, do your research and read every every guideline before you start applying. More importantly, look into hiring an attorney to represent your organization when developing your contract.
There are two pretty big conflicts you face when it comes to a fiscal sponsor:
- They have the final say, and
- Money (especially with fees)
These are things that can’t be avoided but a good contract can help create the best situation for both parties. A sponsor is also putting their 501(c)(3) on the line, so make sure you ask questions. Here are a few things to consider:
- Know how soon you can be sponsored. If you were able to receive grants prior to the partnership you need permission to move them over to your sponsor.
- Talk about cost, how much will they charge? What do the charges cover? Is there interest?
- If you are thinking of applying for your own 501(c)(3) let them know and give a timeframe as to how long you want to stay in the relationship.
- Talk about control, specifically in regards to spending funds. Your organization is in charge of fundraising and budgeting for funds while your sponsor should be there to ensure you have adequate funds. If you are working hard to raise money you should have a say in how it is spent.
- Ask about how they handle their interns, volunteers and student help. Do they require criminal checks to work there? Does it align with how you want to handle these situations.
- What role does your advisory board play? Are they in charge of the strategic decisions?
- If your NPO develops assets or intellectual property do you have full ownership over that property? Is it shared?
- Lastly, talk about where the funds will be kept. Is there going to be a separate bank account for the project or will it be put in with your fiscal sponsors? How will the money be accounted for?
There is a lot to consider when approaching a sponsor, but don’t worry we got you covered. Use our Matchmaking Checklist
for a quick guide on how to pick the perfect fiscal sponsor!
If you’re not sold on what you read so far, don’t worry you can start your nonprofit on your own but it will take a lot of time and hard work especially when fundraising. The best way to begin is to stay local, reach out into the community for those who also believe in your cause. Network and make connections with community leaders or businesses that might be interested in financially supporting you.
Some communities may have a foundation specifically for startups. You can also check in with your local nonprofit association for resources or contacts for local funders. Reach out to your board members and see if they have any skills or friends that offer services that can be exchanged for donations. Get creative and be authentic, as people are more likely to donate to an organization they trust.
5 Key Takeaways
When starting off as a nonprofit, you do have options and depending on where you stand a fiscal sponsorship may be the best option for you.
Here are the 5 key takeaways:
- Find a sponsor who matches your organization's cause and beliefs. You want a partner that will compliment your NPO so it is easy for their donors to want to support you.
- Define your goals and your timeline. Know exactly what kind of partnership you want, whether it be for a specific project or for your whole organization you need to decide how you want to approach your sponsor. They also need to know how long you will be a part of their organization for.
- Make a contract based off of both of your goals. Are there areas that you don’t want to negotiate on? What percentage of your donations go back to your sponsor? Get everything out onto the table and then onto writing so there are no surprises down the road.
- It is possible to be an independent startup nonprofit and succeed, but it does take a lot more time, effort and practice to do so.
- No matter your choice you have to consider your end goal. Think ahead and decide what is best for your NPO. A fiscal sponsorship is a great resource for start-ups but it’s not exclusive to them. It can also be a long-term relationship depending on the type of contract decided upon by both parties.
At the end of the day, you know what is best for your nonprofit. When beginning you venture everything can seem like an uphill battle, but it’s important to push through. Fiscal sponsors can be a fantastic resource to break into the industry and decide if the nonprofit world is right for you. If you do decide on finding a fiscal sponsor, use this guide as a tool to find the perfect match so that you can be on your way to making the world a better place.