Eight steps to get started with fiscal sponsorship
Every day, people come up with creative ideas for starting a mission-driven charitable project. But it can feel overwhelming to apply for 501(c)(3) status and plan for how to manage the business side of things. Not to worry! Fiscal sponsorship can help.
Any 501(c)(3) can lend your project its nonprofit status and collect donations on your behalf. Going a step further, a dedicated, professional fiscal sponsor can provide much more. Professional fiscal sponsors handle your project’s back-office administration, so you have freedom to focus on your program development and test your ideas.
Professional fiscal sponsor services often include:
- HR, benefits, and payroll
- Financial management, budgeting, and accounts payable/receivable
- Tax preparation and annual audit
- Grants management
- Risk assessment and insurance
- Legal counsel
- Executive and organizational coaching
- Donation oversight
Eight steps to get started with a fiscal sponsor.
- Verify your idea is charitable. This might sound obvious, yet a surprising number of good-intentioned efforts don’t meet the IRS’s specific requirements for charitable activities. Fiscal sponsors must follow the IRS’s regulations and can only sponsor nonprofit eligible initiatives. So, keep the IRS’s requirements in mind as you develop your project.
Here is a link to the IRS’s list of charitable requirements.
- Determine your needs. Secondly, not all fiscal sponsors operate in every nonprofit arena. For instance, some focus on the performing arts or the environment, others restrict their work to certain geographies. Know what domain your project is in and find a sponsor who has experience in that area.
- Estimate your time frame. Is your project event-based and short-term or needs ongoing fiscal sponsorship? Some fiscal sponsors have a predetermined time frame for their projects. Accurately predicting your project’s duration will help you choose the right sponsor.
- Reputation matters! Ask the fiscal sponsor for references and verify that other projects are happy working with them. Also, select a sponsor that follows industry standards. This will ensure your project complies with all local, state, and federal regulations. The National Network of Fiscal Sponsors (NNFS) is a leading fiscal sponsor association. Its website lists sponsors that subscribe to the industry’s best practices.
- Alignment brings success. Your organization should be a good cultural fit with your fiscal sponsor. Choose a sponsor whose mission and approach align with your project’s and is committed to placing your project’s brand in the forefront. Basically, this step ensures your cause remains your donors’ and constituents’ primary focus.
- Understand the fine print. Know what you are getting into. Don’t be shy, ask questions! It’s important to understand what you can expect from your fiscal sponsor, what their rules are, and how the sponsor is paid.
- Know the costs. Fiscal sponsors’ fees vary. Some charge per transaction (for example your project pays them every time they process a bill) others have a flat fee (usually between 8% and 25% of a project’s revenue). You should know the sponsor’s fee structure and included services. It will help you manage your expenses.
- Fundraising support is key! Fundraising is an essential component of every nonprofit’s existence. A fiscal sponsor should point you in the right direction and provide you with the tools you need to immediately fundraise. Once your project has received donations, a fiscal sponsor must be able to track all your contributions and provide timely donor acknowledgement receipts. This ensures project supporters are confident that their money is well stewarded.
Fiscal sponsorship at Community Initiatives
At Community Initiatives, we provide our sponsored projects with access to Candid’s Foundation Directory Online where they can look for potential funders. In addition, our sponsored projects have access to Fundrazr, an online donation platform, to host their giving campaigns.
To thank our project’s supporters, we also provide automatic acknowledgements receipts for all online donations and for individual checks and wire transfers over $250.
Following these eight steps will help you to choose the right fiscal sponsor who can relieve the stress of starting a nonprofit or provide a solution for running a short-term charitable campaign. With the right fiscal sponsor, many of your nonprofit headaches will go away, so you can focus on your organization’s mission and the communities you serve.
For more info on choosing a fiscal sponsor check out Candid’s blog: All you need to know about fiscal sponsorship.
Lastly, for more guidance on fiscal sponsorship and to learn how Community Initiatives may be able to help you, please visit our website.
Lynetta Cornelius-Grier says:
Great article. It does a splendid job at putting all the nuances of a Fiscal Partnerships into perspective.