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Should we use a fiscal sponsor or go it alone?
I am involved with a group in the first phases of starting a nonprofit in our community and we are debating whether we want to go with a fiscal sponsor to start or to “go it alone” right away. Wondering what experiences other folks may have had with this question. What were your experiences in working with a fiscal sponsor? How did you go about finding the right fit with a fiscal sponsor? Any feedback would be appreciated!
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6 Replies
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Hi Marie, I have heard about organizations having both good and bad experiences with getting a fiscal sponsor. Our nonprofit is over 50 years old so it was different back then. I would recommend asking for legal advice and thoroughly vetting any business/organization before signing anything.
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For many organizations starting up, a fiscal sponsor can be very helpful in bringing the support services the organization needs together in a relatively short period of time. It is important to find a fiscal sponsor that has experience in the type of organization you are building. Check out the the National Network of Fiscal Sponsors website, (fiscal sponsors.org), for a listing fiscal sponsors and their areas of expertise. For trade associations, association management companies, (AMC’s), provide similar, if not identical, supports to the table.
After some experience with either of the above, the organization will be better able to assess whether it makes sense to move to a more stand alone model.
I’ve worked with organizations that have used both fiscal sponsors and AMC’s as well as those which have moved to hybrid or independent status and would be happy to discuss further.
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I agree with MrMalph that starting off under the auspices of a fiscal agent can be very helpful to emerging nonprofits. It’s often a great way to get programs up and running without simultaneously needing to put extensive administrative and governance systems in place.
One suggestion I have to add would be to make sure that, early on, you clearly communicate (mutual) expectations regarding the kinds of reporting that each party will do (e.g., what sort of financial summaries will you get from the fiscal agent? what service reports will they expect from you? what sort of documentation do you need to submit/keep on file to justify requested payment or reimbursements?). Remember, too, that as a sponsored organization you would be acting on behalf of the fiscal agent, so will need to adhere to their policies and procedures (e.g., authorization of payments or approval of overtime pay, recruitment/hiring processes, drug-testing requirements, …), with which you should familiarize yourself in advance of any formal arrangement. Making sure everything is clear up front REALLY helps avoid conflicts and problems later on.
One caution I would offer would be to avoid the temptation to have the fiscal agent do all of the financial oversight. Just because they’re handling the bookkeeping and IRS filings doesn’t mean that the person(s) responsible for running the programs and services don’t also need to keep a timely eye on where the money’s going, and when and from where it’s coming in. I’ve seen problems arise when the program folks didn’t foresee the end of a significant funding stream (grant), relied on the fiscal agent to cover operating costs during a gap, and then couldn’t repay the amount advanced. This could have been avoided if the program people had been more aware of cash flow and revenue projections before the money ran out, instead of turning everything of a financial nature over to the fiscal agent (who I feel should also have foreseen this particular problem, by the way!). I’ve also seen sponsored organizations whose leaders keep an independent set of financial records (e.g., QuickBooks or even a simple spreadsheet) to compare with the fiscal agent’s periodic statements, in which case they were able to head off or address any discrepancies before they became problematic. Keeping a full set of financial records may not be necessary or even advisable (though it can set an organization up well for eventually weaning from the fiscal agent), but keeping an active and informed eye on financial transactions and reports is, in my experience, crucial. Even if someone else is also doing it for the sponsoring agency.
Wishing you much success!
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There’s already some good advice shared here but I’ll add that not all fiscal sponsors are the same and there are a few different models of fiscal sponsorship out in the world that have VERY different implications for the relationship and what your project’s responsibilities will be vs what the sponsor would be responsible for.
For background. I’m a consultant that focuses exclusively on the fiscal sponsorship sector – working both with sponsors and sponsored projects. If I can be helpful in any way, please don’t hesitate to reach out.
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I always suggest founders of new nonprofits use a fiscal sponsor to handle accounting, 501c3 status and other back office work. Having the founders working on the mission and figuring out if there is a real need for the org and the programs (and findability), and not on the machinery of starting and administering of a charity is well worth the fees.
I just launched as a standalone c3 after 4 years of sponsorship, it worked for us.
