Nonprofit organizations just starting out may not have their 501(c)(3) designation yet. This makes it almost impossible to receive charitable donations and apply for grants. One solution they can explore is fiscal sponsorship.
What Is Fiscal Sponsorship?
Fiscal sponsorship for nonprofits is when an established nonprofit acts as an outsourced extension of a new and emerging organization. The legal contract between the two entities establishes their relationship, with the established nonprofit serving as the sponsor. The contract between the two parties does not imply an ownership relationship or a partnership between the entities. Rather, it establishes the guidelines for a working relationship.
By serving as a fiscal sponsor, the established nonprofit provides a valuable service to a newcomer to the nonprofit world. They will charge a fee to cover their services.
What Are the Duties of a Fiscal Sponsor?
The exact duties of a fiscal sponsor are stated in the sponsoring agreement. Some of the more common duties held by sponsors include:
- Tax filing
- Employee benefits management
- Donation management
- Unemployment insurance
- Health insurance
Can Sponsorship Agreements Extend Beyond Financial Assistance?
Yes. Some nonprofits work with a sponsor which extends operational support to the fledgling organization. They may provide back-office support such as bookkeeping services in addition to fundraising and donation management.
The Benefits of Fiscal Sponsorship
Startups face numerous challenges: funding, growth, marketing, accounting, legal needs, and more. Nonprofits face these challenges along with the need to become self-funding over time. Many people who dream of starting a nonprofit choose to work with a sponsor to allow time to test their concept and ensure there’s a place for them in their chosen field.
Another benefit to nonprofits using a sponsor is that they can focus on growing the organization. The time needed to manage accounting, tax preparation, and other back-office tasks can be used for organizational growth and development, as well as program services.
Lastly, larger nonprofits capable of sponsoring a startup often have considerable staff and expertise: legal counsel, an accounting department, and an HR manager. Working with such a team provides startups with access to highly experienced staff at a critical time during the startup phase, which can help them build stronger, better organizations.
Where to Find Fiscal Sponsors
The best place to start looking is among local nonprofits. Use your network of contacts to find out if any local nonprofits offer this service.
Other places to find potential sponsors include:
- The Financial Sponsors Directory, a resource of trusted organizations available to serve as a sponsor
- The National Network of Fiscal Sponsors, a professional organization for individuals and organizations working in the field of fiscal sponsorship
No matter how you find a fiscal sponsor, as with all work agreements, investigate the sponsor thoroughly. When working with a fiscal sponsor, you must ensure that there’s both a meeting of the minds and the philosophies to make the situation work to your mutual benefit.
Welter Consulting
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.
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