Navigating the nonprofit sphere can be daunting, especially when it comes to getting your 501(c)(3). You may consider fiscal sponsorship as a means of gaining access to tax-exempt funds while your nonprofit organization is without official tax-exemption. It is important to make sure the fiscal sponsor you choose, like any other service provider, will fit your needs and the needs of your organization. Here are a few guidelines to keep in mind while selecting a fiscal sponsor to partner with.
1. Align Your Vision
Many fiscal sponsors have a specific purpose in mind when they look for clients. Before you seek a relationship with a particular fiscal sponsor, it is essential that you take their mission into consideration to ensure they will be effective in assisting you. Humanitarian Social Innovations specializes in humanitarianism and social entrepreneurship, sponsoring projects that make the world a better place for a sector of humanity. However, there are over 200 fiscal sponsors in the United States that are involved in issues from the arts to international affairs.
Transparency is the key to a good sponsor-client relationship. It is vital to keep track of what funds your sponsor holds on your behalf, to know how much of that money goes to administrative fees, and to have a general knowledge of what the administrative fees are covering. Your sponsor should be willing and able to provide you with any relevant information you request. If the sponsor does not readily respond to your inquiries, it may be a red flag.
3. Competency and Accountability
Two of a fiscal sponsor’s responsibilities to their clients (other than providing the sponsorship, of course) are maintaining their tax-exempt status and staying in business. A good fiscal sponsor will demonstrate networking abilities, have a working knowledge of the grant system, and be capable of handling funds wisely in the face of a fluid economy. They will also be well informed on the non-profit industry and be on top of filing taxes and paperwork necessary to keep their 501(c)(3) status.
4. Know Your Model
The two most common models of fiscal sponsorship are the comprehensive fiscal sponsorship (Model A) and the pre-approved grant relationship (Model C). In Model A, the fiscal sponsor takes responsibility for the program’s assets and activities, managing the liabilities while the creator of the program remains free to run the program as they see fit. In Model C, the fiscal sponsor will provide a structure in which an incorporated project can access tax-exempt donations and grant funds, but the non-profit is otherwise a separate entity from the sponsor. When selecting a fiscal sponsor, you should determine which model aligns best with your goals and make sure your contract appropriately follows the guidelines for the model you have chosen. In a pre-approved grant relationship, a fiscal sponsor should not try to take ownership of assets or activities aside from those designated for fundraising. Humanitarian Social Innovations practices both Model A (Acceleration) and Model C (Certified Grantee).
The world of fiscal sponsorship may be a bit overwhelming at first, but once you have been taken safely under the wing of a trustworthy sponsor that meets your specifications, you will be able to turn your focus away from administrative worries and back to making the world a better place.