What are Fiscal Sponsorships For Non-Profits?
Starting out as a non-profit is an amazing journey with its ups and downs. The commitment to help your community is an important one, but to progress, you need funding through donations and donors to keep moving. One of the best ways for non-profits to secure funding, old and especially new, is through fiscal sponsors. Non-profits are notorious for being stressful places to work, and working toward financial stability can help ease some of that. We’ll go over the specifics of what a fiscal sponsorship is, who benefits from them, and the pros and cons of using them.
What is a Fiscal Sponsorship?
Fiscal sponsors are other non-profit organizations who offer their administrative assistance for a fee, accepting and distributing contributions on behalf of the organization they work for. They provide fiduciary oversight to help non-profits grow and realize their potential. In general, the main goal of fiscal sponsorship is to help non-profits manage donations and have the benefit of tax exemption before having tax exemption status themselves.
Types of Organizations That Benefit From Fiscal Sponsorship
Fiscal sponsorships are recommended for new organizations, as they help non-profits with the hard stuff when they’re first starting out. It’s a good option for non-profits who do not have tax exemption yet, as the fiscal sponsor does, giving donors the ability to still have tax exemption through the sponsor. The purpose of fiscal sponsorship is growth and stability assistance through financial means, allowing your organization to see its potential reach and secure funding to meet your non-profit’s needs.
Established non-profits can still see benefits from incorporating a fiscal sponsorship into their organization, however. Organizations will implement or keep fiscal sponsors to help maintain stability and manage heavy spending periods. Fiscal sponsors are experts in what they do after all, so it makes sense to keep them on, especially if they’ve grown with the organization.
Types of Sponsoring Organizations/Individuals
Fiscal sponsors don’t just help secure funding, sponsors can help with technical aspects of administration as well. There are organizations that specialize in helping with bookkeeping, tax returns, payroll, and other office tasks. Most of them help with the tax exemption piece of the puzzle, but you can find a variety of specialized organizations that suit your needs best. Some organizations provide financial advice as well, allowing non-profits to “test drive” and see how viable their projects are. In general, fiscal sponsorships are a powerful tool in the non-profit world that can transform a small project into a life-changing one.
Different Types of Fiscal Sponsorship
There are two main types of fiscal sponsorship that organizations typically use, each having its own unique application.
Comprehensive fiscal sponsorship.
- Gives up control. In a comprehensive sponsorship, most if not all of the ownership and spending responsibilities are given to the sponsor. Organizations are allowed to make amends, enforce change, or terminate an agreement with a sponsor, so it’s not complete control.
- Gives up responsibility. On the other end, your sponsor takes on any liability and becomes responsible for your organization and its assets as well. Any risk associated with your non-profit becomes their responsibility because they’re the ones taking ownership of your organization.
- Administrative fee. Because of the responsibility associated with this fiscal sponsorship, you’ll be paying an administrative fee for their services.
- No tax exemption. Your organization cannot be tax exempt for this type of fiscal sponsorship.
- What’s yours is mine… When you choose a comprehensive fiscal sponsorship, all of your employees and volunteers technically become employees and volunteers of the sponsor. This is beneficial as they’ll be protected by the fiscal sponsor’s insurance.
- Perfect for beginners. If this is your first non-profit, or you’re looking to test a project, this type of sponsorship is perfect for you. Your sponsor can help you through the process.
Pre-approved grant relationship.
- Ownership. In this grant relationship, you are responsible for your assets and organization. The fiscal sponsor does not take on any responsibility for your non-profit. This also means your employees and volunteers remain your own.
- Funds. Fundraising is done through the sponsor for the purpose of using their tax exemption status. The sponsor, however, still has control over donations and has no obligation to use the money raised for your non-profit. They have the ability to choose other non-profits to distribute funds to.
- Relationship. This is the keyword for this type of fiscal sponsorship. If you’re pre-approved, you’ve already been screened to work with these types of sponsors. As long as you’re in compliance with your agreement, you’ll receive the funds you need for your cause.
Downsides of Fiscal Sponsorship
Although there are a lot of benefits to be reaped, there are some difficulties associated with fiscal sponsorship. Finding someone to sponsor you can be a challenge, especially if you’re a new non-profit. You’ll have to find a sponsor who’s on the same page as you in some way while still having the knowledge you need to run your non-profit. Each fiscal sponsor has their own specialties as well so it can become hard to find a sponsor that checks most if not all of your boxes. Sometimes finding a sponsor can be harder than starting your non-profit.
Fiscal Sponsorships For Non-Profits Can Be Hugely Beneficial
The difficult task of finding a fiscal sponsor is outshined by the benefits and taking the time to find one is well worth the wait. The impact you wish to bring to your target community can become greater and happen faster than you imagined with a fiscal sponsor to help you get through the tough stuff. Running or starting a non-profit is hard enough as it is and a fiscal sponsor can help you get through it.