They accept donations on your behalf but do not manage your day-to-day operations. This model offers more autonomy for your project, but you still get the benefit of receiving tax-deductible donations. If your project fits these criteria, fiscal sponsorship could be an excellent way to jumpstart your nonprofit initiative. We hope this article will be helpful in getting started with fiscal sponsorship. One of the best ways to search for a fiscal sponsor is to use online services designed to connect nonprofits doing similar work. Websites, like the Fiscal Sponsorship Directory, can help connect your nonprofit with a sponsor.
What is Fiscal Sponsorship, and Why Adopt this Model?
This means you can receive funding, build credibility with donors, and get support with things like accounting and reporting while increasing your efficiency. The project runs its own programs and operations, and can solicit grants and other tax-deductible donations to be given to Propel for the charitable purpose of the project. Propel then “re-grants” those funds to the project to be used toward meeting your mission. When you choose this model, your project does not have a separate legal existence. Instead, you enter into a written fiscal sponsorship agreement with the sponsor in which you agree that your project will become one of the sponsor’s programs. The sponsor will be in charge, legally and monetarily—however, an advisory committee may be established to help the sponsor run the project.
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- You are a for-profit business working on a short-term or long-term social good project that could qualify as charitable, such as a media company producing an educational documentary, or offering services to low-income communities.
- This will help you make sure it’s aligned with local laws and regulations, and adequately protect both parties.
- The steep challenges our communities face require nonprofits of all sizes and stripes to collaborate, and fiscal sponsorship works as a simple, proven way to do so.
- Under this model, the sponsored project becomes a program of the sponsoring organization.
Each fiscal sponsor is different, but typically, fiscal sponsors that provide a lot of administrative support will charge higher fees than those who provide basic services. Fiscal sponsors often charge between 5%-10% of donations to act as a fiscal sponsor (though our rate is less than 4%). Many sponsored projects eventually seek independent 501(c)(3) status, though this transition requires careful planning. A recent survey found that only 30-40% of fiscally sponsored projects were interested in becoming their own 501(c)(3) organization, indicating that long-term sponsorship relationships can provide lasting value.
The specific model chosen depends on the type of nonprofit of both the fiscal sponsor and the sponsored project. Fiscal sponsorships can offer organizations financial flexibility whether they are just starting out or hoping to accomplish their mission without the hassle of forming a legal entity. If you are considering fiscal sponsorship, the National Council of Nonprofits offers many resources for nonprofits. What we mean by that is an ongoing charitable activity that is intended to be operated indefinitely, and is small enough that those operating it would prefer to not formalize their own nonprofit organization.
What are the benefits of fiscal sponsorship?
Fiscal sponsorship lets younger, smaller initiatives benefit from the infrastructure of an established nonprofit. Instead of getting sucked into the process of starting an organization from scratch, they can focus entirely on their mission and decide if going the full nonprofit route is right for them. Anecdotal support for increasing interest in fiscal sponsorship is also relatively easy to find.
Donor Support
The sponsor does not freely pass the donations on to the organization, cause, or group whose behalf they were collected but designates how the funds will best be used. The mentorship, back-office support, and reporting guidance that a sponsor provides can be the difference between a good idea and a sustainable program. It allows our partners to focus on outcomes—like building schools, defending legal rights, or supporting women entrepreneurs. The program can then use debit cards, reimbursement, or the online bill pay features within Ribbon to pay for needed items and services for their charitable program. We require information from the charitable program about those purchases to ensure funds are being used for charitable purposes.
The fiscal sponsor has the authority to designate the funds themselves or assign management of the funds to other staff members within the sponsor’s organization. The project operators should provide an expenditure accountability report back to the fiscal sponsor, detailing exactly when and for what purposes the money was spent. Because the sponsor is accountable for expenditures, these periodic reports will assist in preparation of the sponsor’s Form 990 at the end of the year. Ideally, the sponsor will provide a template report to the project on a monthly or quarterly basis. Annual reporting can work, but doesn’t provide the visibility truly necessary for compliant oversight. The better way is for the sponsor to set up a fund…or even a separate bank account…for each sponsored project.
- Or maybe you’re an individual or small group with a mission, but you’re struggling to navigate the complex world of nonprofit funding.
- The sponsor does not freely pass the donations on to the organization, cause, or group whose behalf they were collected but designates how the funds will best be used.
- Understanding these responsibilities upfront helps protect your project from unexpected complications.
Discover seven powerful collaboration tools that transform chaotic nonprofit teamwork into streamlined fundraising success—helping you raise more while stressing less. Once you’ve narrowed down your options, prepare a comprehensive proposal that clearly articulates your mission, project details, budget, fundraising strategy, and anticipated outcomes. Creating a partnership with a fiscal sponsor can be stress-free with the right tips and tools. Fiscal sponsorship can provide an alternative to forming a formal nonprofit for groups and cause leaders or may provide an option in early and transitional phases. Fiscal sponsorship is an often-misunderstood and misapplied area of nonprofit operations. But when properly utilized, these arrangements can be beneficial, especially for those being sponsored.
Can an individual be fiscally sponsored?
These days, even connecting with potential sponsors online fiscal sponsorship for nonprofits on social media helps improve your chances of finding the right one. Maintaining regular contact between the sponsor and the grantee will ensure that both parties are fulfilling their obligations to each other. Have your board members often reach out to the contact person from the fiscal sponsor and create a lasting sponsorship relationship. You’ll often find a gap between a nonprofit’s founding and its receipt of 501(c)(3) tax-exempt status.
Organizations should establish clear expectations about the duration and goals of the sponsorship relationship during initial negotiations. Written agreements should address potential separation processes and asset transfer procedures. Please read the Common Questions below to determine if Incubation through Fiscal Sponsorship and Technical Assistance is the best fit for your project or program. Contact us if your project responds to an urgent need such as a public emergency so we can expedite the application process. Every day, people come up with creative ideas for starting a mission-driven charitable project. Fiscal sponsorship agreements help set expectations, prevent potential conflicts, and can help ensure all responsibilities are accounted for and assigned to the appropriate parties.