1. Cost
The cost of fiscal sponsorship can vary widely. Items that will impact this cost include the amount of administrative support being provided, the complexity of your financial reporting requirements, and your mission model. Missions that are complicated and are difficult to discern their exempt activities may require additional oversight.
Also consider the cost structure. Is the fiscal sponsor charging a flat fee for their services or hourly? Or something else? Are they charging a percentage of your donative or other revenue? These are all important considerations.
2. Autonomy
By working with a fiscal sponsor, you must give up some control over your organization. This is unavoidable because the agreement to sponsor an organization requires that the sponsoring organization hold enough control to ensure the funds are used for an exempt purpose. Therefore, you should consider not whether to give them control of your organization’s activities, but rather how much control to give.
Do you trust their leadership? Does the organization have expertise in your mission area? How clearly are the boundaries of control established? How autonomous is your board?
3. Mission alignment
While your mission and that of the sponsoring organization need not be perfectly aligned, it is an important consideration. If not for appearance reasons, for practicality. You don’t want to select a fiscal sponsor who knows nothing about your work or your mission. You’ll spend an unnecessary amount of time explaining your programming to them.
Instead, find a fiscal sponsor who operates or has expertise in a similar area. This will allow you both to focus on your mission work, and not translating or making the case for expenditures.
4. Capacity
The fiscal sponsor should have some capacity to provide what you need. They don’t need lots of money or a huge team of people. However, they do need to be able to provide quality and reliable accounting and financial reporting. That means, the operation run out of someone’s basement probably doesn’t have the capacity to function as an effective partner and fiscal sponsor. After all, you’re looking for a partner, not just a pass-through financial entity.
5. Experience
They should have done this before. Granted, you have to start somewhere. But most organizations that are acting as fiscal sponsors have some experience with this service.
You’ll want to screen your potential partner to ensure they have airtight accounting practices in place, and to make sure they know how to structure and handle a fiscal sponsorship agreement.
A tip of a very experienced organization: becoming a nonprofit does not making fundraising easy! When the Uncommon Fund started 7 years ago, we had this false assumption. It took a few years to learn that donations and revenue come from hard work and providing a true value for the community and our stakeholders.
6. Exit Strategy
When you enter into an agreement with a fiscal sponsor, you should know how it is going to end. Not all agreements have endings, some programs are run almost entirely independently but with a fiscal sponsor for many years. Most, however, are time-limited projects or programs that don’t need a permanent tax exemption. Or, they are programs that want to start up with minimal expenses, but that have aspirations to grow beyond what fiscal sponsorship is appropriate for.
Either way, you should know how and under what circumstances might the agreement come to an end.
If you’re interested in fiscal sponsorship services, we might be able to help.