Being Fiscally Sponsored: Basics + Navigating the Relationship

With the level of uncertainty surrounding nonprofits and frankly, our world, these days, we thought it may be helpful to start a series on fiscal sponsorship as another tool in our fortify toolkit. We’ll start from the side of being a fiscally sponsored project with some basics and key points in how to navigate the relationship.

What is fiscal sponsorship?

At its core, fiscal sponsorship is a legal and financial arrangement where a registered nonprofit (your “sponsor”) extends its tax-exempt status to your project. It allows you to operate under their tax-exempt status while focusing on your mission/fundraising/growth without the operational set-up of forming your own nonprofit.

Fiscal sponsorship isn’t a hands-off relationship though – it’s key that you’re dialed into the details of your set-up and the areas you’re responsible for. Read on!

Know the Type of Sponsorship You’re In

There are two common types of fiscal sponsorship:

Model A: Your project becomes a program of the sponsor. They technically “own” your project and handle all financials, HR, bookkeeping, compliance and liability. All your transactions (deposits, payments, credit cards, employment) run through your sponsor and they are legally responsible for the compliance of all of that activity.

Model C: Your project handles your own transactions and day-to-day operational activities, but the sponsor receives and disburses funds to you on your behalf. You still run the show (including all operations, disbursements, bookkeeping, payroll/benefits set-up) but agree to regular financial reporting & oversight.

Understanding which model you’re in is step one. It affects everything from who signs contracts to how you spend your funds. As the needs of our movement change, more nuanced types of fiscal sponsorship have been popping up (which is a great thing) – what we’ve listed here is a very basic primer.

Oversight is a Good Thing!

Fiscal sponsors are legally responsible for ensuring funds are used for charitable purposes. That means:

• You may need pre-approval for contracts and expenses
• Your fiscal sponsor may need to sign contracts, grant agreements and employee offer letters
• You’ll likely submit budgets and cash projections (and may have cash level requirements to maintain)
• Your funder relationships (proposals, reporting, etc.) may be handled by closely working with your fiscal sponsor

Key Questions to Ask a Fiscal Sponsor

When you are looking at potential fiscal sponsors, it’s key to have an understanding of their policies and procedures. Some good questions include:

• What’s the turnaround time for reimbursements or check requests?
• What types of reports are you receiving and how often?
• What are the fees for sponsorship and how are they charged? Are there any special fees assessed and if so, when?
• If my staff are to be employed by the fiscal sponsor, what are the personnel policies/benefits?
• What kind of other items are you looking for support on (now or potentially in the future!) – credit cards? c3/c4 cost sharing?

For more detailed questions, see the download here – FwF Questions to Ask a Potential Fiscal Sponsor.

Think About Your Org’s Future

Fiscal sponsorship can be a long-term solution—or a stepping stone. Have regular conversations as an org as you evolve:

• Do you eventually want to spin off and become your own nonprofit?
• If so, what does that transition look like?
• If not, is your sponsor a good long-term partner?

Some projects outgrow their sponsor or evolve into something different. It’s important to have a roadmap and open dialogue.

Honor the Relationship

Your fiscal sponsor is doing more than filing paperwork—they’re vouching for your work and aligning with your values. Keeping compliant keeps you and all the other fiscal sponsor’s projects safe in the face of attacks. Make sure your org is dedicated to understanding & complying with their policies & procedures, and on-going communication with your fiscal sponsor is key!