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What is a fiscal sponsor and should you use one?
Let’s talk about fiscal sponsorship, which sounds complicated, but it’s actually pretty simple. A fiscal sponsor is a registered nonprofit that lets your project operate under their tax exempt status.
Oo! So instead of starting your own nonprofit, you’re basically borrowing theirs. That means you can apply for grants, accept donations, and raise money without having to file for a 501c3 status. AKA, a nonprofit. And without having to do all the paperwork that comes along with that.
Funders often require nonprofit status to give you money and fiscal sponsorship is the way around that. Your fiscal sponsor handles the behind the scenes stuff: accepting grant checks, issuing donation receipts, sometimes managing bookkeeping and sometimes paying people.
Meanwhile, you focus on the creative or program work. Most sponsors take a small admin fee, usually 5 to 10%. And in exchange you get infrastructure, oversight, and legitimacy.
But every sponsor is different. Some are super involved, some just make the money move, so always ask. What services are included? What are the expectations? And is this a good fit for how I work? Fiscal sponsorship is a great option for collectives, emerging projects, individuals, or time limited initiatives that don’t want or don’t need to become full nonprofits.
It gives you access to resources without the weight of building an organization from scratch.
What is a Fiscal Sponsor?
A Fiscal Sponsor is a nonprofit organization that agrees to share their tax-exempt organization status with you or your organization in exchange for a fee, usually a flat percentage of your income.
This means that any grants, donations, or earned income gets deposited into the fiscal sponsor’s bank account. Grants will list the fiscal sponsor’s name as the grantee. The fiscal sponsor is agreeing to receive money on your behalf.
The fiscal sponsor holds the legal liability (responsibility) for making sure all the money moves appropriately. They also hold the liability for following accounting rules and local, state, and federal laws that apply to nonprofit organizations. So, all the income for your organization goes to the fiscal sponsor first, before you can spend it.
Where do I get a Fiscal Sponsor?
While it’s technically true that any nonprofit organization can act as a fiscal sponsor, there’s a lot of back-end work that goes into doing fiscal sponsorship well. It’s in everyone’s best interest if the organization providing fiscal sponsorship services has experience and dedicated staff devoted to the fiscal sponsorship program. Some organizations specialize entirely in fiscal sponsorship.
The National Network of Fiscal Sponsors has an online member directory that you can search through.
Independent Arts & Media, the organization behind the Dandelion Arts Finance Program, provides fiscal sponsorship to more than 100 artists and arts organizations. You can learn more about IAM’s fiscal sponsorship program on their main website.
What goes into Fiscal Sponsorship?
On the back end, the fiscal sponsor does specialized accounting work to separate out the income, expenses, grant balances, receivables, payables, and available cash for each individual fiscally sponsored project, as well as tracking them as they change. They also keep copies of everyone’s grant agreements.
There are many models of fiscal sponsorship, and the most common are called Model C and Model A.
In model C fiscal sponsorship, often called a “regranting” arrangement, the fiscal sponsor pays out chunks of funding to your project. Then, you spend, manage, and account for the money on your end.
In model A fiscal sponsorship, you and your team could become employees of the fiscal sponsor, and your organization is officially one of their programs. In model A fiscal sponsorship, the fiscal sponsor will also pay expenses out directly, instead of you paying first and getting reimbursed.
Some fiscal sponsors may provide additional services, like administrative, HR, and IT support. It’s important to note that these services are above and beyond the legal requirements of fiscal sponsorship. Meaning, it’s not a guarantee or an automatic thing.
The key thing to note is that no matter what model of fiscal sponsorship, you/your organization has to bring in the income to pay for your own expenses!
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