9 Ways to be a Great Fiscal Sponsor

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I may be biased, but I think fiscal sponsorship can be a tremendous solution to a number of different issues for some nonprofits. It’s a flexible arrangement that can take several different forms and thus can serve organizations at different stages of the nonprofit lifecycle. Fiscal sponsorship can help both the sponsored organization and the sponsor address a variety of goals.

In my work, I consult for, and talk to, fiscal sponsors of all varieties all over the country – and, over time, I’ve observed the characteristics that all great sponsors seem to have. Before I share those characteristics, let’s all get on the same page with our definitions. One of the best definitions of fiscal sponsorship out there is this:

A fiscal sponsor is a nonprofit organization that provides fiduciary oversight, financial management, and other administrative services to help build the capacity of charitable projects.

Source: Fiscal Sponsorship: a 360 Degree Perspective,
Trust for Conservation Innovation

Andrew SchulmanNow that we have a shared definition, let’s dive into what your organization needs to be a great fiscal sponsor:

  1. A Solid ‘Why’

  2. There are many good reasons to be a fiscal sponsor, including: helping organizations that may become future collaborative partners get off to a solid start; shining a brighter light on your (and the sponsored-project’s) missions; and paying it forward to new organizations in your community.

    There are other strategic reasons to serve as a fiscal sponsor but the most important question to answer before becoming (or remaining) a fiscal sponsor is “Why?”  (For obvious reasons, helping out a friend/family member of the ED or a board member doesn’t make the cut!)

    In addition to guiding your fiscal sponsorship path, your “Why” will also help your organization determine which potential projects fit with your organization, and its mission – and which do not.

  3. Board Buy-In and Ongoing Support

  4. This one sounds obvious, right?

    As a fiscal sponsor, your nonprofit and its board of directors are taking on certain responsibilities on behalf of others outside of your organization. The board of directors has a fiduciary responsibility to the organization that extends to its activities as a fiscal sponsor.

    But you’d be surprised at the number of organizations where an ED or senior staff member makes this decision on their own without full board input or approval. Needless to say, this is not something I’d recommend.

    The board of directors of the fiscal sponsor should play a role in determining the types of projects that the sponsoring organization will support – and review project activities and issues on a regular basis.

  5. Sufficient Operational Infrastructure

  6. This one may also be obvious, but it’s critical to get it right.  Before your nonprofit takes on the accounting, finance, reporting, HR, legal, and other functions for another group -- please make sure your own nonprofit’s house is in order. And even more specifically, if your nonprofit’s accounting system is not set up well, you’re going to run into trouble when overseeing another project’s accounts.

  7. Proactive Risk Management

  8. Risk management is an area that many nonprofits don’t manage proactively enough, even when it comes to mitigating their own risk factors. And when you take on the responsibility of serving as a fiscal sponsor for another organization(s), you are potentially adding other risks. At the most basic level, you need to understand what sort of liability the sponsored project’s activities will expose your nonprofit to, and what types, and levels, of insurance your nonprofit should have in place.

  9. The Right Fee Structure

  10. Setting fiscal sponsorship fees can be a sticky subject. There are usually several factors at play when determining fees: 1) your nonprofit’s hard costs to provide specific services to the sponsored entity/program(s), and 2) the less-direct but still important costs (such as staff time and energy to administer the program and handle issues as they come up). There is also the value of providing this service to others that should be kept in mind as well – although that’s a lot more difficult to put a dollar figure on.

    Keep this mind: In my experience, most groups don’t recognize the full costs of the services they are providing and wind up charging a lot less than they should. And when I go through this process with clients, it’s usually quite eye-opening for them to see the time and costs associated with specific activities.

  11. Great Contracts

  12. Let’s just say this: a lot of organizations are acting as fiscal sponsors without a contract or anything in writing. If that doesn’t make your stomach churn, you might not be a good candidate to act as a fiscal sponsor.

    To be a great fiscal sponsor, you need to have a great contract. It doesn’t have to be long or overly complicated, but it should sketch out all of the key elements of the relationship (since there are many varieties of fiscal sponsorship) and identify what each party is responsible for (Here’s one sample agreement provided by a well-known legal expert in fiscal sponsorship). A great contract also includes the next two items on the list.

  13. A Plan for the End

  14. One area that many fiscal sponsors don’t plan for is the eventual end of the road for the relationship with their sponsored project(s). Sometimes that means the project outgrows what the sponsor can provide and it moves on to a fiscal sponsor that offers a wider variety of services (and there are actually nonprofits for which fiscal sponsorship is their mission). Sometimes the project isn’t able to deliver the services it plans to or doesn’t attract the funds needed to support its mission -- and has to shut down. And in some cases, the project has developed enough of its own infrastructure and sustainable funding to become independent, with it’s own tax-exempt recognition as a public charity under Internal Revenue Code Section 501(c)(3). (If you’d like to read more about why projects decide to separate, I’ve previously written extensively about that.)

    But, no matter what path your projects take, you – and they – should be prepared for the end. And ironically, that starts with what’s set forth in the sponsorship agreement.

  15. A List of Services

  16. Before your nonprofit becomes a fiscal sponsor, it should have a set of services in mind that it will offer to the sponsored project(s) – and you’ll want to clearly identify in your agreement what they are. You can, and should, revise and update the offerings as circumstances merit, but going through the exercise of exploring what is possible and defining what the services will be at the beginning of the relationship, will form the basis of a trusting relationship. As will…

  17. A Shared Set of Expectations

Managing expectations is one of the keys to a successful sponsor-project relationship and it involves not only clearly identifying the services and related fees, but also the timetable and manner in which those services are provided.

As a concrete example, look at the difference between these two items:

“As your sponsor, [Name of organization] will process vendor payments via check as long as there is appropriate back-up.”


“Outgoing payments to sponsored projects are made twice monthly on the 2nd and 4th Thursday of the month via check. Check requests must be made by the Monday preceding the check run at 4:00pm using the online check request system that requires documentation of expenses.”

In the first example, there is a lot left open to interpretation – such as how often checks will be processed and the process to initiate a payment, etc. But in the second example, the expectation and the process are more explicit. And that’s the level of detail that you should strive for so you are managing the expectations of the sponsored project and so the responsibilities of the fiscal sponsor are clearly articulated.

So, there you have it. If your organization is a fiscal sponsor (or is considering it), and you can commit to addressing the nine items above, your nonprofit is on its way to a smooth experience as a fiscal sponsor. If you’re looking for more information on this topic, the National Network of Fiscal Sponsors has published best practice guidelines for Fiscal Sponsorship.

And if you’ve read this far, I have a 10th bonus item for you: Measuring Success. Evaluation in general in the nonprofit world is difficult and something many organizations think they don’t have the funds or bandwidth to take on. But, in this case, if you’ve already mastered the first nine things listed above, the next step is track how you’re doing and add “review fiscal sponsorship program” as a regular activity so you (and your organization’s board of directors) will know whether fiscal sponsorship still makes sense for your organization’s strategic path, and if so, you’ll make the time to examine how to improve what you’re already doing.

Now, go forth and sponsor!

Andrew Schulman helps fiscal sponsors launch and grow their programs the right way. For more information on his work, please visit SchulmanConsulting.com.

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