We’re continuing our exploration of fiscal sponsorship this week with fiscal sponsorship specialist Andrew Schulman, Founder of Schulman Consulting. If you missed last week’s post, you can read it here.
Can you describe a situation where a fiscal sponsorship made sense indefinitely? Can you also describe situations when a fiscal sponsorship might come to an end?
Sure. While many people fiscal sponsorship is just a stop on the way to becoming an independent nonprofit, there are many situations where that is not the case.
In my experience, ‘indefinite sponsorship’ is often a good option for an annual event like a concert or a festival that has a specific period of activity and then is dormant for the rest of the year – or for one-time events/entities like art installations or documentary films. This approach also usually makes sense for smaller organizations that never intend to hire employees or grow beyond a certain size.
Fiscal sponsorship usually comes to an end for one of several reasons:
- The project folds because it has served its purpose or it wasn’t able to build enough support to continue,
- The project is transferred to another fiscal sponsor (this happens more often than you’d like – and for a variety of reasons),
- The project reaches a certain level of organizational and financial strength and sustainability and separates or “spins out” to become a standalone 501(c)(3).
For more on separation, take a look at this 4-part series of blog posts I published last year.
If a project is getting ready to separate and become a standalone nonprofit, what should they be doing to prepare for the transition?
This is a great question! The first thing the project leadership should do is make sure they are really ready to separate – many people that I talk to believe they are ready but really haven’t reached the level of organizational and financial strength that they’ll need to succeed on their own.
Once they are truly ready, the project leadership should start by
- developing their Board of Directors,
- communicating their intentions to their sponsor,
- identifying the proper resources to assist with the necessary State and IRS filings,
- determining how to handle all of the administrative functions that their fiscal sponsor has been responsible for, and
- finding the right service providers and set up its internal processes.
And that’s just the beginning. Click the link above to read more about the separation process and download our free PDF Separation Checklist.
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