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In our first post, we talked about what fiscal sponsorship is and why internationally-focused projects may want to go down that path. If you have decided that fiscal sponsorship makes sense for your initiative, this blog is for you: you may now want to know more about what to look for in a sponsor.
So how to choose the right fiscal sponsor? When approaching that question ourselves, our first step was creating a short list based on our top criteria. This post uses that same process: understand your criteria, rank what is essential and what is nice to have, create a short list of candidates based on those criteria, and then research the details and trade-offs. Doing your homework will pay off.
How to decide?
In our experience, before spending time talking to and researching sponsors, project leads will need to know more about what they need and want. We had to scope out and prioritize the administrative, financial management, and other operational needs of TAI – we recommend other projects do the same. By knowing these, you can then understand what you need from a sponsor, and these kinds of documents can then be used to ask sponsors about their services.
Once you have your lists of needs and wants, you can further prioritize your criteria and begin narrowing the field. Below, we provide a starter list that we used for TAI, but every project is different and will have its own needs. At this point, if you haven’t already, you’ll want to begin engaging your management and governance mechanism on this decision. They may want to weight in, and this would be a good stage to set out an overall process.
We recommend making a short list of candidates based on your essential criteria. Finding comparable details is much easier once you have this. The first step is checking sponsor websites. You can also interview staff of sponsors, search the web for recent news, check recent 990 filings, speak to others in the field, talk to your funders, and more. At some stage, projects will want to consider engaging professional advice, especially for legal compliance issues and financial reviews. Additional negotiations with sponsor candidates may occur as you further narrow down your candidates.
What could help us determine the short list?
As mentioned above, each project should start from its own particulars. We’ve found the list below to be a useful start in understanding what is essential.
- Mission alignment: Mission alignment is critical. This is not an optional feature: it ensures that both your project and the sponsor are in compliance with the law. We recommend consulting legal counsel on your mission alignment. Some professional sponsorships meet this requirement by having a mission to support non-profit projects.
- Governance and legal status: What are the details of the sponsor’s non-profit status? Can you review its charter documents and relevant filings? Who is on the Board? How are they selected? What is the board’s mandate?
- Size and budget: Look for a sponsor that can accommodate your staff size and budget. If your project is very large, small sponsors may not be able to handle your work load. On the other hand, if you lead a small project, a larger sponsor may not be interested in working with you.
- Financial status, management, and reporting: Take a look at the books, and if you don’t have a CFA or CPA, consider commissioning one. Evaluate the sponsor’s net assets and financial sustainability and trajectory. Do you want a sponsor that has a regular audit? If so ask. Do you need regular reports for your own management? What financial systems do they use?
- Administration and operations: The fiscal sponsor will need to sign all of your grants and contracts, including leases. It will also be the entity to hire your staff. Who is in charge of these things? How do they plan to manage the various connections to your project? This is a great time to use your list of activities and operations to talk through the candidate’s model.
- Communications, digital infrastructure, and IT: Your project may have specific needs, such as for web support. Make sure your sponsor can either provide what you need or help you contract to get it. Have frank discussions regarding issues like branding, communications with donors, and more.
- Donor-specific requirements: You’ll want to be sure your funders are willing to work with your candidate fiscal sponsor. In addition, some sponsors have their own donor preferences. For example, some sponsors charge higher fees on government funding because it often entails more frequent and detailed reporting. Indeed, if your organization receives government support, you will want to double-check that the sponsor has proven that it can receive it.
What else should we consider? What could we negotiate?
In addition to the essential criteria, project leads will want to consider other factors, from those that would be highly preferred to just “nice to have.” We add some more ideas below. These reflect TAI’s experience, as well as some of our colleagues working in international development.
- Fees: Fiscal sponsorship is a growth industry, so we have seen more choices and fee structures. Most charge a flat rate on incoming revenue in return for providing bundled services. The rates will vary, and a ballpark tends is 9% to 15% of revenues. Some sponsors have bands of fees and will provide these on their websites. The larger your revenues, the more negotiating power you will have. It should also play in your favor if you have just a few core donors versus many funders. Another advantage may be having simpler activities: needing a lot of contracts means high transaction costs for the sponsor.
- Responsiveness and service quality: You want reassurance that the administrative aspects important to your organization will be handled well. It is one thing to know a service is offered, and it is another to know that they provide that service well and in timely fashion. Ask to speak to other sponsored projects directly. Ask other non-profits regarding about their experience. Some sponsors might be strong on support for reporting and audits but slow on contracting, for example. You will know which services matters most to your organization, so verify their reputations on those aspects.
- Network: In the first blog, we reference the value of good synergies with the host as one motivator for pursuing fiscal sponsorship. That can extend to sponsors’ other fiscally sponsored projects (FSPs). These may have somewhat aligned missions, and a good sponsor will foster linkages among FSPs. This has certainly proven helpful in the case of TAI. Check their lists of projects as a start.
And for projects working internationally, we add a major (bonus) consideration:
- Global readiness: You may want to commission consultants living abroad, hire staff in other countries, host global events, give grants to organizations outside of the United States, and travel abroad for programming, including using a credit card in other countries. Yet not all host organizations are equally equipped to support such international demands. You do not want to be the guinea pig as they try to figure out the necessary paperwork, so make sure they have proven experience doing what you need. This is also when you’d want to check on relevant policies and insurance (e.g. for travel).
This was an important consideration for TAI – while we have not yet hired staff working abroad, we do use consultants based all over the globe and it was important to understand our options in this regard. For other allied groups that have relied on fiscal sponsorship, such as the Open Contracting Partnership, finding a sponsor that can handle a global dimension has been mission critical.
In our third and final blog, we will pick up on this point and ask why the fiscal sponsorship model has been so specific to the United States and then consider its potential for adoption in other parts of the world.
Please note that the content of this blog has not been reviewed by a lawyer; organizations considering becoming or using a fiscal sponsor should get advice from a counsel that has experience with US non-profit law. This is not legal advice.
TSNE, A White Paper on Comprehensive Fiscal Sponsorship, http://www.tsne.org/white-paper-comprehensive-fiscal-sponsorship
And even more here on the “Resources” page of the Fiscal Sponsorship Directory: https://fiscalsponsordirectory.org/?page_id=164
Michael Jarvis is the Executive Director of TAI while Jenny Lah is an Independent Consultant who previously worked with TAI. She has supported several organizations on networking hosting and fiscal sponsorship issues.