Over the years we have spoken with thousands of nonprofit leaders and have heard their ‘why’ stories. Why they work in the nonprofit sector, why their work is critical, and why it must continue. The common thread is a desire to serve the community and impact an identified area of need.
Complex nonprofit organizations can spring from something as simple as a person with an idea and hope to impact change. But before starting a nonprofit and registering your 501(c)(3), there are some questions to ask.
Is there a need for a new nonprofit?
You may have identified a need or a cause that is compelling. Before you dive in to solve it by forming your own nonprofit, we suggest that you assess the need. This can be done informally, by looking up or contacting existing nonprofits serving similar causes to you. Volunteering is also a great first step to getting applied experience and talking to folks already doing the work.
Some resources for a quick nonprofit search are Charity Navigator, Guidestar, and the IRS list of tax-exempt organizations. A more formal approach would be to conduct a competitive assessment for your charitable idea.
Assessing the need for a new nonprofit will help you define what your unique mission is, and clarify if a new nonprofit is needed.
You may find that while the need is valid, an entirely new 501(c)(3) is not. Perhaps your work serves a niche cause, would thrive under a partnership or collaboration with an established charity, is a short-term project, or addresses a time-sensitive need. In these scenarios and more, fiscal sponsorship might be the best option.
Fiscal sponsorship can be an efficient way to raise donations that are tax-deductible for a charitable cause, without having to officially incorporate or wait months for the IRS to grant tax-exempt 501(c)(3) status. Operating under the umbrella of a fiscal sponsor allows charitable ventures to directly serve the mission and enjoy the many benefits of fiscal sponsorship.
Do I have the time and capacity to start a nonprofit?
Time and capacity are critical considerations for nonprofit founders. Starting a nonprofit is laden with paperwork, ongoing compliance tasks, and record keeping. Keeping track of these tasks is a full time job, in addition to the charitable work you’re already doing. Each step is important to achieving compliancy and earning the trust that comes with tax-exempt nonprofit designation. While thousands of new nonprofit organizations are formed each year, it’s important to be aware it will require time (6-12 months) and money ($600 – $20,000) just to get started.
In The Plight of The Overworked Nonprofit Employee, the Atlantic writes that often nonprofit operations depend largely on unpaid work with staff or volunteers working overtime.
Usually, nonprofits take a few years before hiring staff members. Even after some time, 85.9% of nonprofits do not have part-time or full-time paid employees.
This indicates that nonprofit founders may need to be prepared to tackle the work themselves in the first few years.
If time and money are deterrents, then fiscal sponsorship could provide a better path forward for your charitable project. Imagine a scenario where, when starting a charitable venture, you don’t have to go through the 501(c)(3) filing process, your donors receive a tax deduction for their donations, and you get to focus on your charitable work! That’s what fiscal sponsorship allows you to do.
When your charitable work functions under fiscal sponsorship, the sponsor manages compliance requirements, back-office administration, and handles some operational tasks. With Ribbon, the sponsored venture benefits by saving on startup and operation costs. They also gain access to banking and finance tools and fundraising solutions. Additionally, when your mission mirrors the mission of your sponsor, the impact on your shared cause is multiplied. Best yet, you do all of this without expending duplicated resources!
Would fiscal sponsorship achieve the same results faster and cheaper?
You have assessed the charitable need and examined the time and costs required to start a new nonprofit.
There are many benefits to fiscal sponsorship and many benefits to operating as a sole 501(c)(3), and you have to weigh both.
If you are considering fiscal sponsorship, then you have identified that operating with efficiency and getting your charitable venture to market sooner is a priority.
We agree with the National Council of nonprofits: nonprofits “foster civic engagement and leadership, drive economic growth, and strengthen the fabric of our communities. Every single day. Every person in the United States benefits from the work of nonprofits in one way or another, whether they realize it or not.”
Fiscal sponsorship is just one more way to start a nonprofit. An easy way that can help turn your ‘why’ into a realized charitable venture, without all the hassle.
