Is Fiscal Sponsorship Right for You?

Starting a nonprofit organization is a significant commitment, but it’s not the only way to make a positive impact. Fiscal sponsorship could offer a more flexible and supportive alternative. This guide will help you determine if fiscal sponsorship aligns with your project’s needs while also providing an overview of the steps required to start a nonprofit in Colorado.

Understanding Fiscal Sponsorship

Fiscal sponsorship is an arrangement where an existing nonprofit offers its legal and tax-exempt status to groups or projects that align with its mission. This relationship can provide substantial benefits, especially for those who want to focus on their cause without the administrative burden of running a nonprofit.

Benefits of Fiscal Sponsorship

Organizational Development: Administrative leadership including nonprofit management best practices, fundraising platforms, grant management, etc.
Finance & Accounting: Organizational support including accounts payable and receivable, grant billings and tracking, accounting support, etc.
Risk Reduction: Professional support including contract and lease management, liability insurance, compliance and tax filings, etc.
Human Resources: Employee relations and management support including benefits packages, onboarding, payroll management, etc.

Evaluating Fiscal Sponsorship for Your Project

Ask yourself these key questions:

Does your project have a well-defined mission that benefits the community and aligns with the objectives of potential fiscal sponsors?
Do you prefer to spend time on program or organizational development instead of administrative tasks?
Are you looking to start your project quickly without the lengthy process of forming a nonprofit?

If you answered yes to these questions, fiscal sponsorship might be the ideal path for your project.

Choosing a Fiscal Sponsor

Responsible fiscal sponsors adhere to the National Network of Fiscal Sponsors best practice guidelines. They provide an efficient, effective, and accountable way to quickly launch nonprofit activities. Fiscal sponsors provide back-office services (e.g., accounting, HR, liability insurance) and support. They charge an administrative fee to cover the cost of their work. Think of that administrative fee as your overhead.

Here are a few tips for identifying a fiscal sponsor for your work:

Mission/Geography: Ensure a mission and geographic fit between the fiscal sponsor and what you want to do.
Agreement: There should be an agreement between the fiscal sponsor and the groups it supports.
Leadership: Review their staff and board lists. Is their leadership qualified and experienced in fiscal sponsorship, nonprofit management, and philanthropy?
Financials: Review their financials. Are they financially strong? Do they separate each program’s financials on balance sheet and income statements?
Insurance: Are they insured for a wide range of activities?
Administrative Cost/Fee: There should be no surprises about what costs will be assessed to your organization and what will be covered by the fiscal sponsor.
Exit Agreement: There should be a clear explanation of how your organization can leave the fiscal sponsor, whether becoming their own tax-exempt entity or moving to a different fiscal sponsor.

In Colorado, CNDC is more than an experienced fiscal sponsor. We are a partner in launching ideas and progressing the vision of dynamic community leaders. Click here to read more information about our fiscal sponsor services.

Once you identify a fiscal sponsor that is a fit for you, you can follow their application process to be approved. Once accepted, you can immediately fundraise and operate using their 501(c)(3) status.

Starting a Nonprofit in Colorado

While fiscal sponsorship offers numerous advantages, starting your own nonprofit might still be the right choice for some. Here’s a brief overview of the steps involved in establishing a nonprofit in Colorado:

Define Your Mission: Clearly articulate your nonprofit’s purpose and how it will benefit the community.
Appoint a Board of Directors: Assemble a dedicated team to guide your organization.
Develop a Business and Fundraising Plan: Work with the board to clarify purpose and goals of the nonprofit and to outline the strategies and plan for generating revenue.
Create Bylaws: Develop the rules and regulations that will govern your organization.
Develop and File Articles of Incorporation: Submit the necessary paperwork to the Colorado Secretary of State.
Apply for an EIN: Obtain an Employer Identification Number from the IRS.
Apply for Tax-Exempt Status: Submit Form 1023 to the IRS to obtain 501(c)(3) status.
Register with the Colorado Secretary of State: Register for charitable solicitations to ensure compliance with state regulations.
Develop Policies and Systems: Develop back office processes and functions for HR, Financial Management, Risk Management, Grants Management, etc.

*This is not intended to be legal advice. CNDC recommends getting advice from a nonprofit tax lawyer in preparing Bylaws, Articles of Incorporation, IRS Form 1023, and other legal documents.

"CNDC helped us build a nonprofit organization that creates jobs, administers need-based grants, and supports Colorado's Dreamers. Thank you CNDC!"

— Luis Antezana, Executive Director, Juntos

“The Colorado Nonprofit Development Center supports projects of all sizes, whose common goal is to support healthier and safer communities around Colorado. The CNDC staff is exceptional in finances, human resources, and administrative support, and CNDC’s mission is unparalleled. Projects such as the Harm Reduction Action Center can flourish and provide extensive direct service opportunities because the CNDC is the backbone of our operations.”

— Lisa Raville, ED Harm Reduction Action Center

“The opportunity to be a project of CNDC gave Reach Out and Read Colorado the nurturing it needed as a brand new start-up. The counseling and back-office support from CNDC made it possible for ROR Colorado to spend time administering and expanding the program. I know we could not have done this without CNDC’s experience and wisdom.”

— Ann Logan, Co-Founder, Reach Out and Read Colorado, former project