I am stunned by the number of organizations I encounter that
operate under the umbrella of another organization. Beware! This arrangement
will strip your branding and will leave you at square one to restart your
organization if you ever do break free. This excerpt from page 39 of Defying
Poverty with Bicycles shows why you should avoid fiscal sponsorship:
“...In the U.S.
and some other countries, the leaders of a new organization can choose to avoid
incorporating by asking an incorporated nonprofit to become their ‘fiscal
sponsor.’ This can look very enticing to new leaders who are already overwhelmed
by all the tasks required to found an organization.
But don’t be deceived! Fiscal sponsorship becomes a cozy arrangement
that is very difficult to escape. The most harmful problem with fiscal
sponsorship is that the ‘mother’ organization must be mentioned in all
communications. Also, all checks and credit card payments that go to your
organization must be made payable to the mother organization, not yours. This
means that all of your donors, grantors and customers will relate their
experience with your program to the fiscal sponsor. If you and your fellow
leaders eventually manage to break free of this fiscal sponsorship (and that’s
a big if), none of these important people will have any connection to your
organization. In other words, once you break free and incorporate your
organization independently, it will be as if you are starting from day number
one.
The other danger of fiscal sponsorship is that the fiscal
sponsor, or mother organization, does all the administrative work, including
taking the credit for your organization, and simply charges a fee such as ten percent
of all income that comes to your organization. This is of course fair because
otherwise an established nonprofit could not justify taking on the burden of
being a fiscal sponsor. Also, because of the high level of responsibility they
have for your organization, you and your team will have to hand over some
leadership of your organization to them.
Once you and your team have settled into this arrangement,
most of you will be tempted to remain there in order to avoid the
responsibility of learning how to do tax returns and sending reports to your
funders. I know of some nonprofits that have operated under fiscal sponsorship
for more than a decade and I can easily bet they will never break free. They will
also remain small—the ones I know of are either run by volunteers or have just
one, underpaid staff member.
The most important danger of fiscal sponsorship in regards
to Social Bike Business is that it will not allow the full implementation of
the program. No fiscal sponsor would take on the responsibility and
administration of such a complex program. Then consider that everything that
includes the name of your organization must also show the name of the fiscal
sponsor in order to give full disclosure. Imagine the sign you’ll hang on the
front of your bicycle community center... with two names. Imagine your
brochures, business cards and custom price tags, all with two names of the
organizations that run the program. Would you shop at a place with such a
suspicious dual personality?
My recommendation regarding fiscal sponsorship is: Don’t do
it! And if you’ve unfortunately slipped into this cozy yet dangerous situation:
Get out as soon as you can!”
