We are used to hearing lots of folks – including yours truly – complain about the “nonprofit birth control” problem in this country. While it is true that too many nonprofits are formed for the wrong reasons – there are also many good reasons to form a new nonprofit. The trick is to learn to tell the difference.
As a preliminary first step, aspiring nonprofit founders should conduct a landscape study to determine who else is working to solve the same problem and consider whether there is a real need for another entrant into the market.
If you really care about a cause and an existing group is doing a good job pursuing the same mission, you could undermine their work by competing with them for funding. Consider joining forces instead.
If, after conducting the landscape study and considering potential partner organizations, you are still convinced a new nonprofit makes sense, consider starting out as a sponsored project of another nonprofit.
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This arrangement is known as a “fiscal sponsorship.” Fiscal sponsorship permits nonprofit founders to test their ideas and see whether they can really attract sufficient support before forming an entity and building an infrastructure around the idea.
Still, good fiscal sponsors are hard to find and if you have the funds, it is often less risky to form a new nonprofit than to work with an organization that may not have the capacity or expertise to sponsor your project.
Also, fiscal sponsorship is not intended to be a long-term solution. Many organizations will not offer fiscal sponsorship beyond a year or two.
Fiscal sponsorship can also make fundraising more difficult. Many grantmakers will not give to a single organization more than once in a grant cycle and may not make the distinction between the fiscal sponsor and the sponsored project when considering grant proposals.
In addition, there is risk inherent in working with a fiscal sponsor. We have seen many fiscal sponsor relationships turn sour due to poor administration, high fees, and even embezzlement of the sponsored project’s funds.
If the project fills an existing need, attracts support, and produces results then it really is time to consider forming a nonprofit.
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Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.