Restructuring Your Nonprofit
How to know whether restructuring may be necessary to help your nonprofit grow
If you’re a nonprofit leader who is entering a new season of growth, and you’re wondering how restructuring your organization might be necessary – congratulations!
You’re already asking the right questions that will allow your organization to continue to grow.
Restructuring your nonprofit organization isn’t a trivial exercise. It involves critically analyzing – and often altering – your organization’s systems, strategy, and operations to better align with the goals of your mission and the environment in which your organization is in.
Nonprofit leaders considering restructuring to a fiscal sponsor often ask questions like:
What are the benefits of transitioning to a fiscal sponsorship model?
How does fiscal sponsorship impact our organization's autonomy and control?
What are the financial implications and costs associated with entering into a fiscal sponsorship?
How can we ensure a smooth transition for our staff and stakeholders during the restructuring process?
What are the key factors to consider when selecting a fiscal sponsor?
What legal and compliance issues do we need to be aware of when entering into a fiscal sponsorship agreement?
Can a fiscal sponsorship arrangement be temporary, and how easy is it to revert or become an independent nonprofit again?
What are the steps involved in transitioning to a fiscal sponsorship model?
In this article, our aim is to answer these questions, and to help you understand when restructuring might be a viable option for you.
(And if you need a refresher on what fiscal sponsorship even is, check out this article).
Benefits of transitioning to a fiscal sponsorship model
Transitioning to a fiscal sponsorship model offers several benefits for nonprofits, including:
Access to Expertise: Fiscal sponsors provide valuable administrative, financial, and legal expertise.
Reduced Administrative Burden: By sharing resources, nonprofits can focus more on mission-driven activities.
Financial Efficiency: It allows for cost savings on overhead and can increase funding opportunities.
Compliance and Risk Management: Sponsors help ensure legal and financial compliance, mitigating risks.
Flexibility: Fiscal sponsorship can be a strategic choice for projects testing new ideas or those not ready to become independent nonprofits.
Enhanced Credibility: Association with an established sponsor can boost credibility with donors and grantmakers.
We’ve written additional content if you’d like more information on the benefits of transitioning to a fiscal sponsorship model.
How does fiscal sponsorship impact my organization’s autonomy?
Fiscal sponsorship can affect your organization's autonomy in various ways. While it offers support and resources, your nonprofit might have to adhere to the fiscal sponsor's guidelines and policies. This could mean less control over certain operational aspects, such as financial management and reporting.
Look for a sponsor that aims to maintain your project's independence while providing the necessary oversight to ensure legal and financial compliance (like Mission Edge fiscal sponsorship)! The impact on autonomy varies by sponsor and the specific agreement terms, so it's crucial to negotiate a partnership that aligns with your organization's needs and values.
Check out what nine years of fiscal sponsorship did for this City Heights nonprofit organization.
What are the financial implications and costs associated with fiscal sponsorship?
The financial implications and costs associated with fiscal sponsorship typically involve a cost structure where the sponsor charges for their support. These fees can be a percentage of the project's revenue or a flat fee, varying significantly from one sponsor to another. This cost covers administrative support, including financial management, legal compliance, and sometimes fundraising assistance.
While it represents an additional expense, the benefits — such as access to the sponsor's tax-exempt status, administrative support (a fully staffed accounting, HR, and operations department), and potential for increased funding opportunities — can outweigh these costs, making fiscal sponsorship a financially viable option for many nonprofit organizations looking to restructure.
Read more about the pros and cons of fiscal sponsorship versus nonprofit formation.
How to Restructure a Nonprofit
Ensuring a smooth transition to a fiscal sponsorship arrangement involves clear communication, detailed planning, and setting mutual expectations.
Begin with thorough due diligence to select a sponsor aligned with your mission and needs.
Complete the fiscal sponsors specific application process.
Sign an agreement that clearly outlines roles, responsibilities, financial arrangements, and how autonomy will be maintained.
Engage your team and stakeholders early in the process to address concerns and expectations.
Negotiate a transfer agreement that details all of the money, people, and liabilities that the sponsor will assume and the timeline associated with that transfer
Establish a collaborative relationship with your fiscal sponsor, focusing on regular communication and transparency to facilitate a partnership that supports your organization's growth and objectives.
What are the key factors to consider when selecting a fiscal sponsor?
When selecting a fiscal sponsor, consider their alignment with your mission, experience and reputation in your field, and the services they offer, such as financial management and grant administration. You should also…
Evaluate their cost structure to ensure it's fair and transparent.
Assess their commitment to supporting your project's autonomy and growth.
Ask about their capacity to provide mentorship, networking opportunities, and access to potential funding sources.
Review their legal and financial health to ensure they can effectively manage your project and mitigate risks.
Choose Mission Edge as your fiscal sponsor
How easy is it to revert to becoming an independent nonprofit again?
It should be easy to revert back to becoming an independent nonprofit after being fiscally sponsored. (That is, if you select the right fiscal sponsor).
While some fiscal sponsorships are long-term, others offer many opportunities for transition. Regardless of the sponsor you go with, your arrangement should be flexible based on your evolving needs and the growth of your organization.
Lots of the folks Mission Edge works with have had other fiscal sponsors in the past but are looking for a more (or less) hands-on approach, depending on how their needs have changed over time.
It's important to create an partnership you feel comfortable with, and ultimately, you should be the one in control of where you're headed.
How do I know if my nonprofit should transition to a fiscal sponsor?
To decide if transitioning to a fiscal sponsor is right for your nonprofit, consider if you're seeking to reduce administrative burdens, need access to additional resources and expertise, or are looking for a way to test a new project without forming a new entity.
If your organization is at a growth crossroads, facing financial challenges, or aiming to focus more on mission-driven activities than on operational management, fiscal sponsorship might offer a path forward.
Involve your community and stakeholders in the restructuring process
Involving the community and stakeholders in the restructuring process is crucial for maintaining trust and ensuring your nonprofit's mission remains aligned with community needs. You can engage stakeholders through surveys, town hall meetings, and direct conversations to gather input and communicate changes.
For fundraising, consider forming committees that include community members to advise on strategies that resonate locally. Transparently sharing the reasons for restructuring, expected outcomes, and how it will enhance mission fulfillment can foster support and active involvement from the community and stakeholders.
A recent success story
Here at Mission Edge, we’ve worked with several organizations who have restructured. For example, when Switchfoot Bro-Am came to work with us, they were already an independent 501(c)(3) organization. After nearly fifteen years of growth, they knew it was time to simplify their structure so that they could move into the next season of growth.
Through our fiscal sponsorship program, we provided the Bro-Am with full-service accounting and human resources services, as well as a proven nonprofit structure to operate within.
Setting the Stage for Sustainable Growth
As your organization contemplates restructuring for sustainable growth, it’s good that you’re considering fiscal sponsorship.
Mission Edge offers a pathway to amplify your impact with the infrastructure your nonprofit needs to thrive.
Reach out to explore how a partnership with Mission Edge can set the stage for your organization's sustainable growth.
