What we learned about fiscal sponsorship options and pitfalls for independent local news publishers

One benefit of being a nonprofit newsroom is being able to receive tax-deductible donations from foundations and other philanthropic givers.

But if you don’t have nonprofit status yet, or if you’d prefer to remain a for-profit news organization, you can still work with a fiscal sponsor to receive those donations on your behalf.

So how do you find and choose a fiscal sponsor?

That’s a question we hear regularly at LION Publishers from news entrepreneurs and aspiring founders, so we asked Democracy Fund’s associate manager for grants management Kalpana Simhan andsenior program associate Teresa Gorman, as well as our members, for their advice.

Here’s what they told us.

1. Consider how much help you really need.

At a minimum, a fiscal sponsor will receive money on your behalf, distribute it to your organization, and provide required oversight.

But fiscal sponsors can also play a much bigger role, providing HR support and financial services for tasks like paying freelancers, tracking expenses, and reporting results back to the funder.

Of course, fiscal sponsors generally charge higher administrative fees for more support, so it’s worth considering how much help you really need — and whether the extra cost is worth the time and effort it will save you.

2. Take a close look at the fee structure.

Most fiscal sponsors charge a 5 to 10 percent administrative fee depending on the level of support, but that’s not the only number worth considering, especially if you’re entering into a long-term agreement.

Will the fiscal sponsor charge a one-time onboarding fee for getting started, for example? Will the percentage they take from each grant go up or down depending on the number and size of grants you receive? Is there a limit to how many grants they can administer each year?

If you plan to make grant-seeking a regular part of your revenue strategy, you should ask all these questions and more before signing an agreement, so that you don’t quickly outgrow your fiscal sponsor relationship.

3. Choose a fiscal sponsor that has worked with organizations like yours.

It’s not unprecedented for business owners to use their personal connections in the nonprofit world to get a sweet deal on fiscal sponsorship with low fees and minimal oversight.

But that doesn’t mean it’s a good idea.

For one, fiscal sponsors can get in legal trouble if they accept money for a project that doesn’t align with their mission, or if the funds are used improperly. So a handshake agreement without strong oversight is a big liability for them.

And it’s risky for you, too.

Without experience working with organizations like yours, a fiscal sponsor is more likely to miss deadlines or steps that are required by your grantor, or to run afoul of IRS tax laws.

That’s why it’s a good idea to look for fiscal sponsors that have a track record working with organizations like yours on similar projects, even if it takes longer to establish that relationship.

4. Don’t become a nonprofit just to accept grants directly.

One way to avoid the hassle of fiscal sponsorship altogether is to become a nonprofit organization yourself (and when we hosted a LION Lesson on nonprofit conversion in February, there was plenty of interest).

But if you do make that transition, don’t expect the grant administration process to get any easier.

As a nonprofit organization, you will still have to write competitive grant proposals and deliver on all the requirements of your grants — and you’ll also be signing yourself up for all the financial and HR tasks that might otherwise be handled by a fiscal sponsor.

That is not to say you should avoid nonprofit status, especially if you think it will help you earn more revenue from your readers and other funders.

But make sure you’re considering nonprofit status for the right reasons, and not just because it seems like the path of least resistance for grants.

5. Look for fiscal sponsors in your community.

Once you know what you’re looking for in a fiscal sponsor, the next step is to find a good match — and there are three broad categories that can help you narrow your search:

• National foundations that specialize in fiscal sponsorship, such as Community Initiatives and The Tides Foundation. These organizations have decades of experience working with all types of projects and organizations, but their fees (Community Initiatives charges a 10 percent fee) might be higher than the alternatives.
• Journalism organizations that offer fiscal sponsorship. The Institute for Nonprofit News, for example, has a fiscal sponsorship program for three types of organizations: businesses converting to nonprofit status, fledgling startups, and organizations that are unsure if they need short-term or long-term sponsorship. The Local Media Association has also offered fiscal sponsorship through its COVID-19 Local News Fund, and it recently hired a new staff member to build on this work.
• Local foundations or nonprofits. This state-by-state directory of fiscal sponsor organizations can help you find a partner in your backyard — but remember that not all nonprofits will be able to sponsor all types of projects, so you’ll need to do some research to find one with a mission that aligns with your work.

Got other questions about finding or choosing a fiscal sponsor? This blog about fiscal sponsorship is a great resource — or you can email [email protected] with your question and we’ll do our best to track down an answer.

Special thanks to LION member Bill Smith, Oviedo Community News editor-in-chief Megan Stokes, and Democracy Fund’s Kalpana Simhan and Teresa Gorman for contributing their tips and insights for this story.