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Starting a Nonprofit & Fiscal Sponsorship

Look before you leap!

Countless community and global needs have been met by nonprofits. And undoubtedly, new solutions will inspire others to consider this path. Yet critical to success is knowing that not every idea or initiative lends itself to starting a new nonprofit organization. In fact, some ideas are best implemented through alternative methods. Bottom line: pursuing the "right" course requires research, communication, and planning. Please read on.

For anyone considering starting a new nonprofit, an excellent place to begin is our Starting a Nonprofit Organization guide (also see "Starting a Nonprofit Resources" below). In simple terms, the guide takes you through a series of informative parts and key questions like:

  • Is your idea best suited as a nonprofit or business/for-profit? (Learn about a new for-profit type: social purpose corporation.)
  • What other organizations in your community – and beyond – are focused on your interests, and is there an opportunity to work through them (e.g., fiscal sponsorship) or partner in other ways?
  • The legal steps to forming a nonprofit
  • Nonprofit management obligations
  • A checklist for starting a nonprofit
  • Online resources and more

Business Planning

Perhaps most important to a group’s potential for success is part four of the Starting a Nonprofit Organization guide. It outlines the steps to developing a business plan. A basic template for creating one – including a staffing plan and budget – can be found at the end of the guide.

The importance of a business plan can’t be overstated. While a nonprofit organization is different in many ways from a business or for-profit, from an operations perspective, there are many similarities. In fact, when you think of starting and running a nonprofit, imagine that you're about to start a small business and what that entails. Then add to it nonprofit-specific government requirements.

Ultimately, a well-developed business plan lets you assess if you’re ready to start a new organization (e.g., able to meet "staffing" needs) and how sustainable it may be (e.g., you've identified research-supported funding streams). It also:

  • Becomes an introductory document to share with community leaders and potential board members, staff, funders, and other partners in the venture
  • Gives future board, staff, and volunteers of the organization a road map for building a successful organization
  • Helps you respond to questions from the State of Washington and the IRS

Legal Support

Getting legal or other professional help when starting a new organization – while not required – is one way to ensure compliance with state and federal requirements. One organization to note is Wayfind (formerly Washington Attorneys Assisting Community Organizations, or WAACO). Wayfind provides pro bono legal assistance to nonprofits, so groups can focus on their work in the community with less concern about legal issues. Help with forming a nonprofit (e.g., state incorporation and application for federal tax-exemption status under IRS Code sec. 501(c)(3)) is a service Wayfind and others offer.

Yet here again, having a business plan is an important step. For example, one of Wayfind’s eligibility requirements for a start-up organization is that it demonstrate that it has such a plan.

Consulting Services & Trainings

501 Commons and Wayfind are not the only options for help with starting a new nonprofit. A number of highly skilled consultants – many of whom serve the whole state – are also knowledgeable in this and other areas. Some have experience with particular nonprofit subsectors, like arts and cultural organizations, while others have worked with groups serving diverse communities or specific populations. To find these service providers, including those who’ve been evaluated by 501 Commons’ review process, visit the Statewide Nonprofit Resource Directory’s Consultants & Other Nonprofit Specialists page.

Also, every month and around the State, there are numerous learning and networking opportunities for current and aspiring nonprofit professionals and volunteers. Take advantage of great trainings offered by service providers in the Resource Directory as well as those put on by 501 Commons. Some events cost a fee, while others are free!

Fiscal Sponsorship & Other Ways to Serve Your Mission

As noted earlier, there may be ways for community-benefiting ideas to become reality other than starting a new organization. The American Bar Association outlines some alternatives to forming a charitable nonprofit. One of these options is fiscal sponsorship (FS).

What is a fiscal sponsorship? According to nonprofit attorney Ellis Carter of Carter Law Group:

"The term 'fiscal sponsorship' refers to an arrangement by which an established public charity (referred to as the 'Fiscal Sponsor') facilitates fundraising for a charitable project (the 'Sponsored Project') by, among other things, allowing the Sponsored Project to solicit tax-deductible contributions from individuals or grants from private foundations that the Sponsored Project is not itself eligible to receive directly."

Fiscal Sponsorship InfographicHow does a fiscal sponsorship work? Check out this FS infographic created by the National Council of Nonprofits to quickly see who does what (i.e., fiscal sponsor vs. sponsored project). The Council's Fiscal Sponsorship for Nonprofits page provides its own description and additional resources.

We also recommend the following to learn more about fiscal sponsorships, access agreement templates, and research potential fiscal sponsors:

Starting a Nonprofit Resources

Remember: starting a new nonprofit organization begins as a question, not a conclusion. Take time to read what's involved in running a nonprofit and talk with others who are already in the sector – especially those working on the issue(s) you're interested in – before jumping in! The following documents will help reach an informed decision.

Other printed materials we like include:

  • The Nonprofit Handbook by Gary M. Grobman
  • Starting and Building a Nonprofit: a Practical Guide by Peri H. Pakaroo
  • How to Form a Nonprofit Corporation by Anthony Mancuso

If you want to file for federal tax-exempt status, visit the IRS's webpages on Tax Information for Charities & Other Non-Profits or contact them at 1-877-829-5500. Ask about the following free items:

  • SS-4 - Employer Identification Number
  • Form 1023 - Application for Recognition of Exemption
  • Publication 557 - Tax-Exempt Status for Your Organization

Note: When you file the Form 1023, you will need to pay the IRS a filing fee.