There are only a couple of ways in which to start a nonprofit organization. One is through incorporating a nonprofit corporation, then filing for tax-exempt status through the IRS and the other is Fiscal Sponsorship. When starting a 501c3 nonprofit, many put a tremendous amount of emphasis on which process is right while assuming one is more robust than the other. That is a terrible assumption as both ways of creating a nonprofit work well. However, several factors which most forget to give emphasis to is the ease of running the nonprofit, access to answers and expertise, and continual support. Many times the success of the nonprofit depends on the expert help the nonprofit has access to. Read on and I will explain.
Donors are not going to care whether a nonprofit is an independent 501c3 or a Fiscally Sponsored one. The majority of the time, a Fiscally Sponsored nonprofit is going to be easier and much less expensive to set up. If a nonprofit is completely determined to be an independent nonprofit there is always time for that, but can operate the first several years through Fiscal Sponsorship easier. The more important factor to consider is whether the people running the nonprofit know how to run and fund a successful nonprofit. If not, then it is important to align the nonprofit in the beginning with experts that can lend expertise and help in making the nonprofit a success.
Many times if the nonprofit is set up through Fiscal Sponsorship, the sponsoring organization provides 100% support and training for the nonprofit in all the aspects it needs to be successful. The Fiscal Sponsor wants the new nonprofit to be successful and therefore fully supports any training needed to learn to run a successful nonprofit. It is even common for Fiscal Sponsors to include all the nonprofit's accounting, banking and other ongoing paperwork, affording its staff more time to work on fundraising and programs.
In contrast, when creating an independent 501c3 nonprofit, there is no one on which to rely for expertise or support. Finding expertise and answers can be costly and mistakes can be disastrous to the nonprofit. Accounting will have to be learned or hired out to a CPA. The learning curve can be steep and operation cumbersome until the staff becomes experienced. For those not experienced in running a nonprofit or even a business, it is wise to have good support and help during the first several years.
In summary, ongoing support and easily accessible expertise is a good reason to consider Fiscal Sponsorship when starting a nonprofit. There is always time to switch to an independent nonprofit months or even years down the road once the nonprofit is off to a good start. However, most find that there is no real advantage in switching a nonprofit to an independent 501c3 once the nonprofit is successfully set up through Fiscal Sponsorship.
