Most organizations struggle during their first years of operation. Many fail within their first two years, never getting anywhere close to achieving their founders' plans. Many others end up closing because of some form of wrongful operations, where they miss regulatory filing deadlines or violate tax-exempt laws.
Before you begin, you must answer the critical question: Do I really want to start a charity?
The Middle Way: Fiscal Sponsorship
Fortunately, there is a middle way between working with an existing organization and starting a new one from scratch: Fiscal Sponsorship.
Under this approach, rather than starting a new corporation, the new program operates as a project under the leadership, tax-exempt status, and guidance of an established charity.
Key Benefits of Fiscal Sponsorship
- Programmatic Start on Day One: Because the sponsoring organization is already recognized as a 501(c)(3) public charity, you can receive tax-deductible donations immediately.
- Back-Office Support: The fiscal sponsor handles accounting, HR, payroll, tax filings, and general liability insurance.
- Low Administrative Cost: Instead of thousands in legal, accounting, and registration fees, the fiscal sponsor typically charges a small administrative fee (usually 8% to 15% of revenues).
Finding a Fiscal Sponsor
It is essential that you link up with an experienced charity which has an exempt purpose that covers your project. For example, a new homeless shelter project should seek a social services sponsor. Religiouly affiliated programs can often find incubation under a church or para-church organization, where a broad mandate exists to help others.
Our standard recommendation is that any charity that will not reach $100,000 in annual revenues seriously consider finding a fiscal sponsor to "incubate" the program for the first two years. This lets you prove your concept and build a donor base before taking on the massive legal burden of independent corporate administration.