Transcript 100 – San Francisco Study Center on Using Fiscal Sponsorship to Launch a Community Oriented Project
Transcript 100 – San Francisco Study Center on Using Fiscal Sponsorship to Launch a Community Oriented Project
[00:00:00] Andrea: Hey, it’s Andrea with Music Studio Startup, the podcast about the business of teaching music. Learn from the startup stories of music teachers who are doing incredible things with their studios. Be inspired by creating musicians who are branching out and thriving as entrepreneurs. Be empowered by the insights of experts who will help you grow your own studio.
Let’s get started.
After the last two episodes with Karen Thickstun about fundraising, I thought now would be a great time to bring back this past episode about fiscal sponsorship. Karen briefly mentioned this concept, and in this episode we talk about it in detail. Before we get into that, though, I want to talk about the grant competition.
I’m excited to be bringing the competition back this year. The purpose of this grant is to help a new or new-ish music teacher launch their studio. The grant prize includes a $1,000 cash grant and a host of other tools, products, and training programs from our amazing sponsors, which include Duet Partner, Fons, Cascade Method, Steve Hughes Virtual Piano Studio, Dynamic Doodle Co, and Alamo Music Center. You’ve heard from the entrepreneurs behind several of these businesses already on the podcast, and you know they’re all huge champions of music teachers. I’m so honored to have their support. You can find more details for the grant competition at musicstudiostartup.com/grant. That’s music studiostartup.com/grant.
Now onto the episode. I often hear from music teachers who have aspirations to start nonprofit organizations or to have a nonprofit component to their music schools. Your ideas are noble and awesome, but sometimes they never get very far off the ground because of the complexities that come with starting and maintaining an official tax exempt organization, or 501C3 as it’s known here in the US.
Today’s guests are going to talk to us about why that tax exempt status is so important. And introduce us to a little known model that could be a game changer for music teachers who want to make their community oriented ideas become a reality. Here’s my conversation with Geoff and Marjorie of the San Francisco Study Center.
Welcome to the podcast. Today we have two guests. Thank you so much for being here. Can you guys introduce yourselves?
[00:02:25] Geoff Link: My name is Geoff Link. I’m the executive director of the San Francisco Study Center, which is a fiscal sponsor since 1975, and we were the first grassroots fiscal sponsor in San Francisco.
[00:02:41] Andrea: Hi. Thanks, Geoff.
[00:02:43] Marjorie Begs: I’m Marjorie Begs. My title is Senior Writer and Editor. A Study Center also does writing, editing, and graphics work for other nonprofits and for foundations. And I’m also the manager of the fiscal sponsor directory, which is a nationwide directory of all the fiscal sponsors we can get to join on to our database.
[00:03:03] Andrea: Excellent.
[00:03:04] Geoff Link: And the directory is a way to connect projects and sponsors.
[00:03:08] Andrea: All right. Thank you so much. And you, in your introductions throughout a term that’s probably new to a lot of music teachers, and that was the term fiscal sponsorship, can you describe what that is?
[00:03:18] Geoff Link: Fiscal sponsorship is probably the most underrated and underutilized business model in the nonprofit sector. It enables a project that does not have IRS status of 5 0 1 C three to join sort of in partnership with a fiscal sponsor that is a public charity that has a 5 0 1 C three, and fiscal sponsor then will receive any foundation grant, private donation, and manage those funds according to the wishes of the contributor and provide a donor or a foundation tax deductibility for the full extent of their contribution. It helps with fundraising and then it helps with project management because that’s, Really the most important role that a fiscal sponsor can provide to make sure the money is spent according to not only IRS regulations, but general accounting principles.
[00:04:39] Andrea: All right. Thank you for that explanation. That really helps clarify. So for a music teacher who’s wondering what this means for them, could you give us an example of maybe what that might look like For a music teacher who has maybe a community service oriented project?
[00:04:53] Geoff Link: We have a project called Carrie’s Kids over in the East Bay, that it does music education in low income schools. They have everybody from music teachers to musicians who do educational programs for the students, and they get instruments and donate them. They every year went to Cuba and brought a whole load of musical instruments to Cuba and gave them to schools there. So this is a program has been going on now for really six, seven years I guess. But that’s our only music program.
[00:05:41] Marjorie Begs: A music teacher that say has 30 students and wants to do online music education in this covid time could probably use a fiscal sponsor because they are providing education and that would be one way they could do it to raise funds for themselves so that they could continue to do their program.
[00:06:04] Andrea: Or if they had a student whose maybe parents lost their jobs during Covid, they wanted to raise funds.
[00:06:11] Marjorie Begs: Yeah, right. Scholarship or something like that.
[00:06:14] Andrea: Yeah. And then the benefit for the teacher is that they have this nonprofit organization who’s receiving and managing the funds for them. Right? And that provides a benefit then to the donors also because they’re donating to a nonprofit organization, which gives the donors the tax deductible benefit.
[00:06:33] Geoff Link: That’s right. The funds go directly to the fiscal sponsor, not to the project or project leadership, because the nature of getting your tax deduction is that the money goes directly to the public charity that is managing the funds. If it goes to the project that is not a 5 0 1 C three, those funds are not tax deductible.
[00:07:06] Andrea: Yeah, that’s a really important distinction, and I think, I don’t know that every music teacher immediately recognizes the value of that, but especially to someone who’s, maybe you’ve got a large donor in your town who really cares deeply about music lessons, wants to donate $10,000 to your program. They’re going to want that tax deduction and this is the way they could provide that.
[00:07:25] Geoff Link: Exactly. That’s exactly it. And, and it’s very possible that a lot of music teachers might be able to do a program for something like $10,000 or so, which could go a long way in a community area for things.
[00:07:44] Andrea: Mm-hmm. Absolutely. So what kinds of projects are good for fiscal sponsorship? Are they like ongoing projects or is it a one time thing? Is there anything that makes a good project?
[00:07:54] Geoff Link: Well it, the one thing about fiscal sponsorship is that it is so wide ranging in terms of its ability to apply to community service. That it can be a one off. The Study Center primarily does something called Model a fiscal sponsorship or comprehensive. And this is really for a project that has Legs. One that is a service that is needed. And you’re filling a gap in your community with being able to provide a community benefit on an ongoing basis.
And because what the Study Center brings to the fiscal sponsorship relationship is a whole staff of people who manage projects from accounting, bookkeeping, payroll, tax reporting, human resources. We do fringe benefits. So we’ve got, uh, benefits administrator that we do have a group plan that our projects can be part of.
So what really enables the projects to focus strictly on the services and not have to deal with tax reporting, payroll, any of the kind of back office requirements that are necessary to be able bookkeeping and all that. All you got to do is stay on the front lines, deliver your services, and document your expenses correctly, and doing your paperwork.
And it builds capacity over a bit of time because a lot of community projects are started by people who are not business people. They are artists, and they are creative, and they are concerned, and what they want to do is provide the service. And this enables them to, if they have a service that really is something that’s needed on an ongoing basis within the community, they can use a fiscal sponsor to grow and build their own capacity. And really, it’s so economical to have a fiscal sponsor because for 10%, which is the fee that the study center charges and that most fiscal sponsors charge for providing comprehensive services. For 10% you’ve got to have a project of 500,000 or $600,000 before it’s worthwhile for you to have your own bookkeeper to do it.
So the cost effectiveness of it is just a major thing. You don’t have to have your own board of directors, which is a big deal. So essentially, you’re service oriented and, and that’s what you have to do. Keeping track of how your spending goes, and that’s what the fiscal sponsor helps to do, is to do that.
But it can also help on a kind of a, a one off program that you say you want to raise money for a particular thing and maybe it’s using a GoFundMe or something like that. And Marjorie can tell you a lot about that because she did a three part series for the directory that is really a comprehensive piece on the ins and outs of using that kind of a fundraising platform. But it may be useful to a lot of people who are looking for one time events, one time projects, and could use the tax deductibility that the fiscal sponsor could provide. So I’ll let her take it.
[00:12:14] Marjorie Begs: Before I do that, why don’t you explain model C? Because we’ve got model A and model C, the two big models and that that relates to fundraising.
[00:12:23] Geoff Link: That’s true. Model C is another. It’s also called a preapproved grant, and it allows a lot of autonomy with the project. They can have their own bank account, which they can’t under the comprehensive model A. But they can have their own bank account, but they have to be able to pay all of their own expenses.
So essentially in a Model C, which is something like Fractured Atlas, which is the largest fiscal sponsor in the country.. They do model C, and the main service that they can provide is tax deductibility to donors and grantors. Whereas the project management of the funds and everything and the tax reporting in the model A is what the study center primarily practice.
[00:13:26] Andrea: Okay, so those are the, the big distinguishers between the model A and model C.
[00:13:29] Geoff Link: Yeah, model A and model C.
[00:13:31] Andrea: All right. Thanks for that clarification, Marjorie. Can you tell us more about the one off programs and GoFundMe and how those other funding options fit in
[00:13:41] Marjorie Begs: Model C? It uses primarily those kind of GoFundMe, Kickstarter, Indigogo, um, very popular platforms for crowdfunding.
because they can actually sign the contract with those people. They are legally allowed to do that because as Geoff explained with Model C, they are in control of their own funds even though the funds will run through its fiscal sponsor. And those, uh, platforms will take on model C fiscal sponsored projects.
They may not even know that it’s a fiscally sponsored project. They just know they’re signing up a music camp or something like that. Something that’s a Model C. Model A is entirely different. There are many fewer crowd funding sites that will take a fiscally sponsored project that’s a model A, because they have to make the arrangement through the fiscal sponsor.
The project really has very little to do with it. They can’t sign any contracts with the platform. The money doesn’t go through them. It goes through the fiscal sponsor and there are fees involved with crowd funding. Obviously anyone who’s done any crowd funding knows that usually it’s two to 5% on the platform and then they charge you for every time a credit card cause someone comes in with a donation for a credit card.
I did my research on this several years ago and things may have changed. At that time, there were a number of crowdfunding platforms that were very happy to take on fiscally sponsored projects. There was one called Seed and Spark, which was primarily, I think for film, but I think they did other art things and they were very glad to welcome fiscal sponsor.
Indigogo used to do it and then they changed their mind and kind of spun off a, a special platform for raising funds for fiscally sponsored projects and other nonprofits. We did it as a growing platform for raising money, and they do crowd funding as well and are interested in taking on fiscal sponsors.
When you have a Model C that goes through, say, Kickstarter, GoFundMe. Their donations that come to them are not tax deductible. So anyone who’s donating, as we were talking, like a $10,000 project that goes through Model C, that donor will not get any tax deductible.
[00:16:10] Andrea: If they’re donating through Indigogo or something like that.
[00:16:12] Marjorie Begs: Right, If it, Exactly, Exactly.
[00:16:15] Andrea: So when you talked about the Model A, you were describing what could be a really big project, like a project with staff, and it’s ongoing, and so you’ve got benefits to pay and payroll and things like that. Is there a high end limit, like a, a maximum size for a project that could be fiscally sponsored?
[00:16:33] Geoff Link: No. The thing is that if you were a million dollar project, you would probably have applied for your own 501C3 and spun off and become your own public charity. So I usually use 500 or 600,000 as a rule of thumb where you could feasibly handle your own money with a say, $50,000 a year bookkeeper, which is what it would cost you in fiscal sponsorship fees. If your project brought in 500,000 and your fiscal sponsor is managing your payroll, we have an auditor so that your project can indicate to especially foundations, which is important, that the fiscal sponsor is audited. So you are part of that process. You get in effect, a break on liability and professional liability insurance because you’re part of a group plan.
So we are certainly able to provide liability insurance better. Our group medical plan is way better than what anybody can get on their own, both in terms of the benefits and the cost. So if you’re going to do a project that is going to be ongoing, going to need community support on a continuing basis, a fiscal sponsorship is the very best way to get it going and build that capacity because there’s no time limit on how long we’ve We have projects that have their own 5 0 1 C three, and they’re with us because it’s actually easier. They can focus on the frontline services, and we got their back.
[00:18:33] Andrea: Yeah, it’s like hiring out the back end of your nonprofit administration. Okay. Yeah, this is really interesting. And then how about on the small side? What would be the minimum project size? Or is there.
[00:18:45] Geoff Link: Well, you know, honestly, uh, a lot of fiscal sponsors will have a threshold, an economic threshold, that they want a project to come to them with a certain amount of money to begin with before they’ll take ’em on. The Study Center is policy is that we’ll take on any project that will benefit the community and has a service concept that seems to us to be fundable. And that the project leadership has shown that they have the knowledge, commitment, and ambition to move it forward. But we’ll take on a project as an idea. They don’t have to have any money, but we want to make sure we will work with you with that project leadership to get to the point where they’re ready to go out looking for money.
[00:19:46] Andrea: Okay. Can you walk us through that process? So if a teacher has an idea that they want to go into consider fiscal sponsorship for, what’s the process that they go through to find that fiscal sponsorship, Get their business prepared for that or their project prepared for?
[00:19:59] Geoff Link: What does that look like? Well, if, if you look at the fiscalsponsordirectory.org, this is the database that Marjorie is the manager of, and it’s got news of the field.
It’s got a chronology of fiscal sponsorship. It has a whole list of resources that are available, like the National Network of Fiscal Sponsorship, and the guidelines for Model A and Model C are all available on that site. You can buy the book Fiscal Sponsorship: 6 Ways to do it Right the third edition, not available on Amazon, only on our website.
And the reason I’m pushing it is that it is a book that has really professionalized this practice of fiscal sponsorship. So what you would do though is you’d look at what is our most important resource on that directory. The database of fiscal sponsors. And each fiscal sponsor that is on there, and there is 340 or so in, I don’t know, more than three dozen states you look at by state. By service area and the profile of each one of those agencies gives you an idea as someone who has a project in mind that they would like to get funding for, who would be good? Who is in their state? Who is in their area? Who is, are they an arts fiscal sponsor? Are they health? Mental health, there’s a fiscal sponsor for every community service that’s going. The environment. And so you look at the database and see who you would like to match up with, make the contact, and explain what your project is, and it’s better to have it figured out a little bit ahead of time, so, so that you know what you want to do. How you want to do it. How it’s going to be funded. What it’s going to cost, you know, those are all just kind of the basics of any community service going.
So you come to the fiscal sponsor, lay that out in an email or some kind of zoom conversation or whatever. And then the fiscal sponsor, like The Study Center, will send you a questionnaire. We have a 10 question survey that we ask every prospective project to fill out that explains themselves why the service is needed, how they intend to fund it, what is their insurance concerns, and then a line item budget if they have it.
And once we get that questionnaire completed we Take it from there, and it, it, that questionnaire enables us to know enough about what you want to do to help you figure out what you need to get started. So you need to know what you want to do and be able to express that fairly succinctly. Check out the database, you’ll find somebody there that is in your area, both geographically and in terms of service. Make a contact, see if they’re interested.
[00:23:49] Marjorie Begs: And I’d like to add to that, uh, using the directory, the um, information that profiles each fiscal sponsor on it is minimal because there just isn’t room to have a lot of information. But we have a number of different categories. What fee do you charge? What are your criteria? What kind of projects will you take on? Do you require an advisory board? Those kinds of things. So a person looking for a sponsor can look at the profile. I always tell anyone who comes to me asking about a go to the fiscal sponsors website because if in fact they are good and trustworthy, they’re going to have information on their website that’s much fuller and much more comprehensive than what we can put in a profile on the directory.
We didn’t do this at first when we started the directory in 2008, but I’m now requiring anyone who wants to join that they must have a website. There’s just, the website is ubiquitous now. You must have it to find out what somebody is doing. So I’ve encouraged people to come to us trying to join, say, get your website together and come back to me.
But the criteria in there can be helpful. If, for example, there’s a fiscal sponsor in Washington State, but they’ll find, uh, they will take on projects from across the country. They’ll, they’ll take anyone. Fractured Atlas is like that. They have no geographic criteria. They’ll take anyone from anywhere and they’ll take almost any arts project regardless of how much money they have.
There are other sponsors that will only work even within a county level or even sometimes even a city level or a regional area, and they sometimes will say that on our profile and the directory, and sometimes they won’t. So you need to go to the website to find that out.
[00:25:44] Andrea: All right. So it sounds like it’s helpful to look both at your state or county level when you’re looking at that directory. And also for the service area, like arts organizations or music.
[00:25:54] Geoff Link: That’s right.
[00:25:55] Andrea: And I can vouch for that directory. That’s actually how we got connected is I came across that and reached out and it’s a tremendous resource. So thank you Marjorie, for your management of that and I know all the work of assembling all those fiscal sponsors and just maintaining the directory, because it really is a very valuable resource and I’ll be sure to put links to that. And also your three part series that you put together in the show notes for this episode so teachers can reference all of that. Yeah, very valuable resource. So once we’ve identified a sponsor, then how do we go about fundraising? Does that look any different when we’re using a fiscal sponsor versus just doing it on our own.
[00:26:33] Geoff Link: The fiscal sponsor is able to provide the tax deductibility, which is your foot in the door with your community foundation or a major donor or whatever. So their letter is important to be able to have access to so that you can let people know about that. But it really, I think it’s, it’s mostly having fleshing out your idea in detail is really good because the fiscal sponsor will help not so much with, they won’t do your grant writing. But we’ll suggest local foundations, which is what we’re more familiar with. But we’ll help you with your fundraising in terms of strategizing, and we’ll review the grant proposals before they go in. We need to see ’em because we need to see the budgets and essentially, Our approach is at The Study Center is that we want you to succeed, so you do the heavy lifting. But we can let you know what to lift and how high.
[00:27:54] Andrea: And that’s really valuable. Especially like this is not something a music teacher is doing every day. And so it’s new. And to have that expertise and experience and perspective to just say, Oh, I think your idea is good, but this proposal doesn’t really communicate that idea as effectively as I understand it. So yeah, that’s very valuable.
[00:28:14] Geoff Link: And then once you’ve got the proposal out there, you want to do more. Generally it’s, uh, you want to cast a pretty wide net just like a freelance writer does with their stories, because it may take more than one foundation to handle your project. And the foundations are somewhat specialized too, in terms of what their funding priorities are. And so you want to be able to use something like the Foundation Center Library as a source of, where do I go to find the foundations that have funding priorities that fit my project, what I want to do.
So I think really the, the fiscal sponsor will help you build your capacity and that’s a role that is hard to underestimate the value of, because so many projects are not business oriented and a grant proposal to a foundation is a business proposition. And so you need to really understand how to correctly, appropriately, properly handle a nonprofit business.
And that’s where the fiscal sponsor, what their forms are, what they require for documentation. The kind of the fiscal policies and practices you learn kind of on an on the job as you go basis, but that’s how you build your capacity and understanding on how to do it yourself.
[00:30:05] Andrea: That’s really helpful. Thank you. And how about if we’re fundraising from individuals? Like say we’re hosting a benefit concert in our own community, and it might just be families that are wanting to write checks to our project. Would those also go through our fiscal sponsor?
[00:30:22] Geoff Link: Yes. If you’re already doing something and you have a annual gala or something like that. Yes, absolutely. And the thing with that is that those checks all have to be made out to the fiscal sponsor, not to the project name. The project name goes on the note line of the check, not on the payee line.
[00:30:48] Andrea: Okay, that’s great. All. And then you alluded to the documentation, what documentation’s required on our parts. What do we need to keep track of to manage that relationship with the fiscal sponsor and the way we’re spending our money.
[00:31:00] Geoff Link: All right. Like say you want to get you, you put out some of your own money for supplies of some sort or for a lunch and that, and that’s all. You’ve got these line item operating expenses. Well, we want original receipts to send to a company your request for reimbursement and the fiscal sponsor does not pay out any project expenses to anyone without written authorization from the project leadership. So that the project director, or advisory board president or whatever, whoever it is, is designated as the signer on the payment authorization forms on the requests for reimbursement.
That has to be somebody that we generally ask for two people. Just somebody’s maybe on vacation, but it’s very important that it’s a written request and that it is documented by actual expenses. And if you’re a Model A project, if your vendor will send us an invoice, we’ll pay it directly so you don’t have to be out of pocket.
And if you’re an ongoing project that you may have a credit card. We also provide a credit card for projects that are ongoing and have substantial expenses and need to make purchases that maybe several thousand dollars at a time.
[00:32:45] Andrea: Wow. That can really help. Yeah. But not having to pay it out of pocket all the time. Yeah. Do you have any advice for how to approach a potential fiscal sponsor for the first time?
[00:32:53] Geoff Link: Know what you want to do and know how you want to do it, and understand the practicalities and the realities of being able to fund so that you’re not so ambitious that you, No foundation is going to start out funding a quarter of a million dollar music education program from somebody who thought up the idea and just is getting started. You may grow into that, but you got to be real and start out in a very realistic way and really know what you want to do.
[00:33:37] Andrea: Marjorie, was there anything else that you wanted to talk about that we haven’t touched on yet?
[00:33:41] Marjorie Begs: I think any person, especially a music teacher, let’s say, who’s has a small project in mind and thinks fiscal sponsorship might work for whatever they have in mind, they should do some research about what fiscal sponsorship is. Beyond listening to a podcast like this, as Jeff said, there’s, there’s a lot of information out there. There’s the book that we publish, but there’s websites out there. There’s all kinds of stuff so that you’re not going into it really blind thinking. Well, I don’t know. It’s not even, not, not thinking, not knowing where you’re going when you do this because it’s a very specific kind of relationship that you have with your fiscal sponsor.
[00:34:22] Andrea: How about you, Geoff? Is there anything that we haven’t talked about that you think we should?
[00:34:25] Geoff Link: No, I, I think we’ve, we’ve covered the ground pretty well and this is good for us to be able to express it and to have an audience that might be interested because we’ve been doing it for a very long time, you know, since 1975, and really believe that it is, like I said, an underrated and underutilized business model of the nonprofit sector, and, uh, can’t get any more bang for your buck than through a fiscal sponsor.
[00:35:00] Andrea: Yeah, I think you’re absolutely right. Thank you so much both for giving us this introduction and giving us some next steps to take and places to look. Um, we’ll definitely have all those links and the show notes for listeners to reach out. Where can listeners get in touch with you?
[00:35:15] Geoff Link: I’m at Geoff@studycenter.org. And our website is studycenter.org and the directory, fiscalsponsordirectory.org and email is probably the best way to make contact.
[00:35:34] Andrea: All right, Geoff and Marjorie, thank you so much.
[00:35:37] Geoff Link: All right, thank you. Thank you. Good to be here.
[00:35:45] Andrea: If it seemed like we talked about taxes and IRS statuses a lot in this conversation. That’s because that’s at the heart of the nonprofit distinction. You don’t need a nonprofit status to do a service oriented project, but when you have that status, it opens up opportunities. Geoff made a really important point about a grant proposal to a foundation being a business proposition.
If you’ve ever joined self-employment tax webinar, you know that charitable contributions impact the bottom line of taxes owed and can be part of an individual’s or businesses strategy to reduce taxes and do some good in the world at the same. The private donor who drops $10 in a basket for your project might not care a lot about the tax deductibility of their donation, but the donor or foundation giving 10,000 or a hundred thousand dollars probably cares a great deal.
That letter Geoff referred to is the letter from the IRS that an organization receives, proving its 5 0 1 c three status. When you have a fiscal sponsor, you can provide the sponsor’s letter to your donors so they can get that tax deduction for their donations. I appreciated Geoff’s reminder that the financial feasibility and sustainability for a project is also really important, especially if you’re trying to develop an ongoing relationship with a donor or foundation.
That’s why all the questions we ask about a businesses sustainability are just as important and relevant for a community project or nonprofit organization. I hope this episode inspires some new projects or gives legs to a project that’s already been bouncing around your brain. If you’re considering going the fiscal sponsorship route or already have a fiscally sponsored project, I would love to hear about it.
As always, you can find all the resources mentioned in the show notes for this episode musicstudiostartup.com. That’s all for today. Thanks for listening. I’ll be back next week.