In 2012, the Colorado Plateau Foundation was taking root, with a grantmaking budget of just over $100,000 and 2 part-time staff. The organization had monumental goals to achieve but had a solid support network of crucial seed funders and thought partners to help it grow.
Until 2019, CPF was under fiscal sponsorship by the Arizona Community Foundation. In 2019, CPF received 501c3 designation from the IRS and became a stand-alone nonprofit. In 2023, CPF has seven full-time employees working to elevate Native leadership in philanthropy and a grantmaking budget of over $1,000,000 annually.
CPF supports grantees using two funding approaches: capacity-building support and general operating support because we understand that growing organizations need capacity and flexibility. Our journey to a standalone organization was filled with valleys and mountains, and here are four lessons learned from the transition process.
Consider Internal Capacity
Any organization must create a plan to launch independently and consider its internal capacity before separating. Organizations should ensure that no matter when the transition happens, their organization is ready for the next chapter. Plan for the staff you’ll need to operate independently and bring your Board of Directors together carefully and well in advance.
You will need bylaws and governance policies before incorporating and filing for nonprofit status with the IRS. Your founding Board will be integral during this process, so bring folks who are committed to your success,
understand your mission, and can be available during the transition and early setup. CPF recommends engaging a law firm or attorney specializing in nonprofits to guide you and your Board in best practices.
Communication and Clarity
Communication and clarity are the two most important keys to a successful transition from a fiscal sponsor. The better the two parties understand the roles of each organization, the easier it will be to separate. CPF has observed both in the grantees’ and our own experience that challenges arise when the sponsor assumes or misunderstands what the sponsee needs or the sponsee organization doesn’t ask for what they need.
Sometimes, a sponsee organization doesn’t know what to ask for. In that case, it is essential to have legal and financial counsel help guide your transition and build a network of colleagues familiar with these transitions to advise you. Don’t assume you are on the same page with your fiscal sponsor; be clear about what you need from them and ask them for clarity about what they need from you. CPF obtained both legal and financial help during our transition and highly recommends engaging an attorney who specializes in working with nonprofits.
The Value of Strong Relationships with Funders and Sponsors
A strong relationship with a fiscal sponsor makes transitioning to a standalone nonprofit much smoother. With a strong relationship supported by clear communication and partnership, creating a plan for the transition is mutual and goal-oriented. A strong relationship will also help initiate and maintain a legal agreement between the sponsor and sponsee, creating a foundation for the transition’s transparency later down the road and ensuring that both parties understand their roles during the sponsor relationship.
Maintaining strong relationships with funders as you transition is an essential part of the process. CPF found that keeping our funders up to date was crucial as our sponsor transitioned funds. Funders wanted to keep tabs on our transition because they wanted to continue to support our growth. Due to the maintenance of the partnership, CPF could spend down restricted grant funds and prove that CPF could receive general support as a standalone nonprofit.
Start Planning Early
The process doesn’t have to be daunting if you keep time on your side and plan early. Writing an accounting manual and building a relationship with a CPA can take time to find the right partnership and create the appropriate policies and controls. Writing employee policies, picking your bank, setting up a payroll service, learning accounting software, etc., takes time. Before you separate, consider what you will need to succeed in your work independently. You don’t want to be unprepared when you receive the IRS’s notification letter. Becoming a standalone 501c3 can take a very long time. For CPF, it took almost a year to receive our letter from when we filed. But, we used that time well and were ready to move forward the day it came in the mail.
Last But Not Least
Lastly, surround yourself with staff, colleagues, contractors, partners, and funders who understand your organizational goals and can provide a network of support. You will likely need advice around finance, human resources, policy development, nonprofit management, and legal compliance as you transition and during your first independent years. The stronger your connections are, the easier your transition will be.
