Welcome to the fourth post in Schulman Consulting’s Separation Series focused on the experience of separating and all that goes into it. I’ve created this series because while there is lots of information available on the legal definitions of fiscal sponsorship and how it technically works, there is not a lot available about specific issues and experiences that fiscally-sponsored projects have and how to deal with them.
Now that we’ve gone over some of the key causes of separation, the four stages of the separation process, and some of the surprising hard costs involved, this post focuses on some of the hidden costs that may not be readily apparent to you until you’re neck-deep in the process.
Like the earlier post on the surprising costs involved in the separation process, this one may be a bit of a downer to get through — but it’s meant to give you a realistic idea of what might be coming your way.
Keep in mind there are ways to manage each of these items — and that several of them are one-time events (or in the case of the audit, it should get much easier after you’ve gone through the initial process).
Identifying and researching new vendors and service providers
If you’ve read any of the other posts in this series (if not, they are linked above), it’s probably become apparent that this is a big part of the separation process.
There is a long list of vendors and service providers you’ll need to contract with (the exact number depends on the services your fiscal sponsor currently provides and the type of work you do), and in most cases, you’ll want to interview or vet multiple options for each.
The amount time required to get this done, especially if you’re starting from scratch, can add up to weeks or months. And then you’ll need the mental energy to make important decisions that will affect your organization moving forward.
How to Keep Things Manageable: The best way to keep this process under control is to go about it in an organized, coherent way, rather than just jumping in and starting to research different services. Try to keep track of who you’re looking at for each service and keep good notes as you go.
One of the services we provide to our clients is helping them navigate this part of the process. If you’d like more information about that, please take a look here or send us an email.
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Learning new systems
On a scale of 1-10, how do you feel about change?
If you’re like most people, you’re probably at 5 or less on that scale. Well, when you’re separating you should be ready for a tidal wave of changes.
All of those new service providers you just researched and signed up with all bring their own sets of processes and systems to get things done — and you and your team now need to learn all of those.
New expense report forms? Check.
New app for tracking your time? Check.
New method to process payroll? Check.
Are we having fun yet?
You and your team can definitely get through all this — it just takes time, effort and lots of training.
How to Keep Things Manageable: Make sure all of your vendors are available for additional training, if necessary and try to get written documentation (or online video walk-throughs) whenever possible so you and your team have information to refer back to when you need it.
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Additional stress
This affects everyone differently (and some, not at all), but once you separate from your fiscal sponsor, your organization will now be in charge of its own destiny — and responsible for everything that goes along with that.
That can be a glorious thing some of the time — and also a bit terrifying. Concepts like fiduciary responsibility and personal liability are things you’ll become acquainted with (if you haven’t been already). And even though you and your team were somewhat on the hook for these things all along, you’ve always had the legal and governance backstop of your fiscal sponsor.
Again, this transition may excite you — and if it does, that’s wonderful. But it may also cause you some unwanted stress along the way.
How to Keep Things Manageable: One thing I do when I get stressed is to have a way to calm everything down. Step away and take a few deep breaths. Go for a walk. Listen to a favorite song. Then come back and focus on the task at hand. It also may help to find others who are (or have been in) your shoes.
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The Audit
This one’s a doozy that is required by law. We’ve already talked about the hard costs of the audit in a previous post, but the hidden time-suck — especially when it’s time for your first audit — is getting your new audit firm up to speed on your organization’s work and financial history.
Hopefully your accountant has put the necessary systems in place to keep things organized, but if not, get ready for lots of requests and digging through old files.
Thankfully, after your first audit, it should get easier in years 2, 3, 4 and beyond.
How to Keep Things Manageable: You definitely want a good accountant who’s keeping all of your financial information in line and making sure your organization has (and is following) generally accepted accounting and financial management policies and procedures. That will greatly reduce the amount of time you (and they) spend on this process.
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None of these experiences should dampen your enthusiasm for becoming an independent 501(c)(3) if your organization has decided to separate. They are, quite literally, just “part of the process.” But now you can better prepare for what’s ahead.
If you’re a current or former leader of a fiscally-sponsored project that separated, what was the time-consuming part of the process for you and your team? Any that aren’t listed above? If you’re planning to separate or thinking about separating, which of the items above are you most concerned about? Please share your experiences by leaving a comment below.
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And if you’re read them all, congratulations! You hopefully have a much better idea of what the separation process looks like and how to approach it. And if you have any questions, please email us. If your organization needs assistance in navigating its separation, take a look at the services we offer and fill out a no-obligation initiation form to get started.