Risk and Resilience: The Portfolio Approach to Fiscal Sponsorship, Part #4
[Note: This series was co-written by Josh Clement and Schulman Consulting. For more on Josh, click here or scroll to the end of this post.]
In our previous posts (#1, #2, #3), we have talked about how fiscal sponsors can look at the financial history of projects to assess the financial risk and resiliency of their portfolios. These assessments are used to answer questions about if a project will grow or contract, while looking at how these variables interact across a portfolio.
However, these projections give us a baseline of expectations that should be informed by the contextual information about a project that only fiscal sponsors will have from the relationship with the project itself. After all, while the project may be just a name on a spreadsheet for a finance team that’s focused on making sure that checks get out the door and that all expenses are accounted for, that name means something very different to those working with projects to help them accomplish their missions.
We work in fiscal sponsorship because we believe that an economy of scale approach is the most effective and efficient way to support the incredibly necessary work that the fiscally sponsored projects engage in. These projects are much more than names on a spreadsheet and financial figures to evaluate, they are led by project leaders with dreams, supported by passionate people, and fulfilling missions that aim to make the world a better place for all.
To this end, we are going to talk about how that type of personal knowledge can better inform how fiscal sponsors assess and approach their portfolio of projects.
Bad Growth Expectations
One of the main fallacies of utilizing a flat growth expectation for a portfolio of projects is that this leads to an assumption that all projects will grow (and that they all want to). Of course, the idea behind this flat projection is that some projects may grow and that some projects may contract or remain flat, where the agglomeration of the growth evens out to the singular growth expectation.
However, this is not true for many fiscally sponsored projects, as many of them either have no interest in growing or would require substantial programming or mission changes to experience growth.
For example, take these two projects:
Community Association X has revenue fluctuations if there a notable event or fundraising drive. But this organization is run by volunteers and does not have the capacity or interest to take on new work. As a result, they would be unlikely to experience growth and a flat growth expectation would therefore always project a small loss for this project.
Social Enterprise Y rents out co-working and event space. This project is extremely unlikely to grow past capacity unless there is a substantial change to their mission or programming. With a flat growth expectation, this would result in a large loss in the projections when the project fails to grow.
Now, your fiscal sponsor likely catches these latter situations, while the accumulation of similarly small projects does not noticeably impact the portfolio. The danger is the middle-level projects, which are probably around $50,000 to $200,000 in revenue, as they are not always large enough to receive continued, dedicated attention to their budgeting and revenue projections. But with enough of these projects, they can radically influence the financial direction of a portfolio.
Adding the Personal to the Impersonal
The objective nature of financial data hides the human effort that goes making the fiscal sponsorship work happen. It may look like a project experienced a huge success increasing their grant revenue from $25,000 to $150,000, suggesting another year of growth. But you know the blood, sweat, and tears that went into building the funder relationships, potential pitfalls of taking on larger grants with somewhat realistic deliverables, and how the project lead has a newfound appreciation (and hatred) for expense accounting of government grants.
The financial data will never show that background, the personal relationship that is built in the everyday work of fiscal sponsorship.
This type of information is incredibly necessary to create effective financial risk and resilience for your organization. As such, it is helpful to think about your projects with these types of questions:
- Do they want to grow?
- Do they have experience managing this type of revenue or increasing their revenue?
- Does their programming and mission allow them to grow?
- Does their staffing attention allow them to grow?
A project may have the most incredible results, recently received new revenue, and could be on track to grow. But the project lead is still in Law School and is running the project in their spare time, unable to give more than five hours a week to the project. That knowledge only comes from relationships beyond the financial data.
Fiscal Sponsorship Project Typology (or “Making Up Fun Names”)
By looking at the projects through this lens, we can start to create a typology of projects. For example, here is are a few classifications examples:
This typology system will help you better understand how your portfolio is influenced by the types of fiscally sponsored projects. In this example, the Strong Citizens are projects such as the Community Association X, where the growth rate is low, and the project is run by volunteers. For these projects, they may have very different needs than similar small projects that have a high interest in growth but are not sure how to reach their goals.
In the Start-Up Culture example in this scenario, these are projects who have reached the first stage of growth, which typically means they are managing a few medium-to-large grants. These projects may be approaching scale or have the opportunity for more growth depending upon their goals.
The High Flyers examples are high-growth projects, which are often led by project leaders with substantial non-profit and/or fundraising experience. These projects can achieve high growth through revenue diversification, but this is spurred because these types of projects are not bounded by programming or space constraints. Their missions allow them to grow and tackle multiple projects simultaneously. However, these projects are the ones most likely to leave fiscal sponsorship.
By adding the contextual information about projects, fiscal sponsors can begin to see how projects often have very different needs, which may require varied, and varying levels of, support services depending upon the goals and objectives of the projects. For example, the projects who do not have leaders with high amounts of non-profit or fundraising experience who are leading projects that are interested in growth may benefit from targeted fundraising workshops.
This lens can help fiscal sponsors utilize financial assessments to create better support systems for projects, which, in turn, builds financial resiliency and reduces risk.
[If you think this could benefit your organization, but you’re not sure where to begin, we can help you figure it all out. Click here to set up an initial call to discuss your situation.]
About Josh Clement: Josh Clement is the former Grants and Development Manager at Strong City Baltimore. While at Strong City, he designed a new approach to financial analysis, which he has since brought to others in our sector. He’s partnered with Schulman Consulting to share his expertise and knowledge. He’s also currently earning his Masters in Public Policy at the Humphrey School for Public Affairs at the University of Minnesota.