Starting a Nonprofit

Starting a nonprofit organization is a great way to help those in need, to give back, and make an impact on your community. Often when someone sees a strong, unmet need in the community, they often focus only on starting a new nonprofit as the solution.  However, starting and sustaining a nonprofit are not easy tasks and can take years of effort and determination. Even knowing where to start can be difficult.

Understanding the steps involved in starting a nonprofit organization are important, and since specific steps vary by state, therefore consulting with a legal or tax professional for detailed assistance is highly recommended.

Do Your Homework: Conduct Analysis

The first step in starting a nonprofit organization is doing your homework by conducting a thorough analysis.  Thinking through the details of how your nonprofit will serve the community, be funded, and be staffed ahead of time, will save you time down the road.

● Identify and quantify the kinds of problems the nonprofit intends to address, the need for the specific organization, and the scope of the organization. Recognize that starting a new nonprofit might be the most complicated way to act on a passion to serve the community.

● Define the market and the demand for the services your nonprofit would provide, including conducting surveys to demonstrate the need for a new organization.

● Consider if a fiscal sponsor would be a good first step.  

● Research the demographic or population data showing the need of services, and explain the reason these needs are not currently being met.

● Research the potential legal and operational requirements by contacting agencies such as the state association of nonprofits or local lawyers familiar with nonprofits. 

Know the Alternatives

Research if duplicate services are already provided by other organizations (nonprofit, for-profit, or governmental) in the community (duplicating existing serves is harder to gain support for).  Duplication of efforts doesn’t usually help as it takes scare resources and spreads them even thinner.  This could provide even more competition for limited funds, staff members, volunteers, and board members.

If services are already being provided, consider working with the existing group as a volunteer, board member, or working collaboratively with the organization instead of creating duplicative programs. If sustaining the nonprofit will be difficult or too costly, you may want to consider alternate options. 

Demonstrating the Impact of a Nonprofit Organization

In order for the nonprofit organization to be sustainable, it is important to plan how you will measure the impact on the community. Your future funders and donors will want to understand how their funds will be used to better the community. There is an ever-growing competition for limited resources (funding, board members, and volunteers), so you’ll want to make sure that your nonprofit will have an impact to demonstrate your nonprofit is where they should invest their time and money.

It will be very beneficial if you implement measurement systems from the start of the nonprofit.  This will prove the ongoing improvements and impacts.

Measurement systems can be in place from the beginning in order to demonstrate the impact of the nonprofit organization.

Build a Solid Foundation

Building a solid foundation is key to ensure a successful nonprofit organization.

Draft a Mission Statement and Name

Develop a strong mission statement which will communicates the purpose of the nonprofit. All of the organization’s decisions and actions should support this mission statement.

 

Select a name for your nonprofit that conveys the identity and mission of the organization.  Verify with the state that your potential name is available, and ensure your desired domain name for your website is available. 

Write a Business Plan

Develop a solid business plan which will help describe how the nonprofit intends to achieve the mission.  

 

Include a well-developed plan for financing the organization during the initial stages and an ongoing basis.

 

The business plan should provide detail on critically important operational issues, including the infrastructure which will support the program.

 

Spend quality time developing the business plan, as the details can later be used when completing the paperwork for tax-exempt status and in fundraising efforts.

 

Develop a marketing plan to educate the public on your new organization, recruit donors and volunteers. The marketing plan should include a strong online presence including a webpage and social media outreach. 

Board Development

Determine how many board members you will need for your nonprofit, and what type of skillsets you need on your board.

 

A nonprofit’s board of directors will fill a variety of roles and legal responsibilities, especially in the beginning phases of the nonprofit.

 

 

Remember that the board will evolve as time goes on, so your skillset needs for your initial board may not be what you need in five years.

 

When recruiting board members, make sure they are aware of the time and financial requirements to serve on the board.

 

Make sure you properly orient your new board members and provide appropriate training to them.  Research if there are any community resources that will help educate your board of directors. 

 

Incorporate your Nonprofit

Completing the process to incorporate your nonprofit organization is important. As part of this process, you must develop a formal structure for your nonprofit.  This will give your organization more credibility and helps limit some of the liability of the nonprofit’s directors and officers. 

Your nonprofit should be incorporated so it exists as a separate legal entity. The organization should have their own bank account and property should be in the same of the nonprofit to ensure clear separation from any other entities, profit or nonprofit.  Incorporating the nonprofit also helps protect you and the board members for potential liability issues.  To incorporate the nonprofit you must file Articles of Incorporation, along with other documents with the appropriate local and state offices.  

Remember that just because a nonprofit is incorporated, doesn’t mean it’s a 501c3 tax exempt organization.

File for 501c3 Tax-Exempt Status

An important step is to apply for a tax-exempt status with the Internal Revenue Service (IRS) so the nonprofit organization doesn’t have to pay federal taxes (and potentially some state taxes too. This is known as a 501c3 organization or a charitable nonprofit. Public charities must operate exclusively for the purposes set forth in section 501c3 of the Internal Revenue Code, or could risk losing their 501c3 status.

There will be some fees and paperwork associated with filing an application for federal and state tax exemptions. Keep in mind, the IRS requires the organization to be a corporation, community fund, or foundation to be granted a tax-exempt status. The approval process may take from 3-12 months depending on how many questions the IRS has for the applicant.

Ongoing Compliance

As a nonprofit organization, part of the ongoing compliance will require you to register with the state agency that regulates charitable organizations and charitable solicitations (typically the Attorney General).  In addition, you will need to follow the same process in each state you plan to solicit for contributions in. 

You will want to develop a fundraising plan that details your plans to grow and sustain the organization, including applying for grants (after your organization has been awarded 501c3 status. 

All tax exempt organizations must preparation the appropriate annual reporting requirements, including Form 990 with the IRS.

Nonprofits should have a broad ethics and accountability program in place, as some nonprofits are under more intensive scrutiny than in the past. Policies such has conflict of interest, compensation, and whistleblower are important and needed. 

Remember to always keep the mission of the nonprofit organization at the forefront of all of your decisions.

Costs to the Organization

Any startup organization has significant costs, and nonprofit organizations are no different. The startup costs are in time, effort, and funding. You may want to consider fiscal sponsorship in order to jumpstart the organization, especially if you don’t have sufficient resources to handle the start-up costs and fees or the skills initially to manage your finances. Another option is working with another nonprofit that could act as the financial sponsor.  You may not want to plan on dependence on grants, as most new nonprofits aren’t eligible to receive grants as a startup. 

Ensure you have a realistic picture of the costs the organization will incur during the startup phase and ongoing to manage the day-to-day activities, and for future growth. Any new nonprofit will face many challenges, however financial stability is typically the most difficult. Budget and plan carefully, as less than half of new nonprofits last beyond five year. 

There will be many ongoing costs to consider as well, including the cost to provide the services, supplies, licenses, office space, and staff.  Be sure to keep good financial records to help with later reporting and any annual reporting requirements.

Do you Need a Lawyer to Start a Nonprofit?

There may be some part of starting a nonprofit that you can do yourself, but there will be others where you will need to consult with an attorney. Making mistakes on important documents by trying to do-it-yourself may actually cost you more in the long run. 

Specifically, using a nonprofit-knowledgeable lawyer is very important when completing some tasks like filing for incorporation within the state or the process of filing for tax exemption. The cost of not incorporating the new organization or not being granted tax exemption could cost the company greatly.  Assistance with the various reports and filings by an attorney with experience in nonprofits could also serve as a huge time saver as well.

Nonprofit Incubators

Another good resource is finding a business incubator to help share resources at low-costs to get an easier start. To find a local nonprofit incubator in your community, reach out to the National Council of Nonprofit Associations to find a local nonprofit incubator in your community.

The National Council of Nonprofits

The National Council of Nonprofits can be a support to you through the process of starting and sustaining a nonprofit organization. The National Council of Nonprofits do not provide one-on-one assistance, however they can provide resources that may be valuable to you. They share important information on how to collaborate and seek legal assistance to ensure your nonprofit organization is in compliance with state, local, and federal laws.  The National Council of Nonprofits can help you understand potential funding vehicles, including the use of a business incubator.

If you need assistance with starting a nonprofit organization, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of Google, Strip, and Twilio.