Have you ever wanted to change the world? You aren’t alone. There are over 1.5 million nonprofits in the US, most of which exist to make some change in the world. Some focus on aid to the less fortunate. Others sponsor the arts, preserve knowledge, or protect the environment. If you want to start a nonprofit, there are distinct steps you’ll need to take.
The harsh reality is that half of all nonprofits fail. If you don’t want to be a statistic, start off on the right foot with a clear plan.
Initial Research
One of the most important questions to answer is whether you really need to start a nonprofit. With over a million nonprofits in the country, there may already be one focusing on your exact area. In that case, you would be competing for volunteers and funding with that organization, making it difficult for either of you to thrive.
If you can find an existing nonprofit and join in its work, you can start making a difference much faster, and with less bureaucratic hassle. Often you can start a smaller chapter or subgroup under a larger organization, allowing you to function under its legal umbrella for tax purposes while still keeping your preferred focus.
Next, start considering what kind of organization you want to create. First, pinpoint the problem you want to solve: litter in your community, teens without good role models, homelessness? Then consider what concrete actions you want to take. You could host weekly cleanups or connect teens with trustworthy mentors. If you don’t have a clear, concrete type of work you want to do, you’ll end up doing very little.
Last, consider funding. Your organization won’t run for free. Do you already have donors interested in helping you with your mission? If not, who can you ask? How much money do you and your supporters have to put into the project? You can’t run a nonprofit on love and good intentions.
Creating an Organization
Once you know what you want to do, it’s time to create the structure of your nonprofit. Part of this process takes place on paper. You need a clear mission statement. It should express the impact you want to make and the basic means you will use to do so. This statement will make it clear to everyone—donors, volunteers, and employees—what their effort goes toward. Try to make it both clear and inspiring.
Next, you need a strategic plan. Like a business plan, this document will include everything you have researched and intend to do. Important categories include programs you want to provide, impact you want to have, research you’ve done, plans for marketing your nonprofit, plans for organizing your team, and financial plans.
Once you’ve completed this, you can start gathering your board. This can be the supporters you already have, or people you recruit within the community. A good board will have people with different areas of expertise. You might want a few business owners for their financial savvy, people well-connected in the community who can seek out donations, and people closely connected to the work you intend to do. Board positions are usually unpaid—make sure people are aware of this when you recruit them.
Legal Incorporation
Creating a nonprofit entity involves several different levels of red tape. First, you need to incorporate as a trust, corporation, or association. You do this with your state, so the process and cost will vary depending on where you want to operate. You will need a unique name, and in some states you will also need to have bylaws already in writing.
After that, you need to apply for an employer identification number (EIN). This allows you to open a bank account for your organization and hire employees. Even if you don’t plan to hire employees just yet, it’s good to have this part done early on. You can register for an EIN easily with the IRS.
Last, you need to register for tax-exempt status. There are many types of tax-exempt organization, but you will most likely register as a 501(c)(3) organization. This covers charities, religious organizations, literary groups, and more. However, fraternities, social clubs, and trade organizations will register under a different category.
The registration process can take 3-12 months for approval, and it costs $600 to apply. However, if your organization expects to receive less than $50,000 in annual donations and holds under $250,000 in assets, you can use Form 1023-EZ, which is a quicker and cheaper application.
Help Starting Your Nonprofit
The steps to starting a nonprofit are complex enough that you probably shouldn’t go through them alone. If you have a mentor who has started or works in a nonprofit, ask them all the questions you can. Nonprofit lawyers also exist who can help you navigate the legal requirements. And, for the financial end, you should consult with a financial advisor who specializes in helping nonprofits. They can help you work out a funding plan that will make your nonprofit a success. Contact us to find the right financial advisor for your nonprofit.
