Starting a nonprofit organization is a rewarding experience. Nonprofits meet the needs of underserved populations and ensure no one goes without essential services. But starting a business of any kind, especially a nonprofit, requires planning and preparation. Here are nine things every nonprofit startup needs to know.
Every nonprofit organization requires at least three unrelated board members. While you might want to do all of the work for your organization, it’s essential to find a team of people who share your vision. Make sure everyone also shares the workload, too.
Every nonprofit organization is a legal corporation, registered with the state and federal governments. Incorporation sets the organization up for legal operation in the state. It prepares the nonprofit to file for federal tax-exempt status. The process for forming a legal corporation varies by state. Generally, it requires Articles of Incorporation and a federal Employer Identification Number (EIN). Once established, nonprofit corporations can open a bank account, rent an office, and begin operations. In most cases, however, you cannot yet ask for public donations.
Tax-exempt status is the most critical step in the formation of a nonprofit. Once recognized as tax-exempt by the IRS, the organization no longer pays federal and (in many cases) state corporate income taxes. The average person spends between eight and ten hours filling out the IRS tax-exempt application. Once submitted, the IRS can take many months before issuing a determination. While waiting for status, you are free to operate. However, there may be restrictions on soliciting donations.
In most states, applying for federal tax-exempt status is not enough to start asking for donations. Nonprofit organizations must file additional state documents with various agencies to complete the registration. Knowing which documents your state requires is the difference between operating smoothly and facing hefty penalties and late fees. It’s essential to clarify and understand the requirements for charity registration and state tax exemptions in your state.
Most people starting a nonprofit do so because they’re passionate about their organization’s purpose. This drive is crucial for the organization’s success. However, no matter how devoted the Board of Directors is, without marketing, potential donors and those needing your organization’s services will not know the opportunity exists. Unfortunately, many nonprofit organizations don’t focus enough time or energy on marketing. They often think they can’t afford the cost or that by starting a nonprofit, volunteers and donations will automatically arrive. Without proper marketing, not only will potential volunteers and donors not know your nonprofit exists, but they won’t want to engage.
With few exceptions, most foundations will not consider a grant application without an established history of diversified and successful fundraising. To build toward applying for grants, a nonprofit startup needs a fundraising plan largely built upon personal donations. As the organization develops results, local businesses may be willing to provide in-kind or financial sponsorships. These funds can help make an immediate difference and will establish a case for eventual grant applications.
While many nonprofits will eventually have the funding necessary to hire paid staff members, all will rely on some form of volunteers. Organizations that thrive have detailed plans for recruiting, training, encouraging, and maintaining volunteers. Volunteers who feel under-utilized or under-appreciated will either never come back or, worse, tell their friends and family about their bad experience with your nonprofit. On the other hand, volunteers who are motivated and excited about the organization will work hard and act as free marketing in the community for your cause.
All nonprofits require ongoing attention and management, otherwise called governance. One vital form of governance comes in strategic planning, or working toward a set of goals and evaluating the organization’s current strengths and weaknesses. A detailed strategic plan ensures everyone involved with the nonprofit has a role in the origination’s direction, from the Board of Directors to every volunteer. Strategic plans are not one-time endeavors and should be updated every one to three years.
After completing each fiscal year, nonprofit organizations must comply with year-end reporting at both the state and federal levels. Failure to remain in compliance with these requirements can result in incurring penalty fees, revocation of tax-exempt status, and even having your corporation dissolved by the state. While not as exciting as carrying out the nonprofit’s mission, annual compliance is crucial.
Though nonprofit organizations are essential to every community, starting one can be a time-consuming and often complicated process. When questions arise, don’t hesitate to contact a nonprofit consultant to ensure all necessary legal and organizational requirements for your nonprofit startup are correctly tackled.
The Start a Nonprofit Class is an on-demand, self-paced course taught by nonprofit expert, Randy Hawthorne. This class walks you through the beginning steps of taking a cause concept to an operational nonprofit mission.
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