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How much does it cost to start a nonprofit?
We all know that money doesn’t grow on trees. Starting a nonprofit would be as easy as planting a money tree if it did. In a world where money doesn’t come quite so easily, starting a nonprofit with no cash can be a challenge. Luckily the task isn’t impossible.
But it’s good that social activists start nonprofits with a passion, purpose, and—hopefully—enough bankroll to finance their budding organization. We know that starting a nonprofit is hard work, and we must be mindful of the costs involved. Few can cut it, though we’re confident you can.
These steps will help you determine the needs of your nonprofit, the solutions to achieve your mission, a list of the fees, and the finance-related tasks associated with starting a nonprofit.
Start with Your Mission And Vision Statement
Begin with an inspiring task, like writing your nonprofit mission statement or examining your vision for the cause. Knowing why you’re going through the difficult planning and budgeting process may propel you through dreary days. But after crafting your mission statement, it’s time to settle into the complex but critical financial planning process. Plan for the funds you need to start and sustain your nonprofit, and you will save trouble in the long run (it might even save your nonprofit).
Trust your mission
Gaining trust and supporters is often put on the back burner until organizations can raise the initial funds to start their nonprofit. Don’t make this mistake, or you will end up elongating the process of becoming an official nonprofit.
Trust that your mission can help you earn money by connecting personally with possible contributors. If they know and understand your goal, they will be more likely to help you achieve it. With more volunteers and donors by your side, becoming a nonprofit will seem less of a burden and more like you already have nonprofit status.
Plan Like a Business
Nonprofit executives will rightly tell you that a nonprofit is another form of business. Like a business, you need more revenue than expenses. Create a business plan for your nonprofit. Then, you know where the money is coming from and where it’s going.
As you budget through your business plan, take a good look at your nonprofit’s revenue streams. Where did your current funds come from, and can you count on them to continue after the nonprofit startup process? The health and longevity of these revenue streams (individuals, the government, grants) must be on your radar for a stronger nonprofit.
Don’t be fooled into thinking there will be a magic startup grant available for your cause. Most foundations require nonprofits to exist for at least one year before considering them for funding. Consider alternative initial funding methods like earned income through product sales or services, a fiscal sponsorship with a like-minded nonprofit, or even a low-interest loan.
Take another cue from the business world and consider hiring experts to help you navigate the filing and formation process. Companies like BryteBridge specialize in helping nonprofits and ensuring you take all pivotal steps. There is nothing worse than rejection and having to start over. Working with experts often saves you time and money in the long run.
Nonprofit Registration and Filing Expenses
Knowing what you’re up against is always good before diving into a challenge. Before you file for 501(c)3 status and tax exemption, you’ll need to pay a fee that is dependent on your budget size. Since your nonprofit is starting up, the fee shouldn’t be outrageous. If your operating budget is $10,000 or less, the fee will be around $400 – $850. BryteBridge has an easy-to-use guide for researching what is required where you’re launching your nonprofit.
Your organization will have approximately 15 months to file Form 1023, which is a form that assesses your nonprofit’s structure and programs. The form is necessary for 501(c)3 status. Additionally, to gain 501(c)3 status, you must be incorporated, and most states charge a fee when you file for incorporation. You must look at your state filing requirements and expenses. Once you have filled out the necessary paperwork, knowing what you’ll need to file at tax time each year is important.
You should review this list of IRS forms for exempt nonprofits. Remember many filing expenses, such as charitable solicitation licenses and tax filings, are annual and should become part of your operating budget.
If this sounds overwhelming, consider bringing in an expert to help you navigate the legalities and ensure you don’t miss any critical steps. Use a consulting firm that specializes in nonprofit startups to ensure you get comprehensive help. It’s easier and more affordable than hiring a CPA, attorney, and document prep agent separately. However, if you’re not comfortable preparing your filings, you may need outside help. Hiring a CPA or attorney will add some professional fees to your startup costs but might save you time and trouble in the long run.
Nonprofit Presence Expenses
As many nonprofit startups have learned the hard way, you can exist without being found. Don’t overlook the importance of launching with a strong website, branded email, and a logo. Using free or low-cost platforms like Squarespace and Gmail will help you get your cause created without draining your startup funds. In addition, tools like Paypal and Bitpay allow your startup to accept donations from credit cards and cryptocurrencies through exchange markets. Make sure you are online and in person – if that is how you deliver your program. If your nonprofit requires a physical space to carry out its mission, consider asking a partner organization to borrow some space temporarily or work remotely. Small business and nonprofit incubators are a great way to build your network and your cause while saving on the rent of a private space.
Initial Marketing Expenses
You want your nonprofit startup to look like it’s going to succeed. Show up strong with a logo and brand guidelines to help build your organization’s reputation and recognition. You’ll need to work hard to get the word out initially. Invest in well-crafted emails, newsletters, and direct mail pieces. These “front door” pieces have a great return on investment. Consider using a freelance service like Fiverr or a volunteer service like Catchafire to help get the work done while keeping these costs low.
Service and Program Expenses
Delivering on your mission may be the hardest cost to estimate when you start your nonprofit. You might want to go from zero to 60mph when delivering on your purpose, but you’ll likely benefit from launching in stages. Map out your program’s impact. Examine if you can deliver on it incrementally. This slow and steady approach may save your sanity and help you determine your actual program costs more accurately.
Talk to your peers who deliver the same or similar program to learn from their experience. If you go outside your community or direct impact area the lines of communication will likely open up. Remember, these peers were once trying to determine the cost to start a nonprofit, too!
The financial considerations involved in starting a nonprofit require a lot of legwork and more than a little paperwork, but you will be rewarded with financial security.
Use the Buddy System
Everything is better with a friend by your side – or in this case, another nonprofit. Grant money seems like an easy and obvious option for a new nonprofit. But grant money is not as easily attainable as you think, especially if you have yet to build a reputation.
Look for a similar organization that can help you find grants. They will have a list of organizations that gave them grant money that would likely be willing to give to your nonprofit since your missions are similar. The government can also be a great source for nonprofits that need financial assistance. Websites like grants.gov and usa.gov offer places to search for nonprofit grants and funding. With these websites, you can specify which state you’ll be starting your nonprofit in. You can find specific funding for your organization at the state and local levels.
Finding another organization with a similar mission can be helpful in a variety of other ways besides finding grants. They can provide tips and insights into everything you will be doing. They’ve been through everything already and should be able to guide you. The common interest in your goals will be an instant connection among organizations, meaning you’ll be on the same page.
Create a Board
Begin building a board for your organization. The IRS usually requires a minimum of three board members for every nonprofit. Your board should have members who will engage in your mission. They should be willing to support the nonprofit as it grows. Your board can also act as a fundraising team. The board members themselves can give to the organization. Or, they can help secure donors and help with fundraising efforts. You should be able to rely upon your board members to assist in generating revenue as you start your nonprofit. Check out this other resource if you are seeking ways to build a board of fundraisers.
Types of Revenue When Starting A Nonprofit
As we mentioned above, when starting a nonprofit, you probably won’t be applying for grants immediately. Consider these additional revenue streams for your nonprofit.
- Donations: This is the most common type of income for nonprofits, and it comes from individual donors, foundations, corporations, and government grants. Begin thinking about fundraising campaigns or ways to seek donations.
- Membership fees: Some nonprofits rely on membership fees as a primary source of income. Individuals or organizations pay fees to become members of the nonprofit. Consider if this applies to your organization.
- Fundraising events: Nonprofits often hold events, such as charity auctions, galas, golf tournaments, walks, and more, to raise money. If you’re just starting out, you may not be able to plan a large fundraising event. However, these may be an option if you have a solid volunteer base or board to help you succeed.
- Program service revenue: Nonprofits that offer services or products, such as education or counseling programs, may generate income through program service revenue. Nonprofits can also create revenue by providing consultancy services to businesses, such as training, research, or evaluation services.
- Investment income: Nonprofits can earn income from stocks, bonds, and real estate investments.
- Rental income: Nonprofits with property, such as a building or land, can earn income by renting it out.
- Social enterprise: Nonprofits can generate income by running a social enterprise. Examples include cafés or retail stores. They provide goods or services to the community. Some nonprofits may even have thrift stores to help build revenue.
- Sponsorships and advertising: Nonprofits can generate income by partnering with businesses or individuals to provide sponsorships or advertising opportunities. If you are seeking corporate sponsorships, check out this on-demand webinar on how to secure them.
- Crowdfunding: Nonprofits can use online platforms to raise money from many people, each contributing a small amount.
- Merchandising or product sales: Nonprofits can sell merchandise such as t-shirts, mugs, or other items with their logo to raise funds. You could also sell items like books or artwork.
- Online platforms: Nonprofits can use online platforms such as Patreon, Kickstarter or GoFundMe to raise funds, sell merchandise or offer services.
To wrap it up
Don’t focus so much on finding money and then starting your nonprofit. Instead, build your nonprofit as you try to gain 501(c)3 status. If you’re passionate about your cause and people know it, they will, in turn, be excited to help you.
Here are a few more resources to help you determine your cost to start a nonprofit:
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