Do you have a desire to assist others? Are you eager to effect change locally, in your state, nation, or the globe? Are you prepared to embark on launching a nonprofit organization? Every day, many people seek ways to make an impact. Starting a nonprofit can be seen as an answer to these questions.
Starting a nonprofit is a great idea, but where do you start? Have no fear, here is a checklist of things to consider, steps to take, and resources to utilize. These resources can help guide you as you take a leap and start a nonprofit organization.
A Passion and a Plan: Things to Consider When Starting a Nonprofit.
A passion for doing good and making a difference is a theme behind starting a nonprofit. According to the National Council of Nonprofits, America’s 1.3 million charitable nonprofits feed, heal, shelter, educate, nurture, and inspire people. This includes people of every age, gender, race, and socioeconomic status, from coast to coast, border to border, and beyond. The impact can be great, but you need to start somewhere!
First Step-Let’s Define the Term Nonprofit
First, before outlining the steps in starting a nonprofit, let’s consider what is a nonprofit? Many people use the terms charity, nonprofit, and tax exempt interchangeably. There are many sections of tax exempt organizations. The underlying goal for many nonprofits is to make a change or fill a need in the world by taking action. With this in mind, most nonprofits fall under the 501(c)(3)status outlined by the IRS. An organization can be tax-exempt under section 501(c)(3) of the Internal Revenue Code, by organizing and operating exclusively for exempt purposes. These requirements are in section 501(c)(3), and state none of a nonprofit’s earnings may go to any private shareholder or individual.
What Things Should I Consider Before Starting a Nonprofit?
Now that you know what a nonprofit is, onward to the next step of starting a nonprofit. Before you fill out a single form, there are many factors to consider when starting a nonprofit. The National Council of Nonprofits uses the questions below as examples of questions to ask yourself when starting a nonprofit.
- What problems will this nonprofit solve?
- Who will it serve?
- Are there similar nonprofits fulfilling the same needs/serving the same people?
- What will make your nonprofit better equipped to solve these problems?
Starting a successful nonprofit starts with identifying the demand and market for the services you will provide. Nonprofits compete for limited funds from individual donations and foundation grants. Keeping this in mind, it is necessary to identify the problem your organization solves, and if you can do it successfully.
Starting a Nonprofit...What’s Next?
Start with a Solid Foundation
It is essential to begin the process of establishing a nonprofit by constructing a strong foundation. The list includes steps and examples to start building your nonprofit foundation
- Completing necessary documents and filings
- Formulating a mission statement
- Assembling a board of directors
- Naming your organization
Create Your Mission Statement
Developing a mission statement is an essential initial step for any new nonprofit organization. It serves to communicate the purpose of the organization, who it seeks to serve, and how it plans to do so. This helps to differentiate the organization from similar entities in its field.
Candid, a leader in nonprofit resources and information, provides a one hour training webinar that outlines defining your mission and vision.
Crafting a mission statement for an organization can be challenging. It is recommended to begin with a smaller group of stakeholders and then re-evaluate as more individuals become involved. This could include board members, staff, volunteers, and other groups. Despite the effort required in this process, the resulting mission statement will offer direction and purpose for the organization, inspire staff and volunteers, attract donors and other supporters, and serve as a gauge for measuring organizational success.
Build Your Support Team
“Sometimes the most ordinary things could be made extraordinary, simply by doing them with the right people.” Nicholas Sparks
Starting a nonprofit starts with you, but you will need a team and supporters. Keeping that in mind, build a team to assist not only the nonprofit itself, but yourself while you are in the initial steps of starting your nonprofit. Examples include board members, volunteers, mentors, and staff members.
Establish Your Nonprofit Board
First, you will need to create a board and invite board members to your nonprofit. There are a few questions to answer as you create your nonprofit’s board.
How Many Board Members Do I Need? Determining the number of board members depends on a few questions, such as the number of board members required by the state or province in which incorporation is taking place. Additionally, the size of your nonprofit and scope of your mission. Keeping these facts in mind, a minimum of three board members is required for federal guidelines and may be a good starting point for your organization.
How Long Should Each Term Be? This is a strategic question to answer as you are starting your nonprofit. Find out what the capacity of each board member is and it may be a good idea to prevent the full board from turning over all at once and stagger the board terms, therefore reducing the risk of a complete board turnover in one year.
What skills do your board members need to have? Recruiting board members with expertise in particular areas, such as law, accounting, marketing or social services, may be beneficial to an organization depending on its mission. It is important to remember that all board members should be passionate about the mission of the organization and dedicated to fulfilling their obligations.
Connect With a Mentor or Advisor
You don’t have to do this alone! Starting a nonprofit can feel overwhelming at times, for this reason consider working with a mentor or advisor. This can be someone you know who has experience in working in or starting a nonprofit similar to yours. Often times leaders are willing to share the good, the bad, and the ugly to help other nonprofit leaders as well.
First, start with people you know and connect with leaders in your community. Next, consider looking at organizations with similar missions in your state or area. Forbes, lists resources and steps to take when trying to find a mentor or advisor.
Hire Staff Members
As you are starting a nonprofit, you will need to analyze your needs and ability to hire staff members. This may not be feasible right away, but there are things to consider along the journey.
Hiring staff is contingent upon your operational plan and nature of the nonprofit organization. Employees typically have salaries, unlike Board members and volunteers. Therefore, it is essential to determine the amount that can be attributed to salaries and benefits. Consider various incentives that can be offered to staff members.
In order to assemble the most qualified team, it is essential to create job descriptions that include measurable goals, key duties and responsibilities, and potential learning and development opportunities. This should be done in such a way that the mission of the organization is clearly communicated so that those hired will be passionate about their work.
Develop a Business Plan
Developing a business plan is essential for launching a nonprofit organization. It provides a structured approach to addressing questions such as: "What issues are we attempting to address?", "What goals are we striving to accomplish?", "Who will be responsible for achieving them?”, and, "What resources will be necessary?
Additionally, the business planning process considers the mission and vision of the nonprofit, the responsibilities of its board, and various external environmental factors, including the current fundraising climate. The National Council of Nonprofits, outlines helpful steps and resources to help develop your nonprofit’s business plan. When developing your business plan, consider reaching out to other nonprofit leaders and experts who can assist you in this crucial step.
Incorporating, Filings, and More!
The mission statement is crafted, your team is assembled, and your vision and plan are in place. Your foundation is set, what now? Besides these tasks, there are legal state and federal steps and guidelines that are an essential step in starting a nonprofit.
Name That Nonprofit
What’s in a name? Turns out, there is a lot to a name, especially when starting a nonprofit. Selecting a name for a nonprofit organization is an important step. The nonprofit name should clearly communicate the organization's purpose and create a positive impression with potential donors, stakeholders, and partners. A well-crafted name can help distinguish the nonprofit from competitors and foster trustworthiness.
Need help generating your nonprofit name? There are name generators and resources to help get started. In fact, Incfile, has resources available to help create that perfect name, including a name generator tool. Put on your creative hat as you think about your mission, vision, and purpose as you name your nonprofit.
Next Step...Incorporate!
Creating a nonprofit corporation starts at the state level. This process establishes a nonprofit corporate entity by the filing of Articles of Incorporation. Most nonprofits organize as corporations for many reasons, including liability protection for the officers, directors and other key individuals.
Incorporating is different in each state is different but most states require similar information.
- Your nonprofit’s name
- Name and address of the registering agent (the founder)
- Address of the nonprofit
- Names and address of the board members
- Statement of purpose to which your nonprofit will operate
Use the links below to find out the steps, directions, and resources to incorporate in your state:
In addition to the state agencies, there are state associations that assist in this process as well.
Obtain an Employer Identification Number (EIN)
You are well on the path for starting a nonprofit! After incorporating your nonprofit and forming your entity, the next step is to obtain your Employer Identification Number, or EIN. The IRS outlines three main steps for obtaining your organization’s EIN and the online application process.
First, you must determine your organization’s eligibility.
- You may apply for an EIN online if your principal business is located in the United States or U.S. Territories.
- The person applying online must have a valid Taxpayer Identification Number (SSN, ITIN, EIN).
Second, understand the online application. You must complete the application in one session and the session will expire after 15 minutes of inactivity. If this happens, you will be asked to start the process over.
Third, submit your application. After all of the validations are complete, you will immediately receive your EIN. Lastly, you will be able to download and save your EIN confirmation.
Apply for Tax-Exempt Status
Nonprofit organizations may elect to pursue federal tax-exempt status under Section 501(c) of the Internal Revenue Code. The type of application form depends largely on the purpose of the organization. The most common form sought is 501(c)(3), which includes charitable, educational, and religious organizations. In addition to the application, organizations need to provide accompanying documents. Examples include articles of incorporation, bylaws, financial reports, and a filing fee. To simplify this arduous process, the 1023-EZ form provides a streamlined approach.
Register Your Charity
If your nonprofit organization is engaging in fundraising or accepting donations registering your charity is a necessary next step. Registering your charity is typically done at the state level. Organizations, such as the National Council of Nonprofits provide helpful resources. Similarly organizations such as NASCO create lists of state entities who assist with this process.
Federal Filings and Compliance
Most charitable nonprofits that are recognized by the IRS as tax-exempt have an obligation to file IRS Form 990, which is an annual information return and is typically electronically filed. There are three versions of the IRS annual information return: Form 990, Form 990-EZ, and Form 990-N. The version of the 990 your nonprofit will use depends on specifics for your nonprofit. The IRS provides a wealth of information and links for the applicable forms.
After your requirements are met for your annual filings, consider additional year end reporting and communication. Additionally, DonorDock provides a suggestions for additional annual reporting and year end communication information to help guide you with this step.
Celebrate The First Steps! 🎉
Celebrate your success in taking the first steps in starting a nonprofit.
Congratulations on taking the first steps. As you continue taking your passion to a plan and making your dream into reality, remember to celebrate the successes! Do you want help with fundraising and donor management as a next step? Check out DonorDock and we’ll help you start off the next step on the right foot!
Note: These are suggestions for best practices. DonorDock recommends checking your state and federal guidelines. We also advise that you consult a legal representative or an accountant for additional questions or guidance.
