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How to Start a Nonprofit Organization

Posted In: Nonprofit Management News

A diverse group of young professionals working on laptops and talking over business documents.

Starting a nonprofit organization such as a church or charity can help you make a difference in the world and in the lives of others. Once you have the idea for your nonprofit, you can incorporate the organization to gain the formal structure that enables it to have limited liability. It will also be eligible for public and private grants, as well as federal exemption from payment of corporate income tax.

Starting a nonprofit organization requires time, effort and money. The following sections can help you focus on how to start a nonprofit.

Disclaimer: The information in this article does not constitute legal advice. Seek professional counsel before beginning any business venture.

Steps to Take for Starting a Nonprofit

The National Council of Nonprofits identifies five steps for starting a nonprofit.

1.    Research

“Starting and sustaining a nonprofit can be significant challenges, particularly in light of today’s economy,” according to the National Council of Nonprofits. “There are currently more than one million charitable nonprofits in the United States, but many struggle to attract increasingly limited funding. Before starting out, you will need to identify and quantify the need for your specific organization, to research whether there are other groups already engaged in the same or similar work, and to ensure that starting a new nonprofit is the right solution.”

As you evaluate your idea, here are some questions that can help test whether your nonprofit will be ready to succeed.

  • Is there a need in the community for your nonprofit idea? Similar to the “supply” and “demand” of small businesses in the marketplace, you’ll need to determine the need for your nonprofit. Determine what organizations exist and whether yours will be able to meet the current need for a nonprofit. You may have to conduct surveys to demonstrate the need for your nonprofit. If there is an existing organization, consider working with that group as a volunteer or board member or working collaboratively with that organization.
  • Do you have a plan for financing the organization? You’ll need more than passion to start a successful nonprofit. In one survey, half of the nonprofits responded that their organization either doesn’t have a strategic plan or doesn’t have it in writing.
  • What are the costs? Consider the costs of necessary filings in each state. Also, evaluate what the costs will be for infrastructure to deliver services, office space, supplies and special licenses, permits or certifications to provide services like child care or health care.
  • Where will you get startup funding and operational funding? You’ll need funds to start the nonprofit and manage day-to-day activities.
  • Can my nonprofit demonstrate its impact? You’ll need to demonstrate to funders that your nonprofit is making an impact and is worth investing in. Plan how you’ll measure this impact.

Once you answer these questions, you’ll be able to answer if starting a nonprofit is the right solution for your community.

2.    Building the Structure of Your Organization

Here are some questions that can help you build your nonprofit’s structure.

  • Who will be involved? Having people involved in the launch can signal support and a better chance of success. Many states have requirements for how many board members your nonprofit will need.
  • What do you need to do? Consider the economic climate and funding need for the nonprofit. Continue to develop a detailed business plan. Consider potential community partnerships and the skills needed for volunteer and paid staff.
  • When should you file paperwork? There are three steps involving quite a bit of paperwork, followed by ongoing reporting on an annual basis. The three steps are: incorporating at the state level, securing your tax-exempt status from the federal government and filing for tax-exempt recognition at the state and local levels.
  • Where can you get quality assistance? Seek assistance from an attorney, accountant or another professional who has experience working with nonprofits.
  • Why is a new organization the only way to accomplish the mission? “Is starting a new organization necessary?” the National Council of Nonprofits asks. “The answer to this question will be the core of your efforts to recruit board members, staff, volunteers, and donors.”
  • How do you create and sustain a nonprofit organization? This answer depends on your business plan. If the organization can achieve its mission in less than three years, the National Council of Nonprofits recommends that it is probably better as a program housed at an existing organization.

3.    Incorporation and State Forms

Find your state association of nonprofits for state-specific resources on incorporating. Laws and regulations vary from state to state. Once you find information on incorporating in your state, you’ll be able to complete this step for starting your nonprofit.

4.    Filing for Federal Tax-Exempt Status

The IRS offers “Stay Exempt” tax courses that help nonprofits meet filing requirements. Also, the IRS has a booklet for applying for 501(c)(3) tax-exempt status.

5.    Ongoing Compliance

Once you receive your determination letter from the IRS, you’ll be required (in most states) to complete additional filings to receive tax-exempt recognition from those institutions. Check with local legal counsel to make sure you’re compliant with local initial filing requirements.

State and Local Government Filings

  1. Before you start operations, review state and local laws to ensure compliance on topics such as registering (if necessary) before starting any fundraising, registering (if necessary) before engaging in any lobbying and securing (if necessary) required permits and licenses.
  2. Completing state tax exemption requirements (usually must wait until IRS acts).
  3. Registering (if necessary) for unemployment insurance and reporting to officials.
  4. Registering (if necessary) to secure any additional tax exemptions (such as property tax, sales tax collections and exemptions from paying sales tax).

Other

  1. Initial internal issues: structural (staff, space, services) and setting up systems and policies (accounting, fundraising, HR and employment issues, risk management).
  2. Regular activities: tax withholdings and board meetings.
  3. Quarterly activities such as reporting taxes withheld (federal/state/potentially local).
  4. Annual activities: file annual report with state government, file Form 990 information return with IRS (and any similar form required by the state) and re-register any required items (such as charitable solicitation).

Learning All About Nonprofit Management

Grace College’s online nonprofit management degree equips students with the knowledge and skills to succeed in marketing communication, applying technology, creating and training staff, raising funds and improving efficiency within an organization. Rooted in Christian servant leadership, the program helps graduates apply faith to careers in nonprofit management.

This accelerated program can be completed in two years. It takes place in a fully online learning environment, allowing students the flexibility to complete coursework alongside personal and work responsibilities.

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