If you’re someone who wants to help and give back to the community, starting a nonprofit organization can be an inspiring idea. There’s nothing like showing love and compassion to those in need. But before you even consider running one, it’s important to understand all of the steps involved in this long and tedious process. Growing, running, and sustaining a nonprofit business can potentially take years of grit, determination, and effort.
Are you 100% Ready to Start a Nonprofit?
Every great business starts with inspiration. If you’re someone who thought about starting a nonprofit organization because you want to help your community, then you’re off to a great start! But there are a few things you should ask yourself before taking the plunge.
Are you Aware of the Challenges?
There’s no doubt that starting and running a nonprofit can be rewarding. But it’s also important to be aware of the challenges you’ll face along the way. For starters, fundraising can be difficult, as well as recruiting volunteers and staff members. And then there are the bureaucratic hurdles you’ll need to jump through to make your nonprofit official.
Are you Passionate about this Project?
One of the most important things you need to ask yourself before starting a nonprofit is whether or not you’re truly passionate about the project. After all, this will be a lot of work, and it’s important to have the drive to see it through. If you’re excited about your idea and can’t wait to get started, then you’ll be in good shape.
Do you Have What it Takes to Make it Work?
Starting a nonprofit can be challenging, and it’s important to make sure you have what it takes. If you think your idea will take more time than you’re willing to give, then perhaps now isn’t the right time for this project. After all, if you’re not excited about the idea yourself, how do you expect your volunteers and donors to be?
Are you Ready for a Long Road Ahead?
Growing a nonprofit takes time, effort, and patience. It’s not something you can do overnight. It may take years of hard work before your nonprofit is up and running smoothly. But if you’re passionate about this project and ready to put in the hours, then go for it!
The best way to find out whether or not starting a nonprofit is the right decision for you is to do your research. Talk to people who have done it before, read up on the process, and ask yourself these tough questions. If you’re still feeling inspired after that, then chances are you’re ready to take on this challenge!
Step-by-Step Guide to Starting a Nonprofit Organization
The information in this article is meant to offer general guidance on how to create and run a nonprofit organization. Keep in mind that certain steps may vary for each situation or location. If you’re serious about starting a nonprofit, we highly recommend that you consult with a legal professional for detailed assistance.
Now that we’ve got that out of the way, here are the basics steps you’ll need to take when starting a nonprofit organization:
Step #1 – Do Your Homework
Conduct a Needs Analysis
Determine if other organizations are doing the same work you intend to do in your community. If you’re duplicating an already existing organization, you may want to consider joining that organization or working with them instead.
Is a Nonprofit Ideal for You?
Not every idea lends itself to the nonprofit structure. For example, some for-profit businesses can be structured as 501(c)(3) of the Internal Revenue Code, but most nonprofits are formed out of a personal passion for a cause.
We recommend that you consult with an attorney to determine if your idea is well-suited as a nonprofit. The IRS also has some helpful information on what qualifies as a 501(c)(3) organization. Click here to learn more.
Check Local and State Requirements
Each state has different laws governing how nonprofits can be structured and operated. It’s important to research these requirements before taking any steps in forming your nonprofit. You can find a wealth of information on the National Council of Nonprofits website. The National Council of Nonprofits (NCN) is a membership association of nonprofit organizations in the United States.
Know the Alternatives
In every state, there are different types of nonprofit organizations. Knowing the differences between these structures can help you decide which is best for your project.
- Forming a corporation – A corporation is a separate legal entity from its owners and has shareholders. This type of organization offers personal liability protection to its directors and officers.
- Forming a limited liability company (LLC) – An LLC is also a separate legal entity from its owners, but it offers more flexibility than a corporation. Members of an LLC are not personally liable for the debts and obligations of the company.
- Forming a trust – A trust is a legal arrangement in which one or more individuals (trustees) hold legal title to the property for the benefit of another individual or individuals (beneficiaries).
- Forming a cooperative is an autonomous association of persons who voluntarily cooperate for their mutual social, economic, and cultural benefits.
Step #2 – Establish a Solid Foundation
Create Your Mission Statement
Your mission statement will be a critical mark in the startup process. This statement will guide your nonprofit’s work and help you focus on its objectives. More importantly, it can also be a powerful fundraising tool when used to inform potential donors about your organization’s purpose. Be sure to include information about who will benefit from what you’re doing (your target population).
Also, keep in mind that your mission statement should be clear and concise, without the use of jargon. Ideally, it will fit on one page or less.
Draft a Business Plan
Similar to other businesses, your nonprofit will need a plan laying out its goals, strategies, and how it intends to achieve them. This document will help you track your progress and make necessary adjustments along the way. Having a business plan will also ensure that you outline new ventures or projects. So, if you decide to expand your services down the road, you’ll have a plan in place.
Form Your Board of Directors
A board of directors is essential for any nonprofit organization. The size and composition of your board will depend on the state in which you reside. Typically, your board should have a minimum of three members and no more than twenty-five.
To carry out these duties effectively, your board should be composed of individuals with different expertise and skillsets, including accounting and financial management.
Identify Board Members’ Responsibilities
Your board members will need to perform certain specific functions that are critical to the success of your nonprofit. These include:
- Participating in fundraising activities – If your nonprofit is going to be successful, it will need financial support from individuals and organizations. Board members can help by soliciting donations and organizing fundraising events.
- Overseeing the management of your organization – This includes making sure that your programs and services are effective and meeting the needs of your target population.
- Providing governance and leadership includes upholding your organization’s mission and guiding it toward achieving its stated objectives.
- Ensuring the organization complies with all applicable laws and regulations – Your board members are responsible for making sure the nonprofit meets all legal requirements and obtains any permits or licenses needed to operate.
Step 3: Incorporate Your Nonprofit
Once you’ve gone through and accomplished the first two steps, it’s time to start finding resources that are specific to your location. The best place to start this search is the Internal Revenue Service (IRS) website. This is where you’ll find all the information you need to form a nonprofit corporation in the United States.
There are several steps involved in incorporating your nonprofit, but we’ll outline the basics for you here:
- First, you must file Articles of Incorporation with your state’s Secretary of State office. This document will officially create your nonprofit corporation and outline its purposes, directors’ names, registered agent information (more on this later), etc.
- Once your Articles of Incorporation are filed, you’ll need to obtain a federal tax ID number for your organization from the IRS by filling out Form SS-four.
- Next, you’ll need to create bylaws for your nonprofit. These rules govern how your organization will operate and can include information on things like membership requirements and voting procedures.
- After that, it’s time to appoint a registered agent. This is an individual or business entity that will accept legal papers on behalf of your nonprofit corporation if it’s ever sued. This can be either a person who works for your organization or an outside firm specializing in this type of service (for example, Registered Agent Services LLC).
- Once everything is done, you’ll need to file an Annual Report with the Secretary of State’s office every year to keep your nonprofit active and operating legally. Many states require this report to be filed by a specific date each year, or they will dissolve your corporation automatically.
Once you complete all these steps, it’s time to get started with the fun part: developing programs and services for your nonprofit organization!
Step 4: File for 501(c)(3) Tax-Exempt Status
If you’re looking to obtain tax-exempt status from the IRS, there’s one more step you’ll need to take: filing for 501(c)(3) status. This is the most common type of exemption and allows your nonprofit to receive donations from individuals and tax-deductible organizations.
There are a few eligibility requirements for 501(c)(3) status:
- First, you must be a charitable organization (an educational or scientific institution).
- Second, your nonprofit’s purpose must benefit the public at large and not just one person or family.
- Finally, you cannot use any political campaign contributions to influence elections (the IRS defines “political” very broadly).
For more information on how to apply for 501(c)(3) status, please visit the official IRS website.
Step 5: Continued Compliance
Register with Your State’s Agency
Every state has a specific office tasked with the oversight of charitable organizations. This is generally called the Office of Attorney General, Division of Charitable Solicitations, or similar. You’ll need to register with this agency and file any required reports (usually on an annual basis).
Once you’re registered, you’ll be assigned a registration number which you must include in all solicitations and other communications with potential donors.
Prepare for Yearly Reporting Requirements
Most of the time, your state’s agency will require you to file an annual report detailing your organization’s income, expenses, and programs. There may also be other reporting requirements, such as submitting copies of your Articles of Incorporation or bylaws. Be sure to familiarize yourself with your state’s specific rules and regulations governing nonprofit organizations.
Invoicing with ReliaBills
It may sound ironic, but nonprofit organizations still need to have a solid invoicing system for when donations or grants come in. A well-organized invoicing system will help you keep track of your expenses and ensure that all donations are properly accounted for. Fortunately, ReliaBills can help.
ReliaBills is an invoicing and billing system that’s completely free for nonprofits. It offers a variety of features, including customizable invoices, automatic payment reminders, and even the ability to accept donations directly from your website!
Plus, if you want more features like recurring billing, automated text messaging, late payment notifications, and more, you can upgrade your basic plan to ReliaBills PLUS for only $24.95 per month.
So far, we’ve only touched the tip of the iceberg. However, it’s more than enough information to get your nonprofit organization up and running. Make sure you do thorough research, learn every nuance, and talk to qualified and experienced professionals in the field to get the full grasp on how to run and sustain your nonprofit organization. It’s going to be a bumpy ride but the reward at the end of the journey will be worth more than the effort. Good luck!