Nonprofit organizations serve a crucial role in the United States, providing many services to communities that aren’t fulfilled by local governments. There are about 1.7 million active nonprofit organizations in the United States, according to Cause IQ. And nonprofits contribute an estimated $1 trillion to the national economy.
Given this vital role, it’s natural for engaged community leaders to start nonprofit organizations. However, if you have the desire to create a nonprofit, there are many considerations to take and a lot of things you need to do to make it official. Here are nine things to consider when starting a nonprofit.
Will your organization be a nonprofit or not-for-profit?
Before you get started, you should first make the determination if you are forming a nonprofit or a not-for-profit organization, two designations that sometimes get confused. A traditional nonprofit qualifies for tax-exempt status by the IRS because it provides some kind of public good. Nonprofits include national and local charities, foundations, arts organizations, hospital systems and more. Most nonprofits incorporate under the 501(c)(3) tax designation.
A not-for-profit organization (NFPO), however, does not need to provide for the public good and can focus solely on benefiting members or communities. Like nonprofits, NFPOs are also set up to be tax-exempt. For example, a 501(c)(7) social club — think dinner clubs, alumni organizations, amateur sports clubs or hobby clubs — likely will fall under this designation.
What is your mission?
One of the most vital things to consider when you are starting a nonprofit is your mission. Writing a mission statement of one to two sentences can outline why it exists, what the organization does, who it serves and where it provides services all in one place. Despite the mission statement being short, you should spend a fair amount of time on it because it will end up being used in published materials, on your website and elsewhere.
For example, the Colorectal Cancer Alliance, a national nonprofit focused on ending colorectal cancer, uses the following mission statement: “To empower a nation of allies who work with us to provide support for patients and families, caregivers, and survivors; to raise awareness of preventive measures; and inspire efforts to fund critical research.”
What will you name your nonprofit?
Naturally, one of the earliest items you need to consider when starting your nonprofit is its name. The name should both be unique and precise in its description. It should embody your mission and use strong, impactful words. Your organization’s name should not be the same as any that currently exist, so check the IRS’ Tax Exempt Organization Search to find out.
How much will it cost to make this nonprofit work?
Before you can begin operating, it will be useful to know what sort of budget you expect to need to fulfill your stated mission. Will you need to hire a large team, and what salaries do you need to pay? What purchases will you need to make on a weekly, monthly and yearly basis? How much income do you need to bring in? You might want to hire a certified public accountant (CPA) to work with you on a detailed budget so you don’t underestimate your operating costs.
One of the most vital things to consider when you are starting a nonprofit is your mission.
How can I fund this operation?
The majority of nonprofit organizations rely on donors to fund operations, so fundraising remains incredibly important. There are many ways to fundraise, including solicitation via calls, emails, social media and direct mail, charity auctions and in-person and online events. It may also make sense to appeal to the charitable giving arms of large corporations, who can ask employees to provide donations and offer to match those donations.
Additionally, nonprofits can obtain local, state and national government-based grants in some cases. The useful website Grants.gov provides most national grant opportunities in one place, with funding options from various federal agencies.
Who can I hire to build a strong team?
The nonprofit organization you set out to create will not run itself, so you’ll need to bring on an executive director and a board of directors. An executive director will likely need knowledge, skills and sector experience to lead the organization effectively. The executive director will also need to manage the board of directors at monthly or quarterly board meetings. Try to hire people who connect with your mission and have a passion for what you are trying to accomplish.
How will I raise awareness?
Like marketing for a retail business or restaurant, raising awareness and building support early is critical to getting your nonprofit started.
Raising awareness and engaging with members of the community fulfills many goals of a nonprofit. First, it helps build support towards accomplishing your mission. Whether you engage with individuals online or in person, you’re sharing insight into a cause you care about and inspiring others to do the same.
Second, it can help with fundraising. Building awareness of your nonprofit’s work can make it easier to solicit funds from individuals, organizations and other key stakeholders as you grow.
And, finally, raising awareness can help fulfill the requirements of many grants or donations. Some grants include a requirement to publicize what you are doing with the funding, building transparency into the donor-grantee relationship. Sharing content about your important work enables donors to continue supporting your organization with further funding.
What organizations can I partner with to expand my reach?
Another consideration will be finding and creating partnerships that can open up opportunities for expanded fundraising and operations. You should identify what types of organizations in your community can give you more reach and help your mission, including other nonprofits, schools and local businesses.
How will you stay compliant?
Nonprofit organizations are subject to a specific set of state and local rules related to taxes, payroll and other 501(c)(3) restrictions. Once you receive the 501(c)(3) status, make sure you’re taking steps to make sure your record-keeping and taxes comply with the IRS’ guidelines and requirements. This includes filing Form 990 during tax season, creating and complying with organizational bylaws and documenting regular board meetings, if applicable.
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