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How to Start a Nonprofit

Starting a charitable nonprofit can take you down many paths but each journey begins with a mission. A mission is simply a clear statement of the scope and dimension of your nonprofit. Why does your nonprofit need to exist? Who will it serve? What will it actually do? Where will you operate? The answers to these questions should help formulate a clear mission statement.

Now that you know your mission, what are the technical issues of starting a nonprofit? First you must determine if your mission requires establishing a nonprofit corporation. If you intend on raising funds in the form of tax deductible contributions, the organization must serve some charitable, religious, educational, scientific or literary purpose beneficial to the public interest. This will allow the organization to seek tax exempt status from the IRS acquiring the designation of being a 501c3 charitable organization.

The designation "501c3" refers to the section of US Tax Code that deals with tax exempt organizations. Tax-exempt organizations do not pay federal corporate income taxes. Not all state regulations are equal in regards to tax status of nonprofits so be certain to check with your state government. * Being designated as a tax-exempt nonprofit also can qualify the organization for lower postal rates and for government and private grants. The negative part of incorporating is increased paperwork, record keeping and reporting requirements.

Incorporating as a nonprofit is very similar to incorporating as a for-profit. Each nonprofit corporation must file articles of incorporation specifically stating the purpose of the organization. Each must establish by-laws and consider regulations and operational requirements. As each state has independent regulations regarding incorporation, it is wise to consult an attorney. While this may not be necessary to complete the paper work, the advice of an attorney can speed the process and reduce potential conflicts that will delay or deny your ability to proceed. Many books are available that provide state-specific information regarding incorporating as a nonprofit. Check your local book store or online book resource.

Part 2 - The Real Work Begins

Do you need a staff? Can you pay a staff? Can you retain volunteers? Someone has to do the work. Workers are needed for two general responsibilities, administrative and service. Administrative workers run the corporation including raising funds, managing budgets and handling all business operations. Service workers are responsible for the mission of the organization and for accomplishing the purpose for which the nonprofit was formed. In small nonprofits, one staff member may do it all. This is where volunteers become critical to the success of the nonprofit.

Do you have a budget? From where will funding come? Nonprofits can earn income through program and service fees, but raising funds is usually an essential activity. Fundraising is simply the result of matching a compelling cause or need with a philanthropically minded individual, organization or company. Philanthropy is a massive industry in the United States with over $212 billion donated in 2001 according to Giving USA. The key to successful fundraising is asking. It may seem simplistic but most people fear talking about or asking for money. Do not wait for donors to come to you. Ask and you shall receive.

If, however, you do not receive enough funding to provide for all of your operational and service needs, consider partnering with a similar organization. A trend in the nonprofit industry is sharing resources that are common to many nonprofits. This could take the form of sharing office space, administrative tasks, fundraising and other work that a small nonprofit may need but not to the extent of requiring a full-time employee. You may be able to partner with an organization that could use the services you provide within the scope of their larger mission. Research your local nonprofit community to determine if a similar organization exists and if your services would be complementary to their mission.

Starting a nonprofit begins with a dream, grows with hope and succeeds with hard but rewarding work. If you are up to the challenge, someone or something needs your commitment, concern and passion

 

 

Where to start when creating a nonprofit

Summary: Resources and advice for use at the very beginning.

A widely used resource is Anthony Mancuso's book How to Form a Nonprofit Corporation in All 50 States published by Nolo Press. You can purchase the 4th edition online through Amazon.com by clicking on this link (and the Nonprofit FAQ will receive a royalty from Amazon which we will use to maintain this resource for nonprofits): Order How to Form a Nonprofit Corporation now.

The oddly named "For Dummies" series published in 2001 a Nonprofit Kit by Stan Hutton (formerly the editor of http://nonprofit.about.com) and Frances Phillips. It covers the subject of nonprofit organizations quite generally in a readable way, and includes advice for people contemplating starting a nonprofit as well as on many challenges that established nonprofits face in their work. The book includes a CD-ROM in both Windows and Mac formats with many additional resources. Order the Nonprofit Kit through Amazon.Com now; a royalty will be paid that will help to support the Internet Nonprofit Center.

Grantmakers for Effective Organizations (an association of foundations that give special emphasis to nonprofit management) has a guide for funders considering support to a start-up organization on its website. The issues raised in this guide are things anyone investing time, thought or money in a new organization will want to think about. The .pdf file is available at http://www.geofunders.org/_uploads/documents/live/startupassessmenttool.pdf; for more information about Grantmakers for Effective Organizations, see http://www.geofunders.org/.

Many advisors suggest using an alliance with an existing organization as a way of testing the waters before going through the whole process of setting up a new nonprofit. Such an arrangement is called "fiscal sponsorship." The sponsoring organization oversees the financial affairs of the new effort and assures authorities that necessary standards are being met and the charitable purposes being achieved. Usually, a small fee is paid to cover the sponsor's costs during the start-up phase. See Fiscal Sponsorship: Six Ways to Do it Right from the Study Center Press if this idea of working as a sponsored program of another organization seems like a promising way to go. You can order this book online through Amazon.com by clicking on this link (and the Nonprofit FAQ will receive a royalty from Amazon which we will use to maintain this resource). Order Fiscal Sponsorship now. You can also order direct from the Study Center Press at 1-800-484-4173 ext. 1073.

The Free Management Library also offers advice and suggestions about fiscal sponsorship. See http://www.mapnp.org/library/finance/np_fnce/np_fnce.htm#anchor106593

The National Center for Nonprofit Boards has a helpful checklist at their website; use this link to go directly to the file: http://www.ncnb.org/askncnb/faq7.htm

The Free Management Library helps you answer the following questions:

  1. Should your new business really be a nonprofit?
  2. What service will your nonprofit provide? Is it needed? By whom? Really?
  3. How will your nonprofit be designed? Who will it involve? Who will work for whom? See http://www.mapnp.org/library/strt_org/prep.htm
  4. Do you have what it takes to start and run a new organization?
  5. If so, then what specific steps are involved in starting a nonprofit?

See http://www.mapnp.org/library/strt_org/strt_np/strt_np.htm

Added 8/23/99 -- CM

Stan Hutton (nonprofit.guide@miningco.com) wrote in NONPROFIT on 1/29/98:

There a many sources of information on the Web. You could begin with some FAQs such as Pamela McAllister's exempt.law site http://www.exemptlaw.com/faqs/formation/f2000forming.html

I have some information (and advice to proceed carefully) at http://nonprofit.miningco.com/library/weekly/aa101197.htm

 

Don Griesmann has written a comprehensive guide to starting a nonprofit with strong emphasis on the importance of having a business plan. His paper includes advice about what a business plan should include and how to prepare one -- in the nonprofit setting. See http://www.nonprofits.org/npofaq/misc/010708NP_Biz_Plan.pdf [sgl dagger][sgl dagger]NOTE: This file is in Adobe Acrobat Portable Document (.pdf) format. You will need special software to open and read this document. This software is available without charge from Adobe. See http://www.adobe.com/products/acrobat/readstep.html

Cynthia (CJ) Anderson of the American Red Cross in Phoenix, Arizona, (kirimaku@GOODNET.COM) responded to a reader of TALK (from PHILANTHROPY-REVIEW.COM) on January 2, 1998, with this advice on things to think about in the early stages of developing an organization:

Where are you going?

Who are you helping?

Do you have a mission and vision statement? Specially need a one liner - like a mantra - look to ARC - "When Help Can't Wait" "Neighbor helping Neighbor" or even Martin Luther King - "I have a dream."

Who are you trying to help - one family, ten? What constitutes a family and what does their income level need to be? (Hint: do not try to go global - The American Red Cross is retooling now because they have discovered that grassroots and internet is where the energy is will be in near future).

Never miss a chance to get your name out there (make it a priority to get online effectively).

Who are your volunteers? They will bring in donors through their affiliations both personal and workplace. They can open many doors for you organizationally. Your volunteer application will be a font of information you can pull from again and again.

What is your budget? Your donors are going to be your neighbors and friends - how can you maximize that? Who can you partner with? Community partnerships greatly increase your chance of obtaining grant money. What specifically is your service - how do you deliver? My impression of the direction the United Way is going (if that is a potential funding source for you) is to look closely at the numbers of population served and the socio-cultural demographic breakdown.

How is experienced is your board? A) in business (and you are starting a business, make no mistake)? B) in community out reach and networking, i.e. getting others to buy into the program as volunteers and donors? Are they willing to do speaking engagements anywhere and everywhere to get your presence known? One thing is guaranteed - with a new organization and no track record, big dollars will not be forthcoming until you can demonstrate your presence (commitment to stay) in the community and the energy that comes with a lot of small, local dollars and support. Do you have a plan for this?

People give to where their heart is hooked. There are plenty of us that have "been there, done that" or lived dollar-to-dollar long enough to know "there but for the grace of god go I...." Your cause must be perceived as a good and just one.

Make sure that everything you ask for is specific, take the time to know your intended supporters so you know their interests and passions...build off of them. "Will you give $100? I need accounting program evaluation assistance for 3 hrs a week for a month..." There are also lots of excellent how to books available to guide you.

Consider looking for retired executives to be resource advisors to the board - there is an organization called SCORE (the Service Corps of Retired Executives) that has such retired seniors to draw from. The Local United Way also frequently has a Volunteer Agency attached to it that acts as a clearing house for volunteers of all ranges to match to agencies.

This is going to be a long term effort. If you try to do this independently, from scratch, it will be a long and difficult effort. You may want to consider something new I am hearing about, where different NPOs are sharing common administrative costs under one roof - receptionist, accounting, fund raising, copy machine, etc. - much like many doctors have been doing.

You can also consider partnering with an existing organization, that has services close to your interests, so you augment what they are already doing. For instance, if your interest was in helping middle income families who had lost everything due to disaster. You might partner with the Red Cross, - our help is very specific and very short term - 1-2 weeks for single family home disasters. You can get very hgh visibility with a partnership like that both for funding and clients. Since you indicated your interest was for families who suffered loss from illness or death - consider going with a hospital, hospice type partnership. Even large corporations like Motorola, Intel, American Express may be candidates for partnerships - scout among your membership.

Just make sure that whoever you are partnering with is well organized and has an excellent community reputation and integrity that you are prepared to support and augment.

Earlier thoughts from readers of soc.org.nonprofit and other sources follow.

MISSION STATEMENT

Through open discussion with the people who will be involved as volunteer leaders, define what it is you intend to do and how you will do it.

A Mission Statement can be as short as one sentence and should be able to be defined in just one short paragraph. If you can't do it that concisely, maybe you're not sure what you really want to do.

ejuly@winternet.com wrote on Mar 25, 1996:

Here we go again spending time and energy on a mission statement.

The time spent here would be better spent evaluating if the agency is accomplishing anything and to what degree or quality.

Word smithing a mission statement serves no client or community. Just us professionals.

And tlannan@nyc.pipeline.com (Tim Lannan) responded on Mar 27, 1996:

If wordsmithing becomes the objective, who can disagree. But my experience has been that without a clearly defined and understood purpose, not-for-profits start to drift and loose focus, wasting resources and not accomplishing what they should.

Time can and should be well spent in making sure that the organization's purpose, i.e., mission, is relevant. This is one of the most important things a NFP board does; done well it will make sure the organization is actually accomplishing something, providing staff, donors, clients and the community a beacon that will guide the work of the agency.

"If you don't know where you're going, you're sure to end up someplace else..."

LEGAL

Incorporating; documents needed; filings.

WerthWhile contributed these additional thoughts in soc.org.nonprofit on August 11, 1995 on the subject "Just starting out--help please":

Wow! I do not envy you in wanting to start a non-profit.

I think the biggest mistake that I have seen people make is in thinking that they must obtain a non-profit status through the IRS before they start. It costs them $1,500 for a CPA and six months in time, and then they can't get their idea off the ground anyway.

I would recommend that you write up your ideas in detail, including what your non-profit would do, why this is different from what other non-profits offer, and so forth. Write it like a business plan (plenty of books in the library tell you how). I would really encourage you to conduct a lot of research about similar organizations. You might even want to intern with one before setting up something similar. I can think of few non-profits that are really different from others (MADD is one example).

Then, shop your document around to various churches or other non-profit organizations that might act as a sponsor for you. You can use their non-profit status to raise money, with their permission. Some might want a small percentage to act as a sponsor, and that's OK.

After that, I would set up a board of directors to give you guidance and help you raise money. These should include a CPA and a lawyer, and specialists in the field you're working in (doctors if you want to open a clinic, for example, or social workers if you want to help the homeless).

Good luck in your efforts!

Reposted with additions and minor editing January 7, 1999 -- PB; updated 8/23/99 -- CM; 11/18/99, 1/18/00, 6/28/01, 7/8/01, 8/17/01 --PB

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    • three books that can help.

 

UPDATE 02/14/2008