Starting a nonprofit begins with the best of intentions—making a positive impact in the community. Yet, it can be a complicated process. Don’t let that hold you back from making a difference. This article provides a simple checklist of nine important steps that can ensure nonprofit startup success.
The 1.3 million charitable nonprofits in the United States help “feed, heal, shelter, educate, inspire, enlighten, and nurture people of every age, gender, race, and socioeconomic status, from coast to coast, border to border, and beyond … Every single day.” As the National Council for Nonprofits (NCN) put it, nonprofits also “provide a way for people to work together for the common good, transforming shared beliefs and hopes into action.”
Wanting to start a nonprofit is commendable. Yet, budgets are always challenging, and community need is only growing in many areas. COVID-19 further compounded difficulties at many organizations. According to an online survey by Giving USA, “56% of nonprofits report raising less than budgeted, while approximately one-third are raising in line with expectations, and 11% are raising more than their original goals.”
Leaping into nonprofit work requires a bold dream and determination. This article aims to support your noble cause by answering the how to start a nonprofit question with nine essential steps:
- Identify a need
- Develop a business plan
- Choose and register a business name
- Register as a nonprofit
- Obtain a federal tax identification
- Secure funding
- Establish a system to track finances
- Build an online presence
- Hire a strong team
#1 Identify a Need
Do your research first! You have a passion for helping. Social Solutions suggests beginning with a Nonprofit Needs Assessment asking big questions such as:
- How many people need this service?
- Who is your target audience? What is their demographic profile?
- What are this audience’s needs and desires?
You can review the IRS’s searchable master list of all recognized tax-exempt nonprofits to see if other groups are already active in your area. You may be better off joining forces.
Keep any data and research you gather to qualify and quantify the need for your idea. This can help you later on when gathering funding, publicizing your nonprofit, and raising awareness of the issue.
#2 Develop a Business Plan
Ensure success for your new nonprofit by developing a business plan. As with starting a business for profit, a business plan forces you to do detailed exploration to clarify your vision. This can help you determine realistic program costs, overhead expenses, office costs, and communication needs. You’ll also often need a business plan to attract funding and get staff and board members to join your project.
Before going too deep into developing your nonprofit organization from scratch, it’s also a good idea to consider fiscal sponsorship. The fiscal sponsor’s role can perform many different administrative functions such as:
- Receiving and administering charitable contributions on behalf of the sponsored organization
- Providing financial management
- Performing back-office functions
- Helping build the capacity of your charitable project
Learn more about fiscal sponsorship in this video from the NEO Law Group.
#3 Choose and Register Your Business Name
Every state has different nonprofit regulations. However, it is safe to say you will need to choose and register the intended name for your nonprofit first. You will need to file Articles of Incorporation (also known as “certificate of incorporation” in some states). Your state may also call for you to publish your articles of incorporation a prescribed number of times in your local newspaper.
Once you’ve settled on your business name, be sure to register that domain name (and any related domains) as well as social media accounts. This step can help you make sure no one else is already doing the same thing and can save you from legal issues later on.
#4 Register as a Nonprofit
You can’t just start your organization and say it is a nonprofit. You have to apply for federal and state tax exemption. Register the nonprofit with your state and the Internal Revenue Service. You may need legal assistance to complete Form 1023 to become a 501(c)(3) nonprofit organization. In the meantime, the IRS has created a site especially for nonprofit organizations, including interactive presentations to guide you through the process.
To learn the specific business formation obligations in your state, it’s a good idea to contact your state nonprofit association.
#5 Obtain a Federal Tax Number (EIN)
Nonprofits must obtain a federal tax number for the organization. You can apply for an Employer ID Number (EIN) online, by fax, or by mail. You will need to fill out Form SS-4.
#6 Secure Funding
Every nonprofit needs money to survive. You might think your organization will survive and thrive on donations alone. However, according to the NCN, “the nonprofit sector —as a whole—earns more than 80 percent of its revenue (through fees for services and government contracts and grants).” The remaining revenue comes from donations through individuals (10.2%), foundations (2.9%), and corporations (0.9%).
This highlights the importance of applying for grants or seeking crowdfunding and corporate sponsorships. To help think about the right financial strategy for your nonprofit, review this informative article on Ten Nonprofit Funding Models from Stanford’s Social Innovation Review.
Learn more about Private and Nonprofit SMB COVID-19 Loans and Grants.
#7 Set Up Financial Tracking
Whatever your source of nonprofit revenue, you’ll need to have an established procedure for tracking finances. Every nonprofit is required to file the 990 Form tax form. Nonprofits need to track expenses to demonstrate funds are being spent responsibly, focusing on the vision rather than profitability.
The Financial Accounting Standards Board (FASB) requires nonprofit organizations to have a:
- Statement of Activities
- Statement of Financial Position
- Statement of Cash Flow
Integrating your accounting software with donor management software can help facilitate fiscal accountability.
#8 Build an Online Presence
Building an online presence is critical to giving your organization a public profile, raising awareness, and collecting donations. A website with associated business email addresses can boost credibility. Your website design will also factor into how people perceive your organization.
Develop messaging for social media accounts as well. Being on LinkedIn can be an excellent way to find board members, staff, volunteers, and corporate partners. Meanwhile, Instagram and Facebook may be a better channel for reaching out to your audience and potential volunteers.
Online marketing is essential for nonprofits, and “utilizing the power of storytelling through these avenues is one of the most effective ways to maximize your nonprofit’s impact.” Nonprofit storytelling rests on four Cs: character, connection, conflict, and conquest.
You’ll also need to learn how to write press releases. We give several tips in an article on sharing nonprofit success.
#9 Hire a Strong Team
You’ve got a passion for this project, but you can’t do it alone. You’ll need to find other committed individuals who share your enthusiasm. This will include staff as well as a board of directors. You’ll also want to involve volunteers who share your desire to make a difference.
When it comes to finding board members, in addition to considering the diversity of representation, you’ll want to think about what skill sets and experiences they can share. Instead of having three board members who are all accountants, you might explore partnerships with an accountant, a lawyer, and someone with direct hands-on experience with your target audience.
Many nonprofits start out with a small number of staff members. Unlike the board and volunteers, these individuals are paid a salary. Since revenue is limited, consider offering employee benefits. In addition to an executive director, you may need a fundraising manager and a communications manager to get up and running. Hiring employees when you form a nonprofit organization is easier the clearer your vision and mission.
You’ll also need to recruit and retain volunteers. Many nonprofits rely on the hours volunteers spend supporting the organization’s mission. It’s a good idea to identify what kind of services and skills would be useful. Determine also if you need to train volunteers. More hands on deck are only helpful when all those people are pulling in the same direction.
Following these nine steps can position you to realize your passion for making a difference in your community. Now go out there and launch a project that has a real impact.