Starting a nonprofit organization is a rewarding endeavor that can make a significant impact on your community or a cause you’re passionate about. At a glance, the process may seem daunting and complicated. However, breaking it down into manageable steps can help you navigate the journey with confidence and establish a strong foundation for setting your organization to growth and success.
In this article, we’ll explore how to start a nonprofit and outline the steps you need to take.
What Is a Nonprofit Organization?
Before we consider how to start a nonprofit organization, let’s first find out what it is. Generally, nonprofits (NPOs) are organizations dedicated to serving the public good rather than generating profit for owners or investors. They typically focus on crucial areas like education, healthcare, environmental protection, human rights, the arts, and poverty alleviation, striving to make a positive impact on society.
The key NPO advantages include:
- Public trust: A nonprofit status enhances the credibility of an organization. It signals to the public, potential donors, and volunteers that the entity is committed to a specific cause and is held to higher standards of accountability and transparency.
- Eligibility for grants and donations: Donations, grants, and in-kind support are the primary funding sources for NPOs provided by foundations, government agencies, and corporate or individual donors.
- Tax-exempt status: Nonprofits can obtain tax-exempt status, exempting them from income taxes on revenue related to their mission.
- Limited liability protection: Typically, nonprofits provide limited liability protection to their directors, officers, and members, shielding their personal assets from legal claims against the organization.
- Access to volunteer labor: Volunteer support is essential for nonprofits, enabling them to expand their impact without incurring significant labor costs.
- Potential for discounts and free services: Many businesses and service providers offer discounts or free services to nonprofit organizations, embracing everything from office supplies and software to professional services like legal advice and accounting to help an NPO fulfill its mission more efficiently and direct more resources towards its social initiatives.
How to Open a Nonprofit Organization in 9 Steps
So, how do you start a nonprofit organization? Straight off the reel, the process of creating a non-profit organization is as exciting as it is challenging. Our step-by-step guide will help you navigate this tricky process to position your nonprofit for long-term success.
Step 1: Conduct Thorough Research
If you are wondering how to create a nonprofit organization, first and foremost, you should get prepared for the process and conduct comprehensive research to:
- Define the problem or need your nonprofit will address and gather data to support your findings.
- Identify competitors by analyzing similar organizations in your area to understand their strengths, weaknesses, and gaps in service.
- Assess the community demand for your services by engaging with community members and stakeholders to gather feedback.
- Consider the project feasibility by estimating your time, energy, and financial resources, and potential funding opportunities.
- Evaluate your starting costs, including staff, office space, software, and any office equipment required, incorporation and tax-exempt status filing charges to be clear about the average cost of starting a nonprofit.
Step 2: Define Your Mission and Vision
A clear and compelling mission statement is the cornerstone of any successful nonprofit. It should describe your organization’s purpose, who it serves, and the impact it aims to achieve while outlining your long-term goals and the change you aspire to create.
Step 3: Develop a Comprehensive Business Plan
Though aimed at public service, creating a nonprofit organization is still about running a business both technically and practically. So, to make your future venture a success, a well-crafted business plan is a must.
An effective plan should include:
- Executive summary providing a general overview of your NPO covering its mission, vision, and key objectives.
- Organizational structure outlining staff roles and board composition.
- Programs and services you will offer and how they align with your mission.
- Market analysis presenting your research findings and demonstrating the need for your nonprofit.
- Fundraising strategy detailing your plans for securing fund sources through various revenue streams.
- Financial projections including anticipated income, budget forecasts, and expense statements for the initial years of operation.
Step 4: Establish a Board of Directors
To start a nonprofit organization in the US, you should set up a strong and dedicated board of directors. It’s essential for effective governance and strategic direction of your NPO as well as for maintaining its transparency and accountability.
Appoint individuals who are passionate about your cause and possess relevant expertise. They should bring diverse skills, experience, and perspectives to the table.
Step 5: Build a Strong Brand and Marketing Strategy
Creating a recognizable brand and effective marketing strategy is crucial for raising awareness and attracting much-sought support for your nonprofit.
- Establish your brand identity by developing a logo, color scheme, and messaging that reflect your mission and values.
- Develop a professional website that provides information about your organization, showcases your impact, and facilitates donations.
- Make use of social media to engage with your audience, share updates, and promote your cause.
- Communicate with local media, bloggers, and influencers to increase visibility and credibility.
Step 6: Secure Funding
NPOs largely depend on third-party donations and contributions. So, take your time to work out a strategy that will ensure a consistent money inflow.
Some of the most common funding sources for nonprofits are:
- Grants from foundations, corporations, and government agencies.
- Donations by cultivating relationships with private donors through campaigns, events, and personalized outreach.
- Corporate sponsorship by partnering with businesses that align with your mission and can provide financial support.
- Hosting special events like galas, auctions, or community gatherings to raise money and engage supporters.
Step 7: Incorporate
At this point, you are ready to legalize your entity and start working toward your mission. In the US, you can choose between two business forms when starting a nonprofit. These are corporations and LLCs.
To officially register your NPO as a business entity, you’ll have to file the Articles of Incorporation or Organization with an agency or filing responsible for business filings in your state. Normally, each state has a specific form of formation document available online, and the whole filing process is quite simple. Just submit the required paperwork and pay any associated fees.
Step 8: Apply for Tax-Exempt Status
Once you’ve set up a legal entity for your nonprofit venture, it’s time to apply for a tax-exempt status with the Internal Revenue Service (IRS) for US organizations. With 29 tax-exempt designations under the IRS section 501(c) in place, there are three commonly used for NPOs:
- 501(c)(3) is the most widely used type for charitable organizations serving religious, educational, scientific, health, and safety purposes.
- 501(c)(4) best works for welfare organizations related to political and lobbying activities or promoting legislation.
- 501(c)(7) is optimal for membership-oriented nonprofits that are faded by member contributions for no less than 50%.
Step 9: Maintain Compliance
Having your NPO up and running is not enough to keep it eligible. To make sure your entity stays compliant with the law and maintains its tax-exempt status in the US, you should annually file a report with the IRS service by filling out a 990 Form, which is a federal tax form outlining info about your revenues, costs, achievements, board members, and operational activities. Additionally, you should keep clear records of your finances, fund allocations, activities, and operations, proving that donated funds and contributions are used as intended.