For someone with big ideas and a socially conscious mindset, forming and running a nonprofit can be a very rewarding way to own a small business. Beyond your dream of shaping a better future for society, the logistics of starting a nonprofit organization are complex and time-consuming.
To start your not-for-profit organization, you will need to create and collect documentation to prove that your organization is useful to the public and therefore worthy of federal government tax-exempt status. Once the bureaucracy is removed, you can focus on the business of fundraising, recruiting, and actively improving the world around you.
What is a non-profit?
A non-profit is a business entity organized for purposes other than making a profit—hence the name, nonprofit. Formally, non-profit organization (NPO) is a business that has been granted tax-exempt status by the US Internal Revenue Service (IRS) on the basis that it advances a social cause that benefits the public in some way. (Think: historical preservation, scientific research, animal welfare, economic development.) Non-profit organizations are prohibited from distributing the profits they make to anyone or anything other than advancing the organization.
Non-profit organizations are sometimes referred to as non-stock companies, or 501(c)(3) organization—depending on the subsection of tax code‘S Part 501 which gives them tax-exempt status.
Types of non-profit organizations
The nonprofit’s tax-exempt status is approved and regulated by the IRS on the basis that the organization advances a social cause that is beneficial to the public. The IRS recognizes about three dozen types of nonprofit organizations, ranging from the specific to the general charity organization to provide trust benefits for coal miners and teacher pension fund associations.
Note that while all nonprofits enjoy exemption from federal income taxes, not all types can extend tax deductions to their donors.
Five general type of non-profit organization including:
- 501(c)(3) organization. Religious, educational, charitable, scientific, and literary organizations; public charity; private foundations; and amateur sports competitions. Contribute to 501(c)(3) tax organization is tax deductible.
- 501(c)(4) organization. Civil leagues, social welfare organizations, and local employee associations. Contributions to 501(4)(c) are generally not tax-deductible.
- 501(c)(5) organization. Labor organization. Contributions are not tax deductible.
- 501(c)(7) organization. Social and recreational club. Contributions are not tax deductible.
- 501(c)(9) organization. Voluntary employee benefits association. Contributions are not tax deductible.
How to start a non-profit organization
Before drafting basic documents and filing applications with the appropriate tax authorities, it’s important for potential nonprofit founders to consider the community or demographics the organization will serve. Identifying community needs, and backing them up with population data, is a strong start to building the foundation for your nonprofit.
1. Draft mission statement
Have a clear, comprehensive picture mission statement it is very important to propel your nonprofit organization forward and to motivate staff, volunteers, and even donors. If written correctly, it focuses your organization’s efforts and will help its main players make important decisions in the future. Some of the main guidelines for writing a mission statement are:
- Make conceptual statements that are clear, unambiguous, concise, and easy to understand and remember.
- A good mission statement immediately tells others about the work your organization does and the cause it seeks to develop, ideally in a sentence or two.
- Mission statements can evolve with organizational goals.
2. Create a business plan
detail business plan will give you an understanding of your organization’s estimated revenue and your subsequent ability to pay for certain things—such as third-party marketing, employees instead of volunteers, or even the president or CEO. It will also determine the extent to which your organization needs to rely on donations to complement its internal revenue-generating efforts. A solid business plan will include:
- Executive summary. A your nonprofit mission descriptiona summary of your market analysis (proving community needs), and a brief description of how your organization will meet those needs.
- Programming. An in-depth description of the services, programs or products your organization will offer, plus a detailed description of your impact goals.
- Marketing plan. a an explanation of how you intend to spread the word about your organization and its programs, services or products.
- Operation plan. An overview of the day-to-day operations of the organization, along with a description of the organizational structure and an explanation of what each role will accomplish.
- Financial plan. Description of the organization’s financial footing—cash flow statement, balance sheet, income statement, budget, identification of revenue streams, initial cash requirements, operating expenses, etc.
3. Choose a name
You must choose a unique name for your organization. Ideally, it should relate to the mission and activities of the organization.
4. Formally form your non-profit organization
Once your basic decisions have been made and the main preliminary documents drafted, it is time to formally (and legally) incorporate your nonprofit. Different states need different procedures to merge locally, but in general, the process requires archiving articles of Association which cover:
- Reveal the name of your organization.
- Details the contact information for the one you designate board member.
- Determine your legal structure (a non-profit company, LLCpartnerships, etc.).
- File incorporation documents with appropriate status Secretary of State office.
- File a tax exemption with the IRS. The primary form you will use to register for tax-exempt status with the federal government is IRS Form 1023, also known as the “long form” option. Some organizations will be eligible to use the short form, known as 1023-EZ. To succeed file form 1023-EZ, generally, organizations must project that their gross annual receipts will not exceed $50,000.
- filing registration form for the required state charity licenses, and the accompanying pay submission fee.
5. Start a fundraiser
From the start, your nonprofit needs to have a funding model and identify funding sources. Without strong upfront funding, it’s unlikely your nonprofit will be able to run long enough to get started. Options for funding sources may include:
- Grant. Grants are a common way of securing initial cash for nonprofits. However, grants, both public and private, are usually awarded on the basis of a distinct function of the nonprofit, with grantors generally focusing their delivery on specific services or programs. Also, while grants can be a great source of start-up funding for nonprofit start-ups, they usually take a long time to apply and are not often distributed more than once.
- Startup accelerator. There are a number of startup accelerators for nonprofits that can guide new organizations to investment, mentorship, office space, fiscal sponsornetworks, program development, and other resources.
6. Build a team
Good leaders are the key to running a successful nonprofit organization. You’ll want to identify partners who truly share the organization’s mission and have a deep network to leverage to the benefit of the nonprofit. The ideal leadership structure would include Board of Directors and the executive director, both of whom will be responsible for ensuring compliance with organizational regulations, making high-level strategic decisions, and recruiting key employees. On that note, you’ll also want to build a strong network of paid staff and/or volunteers to further the organization’s goals.
7. Launch your nonprofit
After all you legal documents Once approved and your seed funding guaranteed, it’s time to officially launch your nonprofit. But that’s not where the journey ends.
8. Start marketing your nonprofit
Once the ribbon is cut, you must let potential supporters know that your organization is up and running. here marketing enter. A proper marketing plan outlines what you will communicate with your stakeholders—potential donors, community partners, etc., and through which channels. Younger donors may be easiest to reach through a robust approach social media presence, for example.
