If you have a desire to serve your community or make the world a better place, starting a nonprofit organization can be a rewarding way to reach your goals. However, starting a nonprofit isn't as simple as hanging a shingle on your door. These five steps will help you successfully start your nonprofit.
1. Determine If There Is a Need for Your Organization
Starting a nonprofit can be a big undertaking and it is important to know what you are getting yourself into. There are already over a million nonprofits operating within the United States, so the first thing you should do is make sure there is an actual need for the organization you want to start. If other groups are already covering the needs your organization would fill, it may make more sense to find ways you can assist those organizations, such as providing nonprofit accounting services, instead of starting your own.
Start by defining and quantifying the issues your nonprofit would address. Just like you would do with a for-profit business, you need to assess how much demand there would be for your services. If you can not demonstrate a significant need for your organization to exist, you will have difficulty obtaining financing.
2. Identify Sources of Funding
While many nonprofits rely heavily on donations of goods and supplies and volunteer labor, all nonprofits also need money to operate. There is a lot of competition for donation dollars, so you need to figure out how you will fund your organization. Start by determining how much money it is going to cost you to get your nonprofit started. These costs should include filing fees, the cost to rent or buy premises, office equipment and supplies, the cost to hire employees and recruit volunteers and legal fees. You also need to calculate ongoing costs, such as employee wages, utility bills and rent. This will give you an idea of how much money you are going to have to raise and whether that will be feasible for your organization.
Once you have an idea of how much money you are going to need, you can begin identifying potential funding sources. State, local and federal grant programs are a good place to start, but competition for these resources will be fierce. Reach out to local businesses and community members to get an idea of how much you may be able to bring in through community fundraising. Determine if there is a product or service you can sell to fund your operations. Identify potential sources of loans or lines of credit.
3. Incorporate Your Organization
Laws and regulations that govern the formation of nonprofits vary by state, so it is a good idea to consult with an attorney and a CPA who has experience working with nonprofit organizations in your area. Your local state association of nonprofits may also be able to provide you with resources.
To begin the process, you will need to register the name of your nonprofit corporation. Choose a unique name that is not already in use by another organization. Next, you will file articles of incorporation. Some states may require you to publish your articles of incorporation a specific number of times and then file proof with a state agency.
4. File for Federal Tax-Exempt Status
To qualify for tax-exempt status, your organization must be formed as a corporation, trust or association. If you qualify, you will need to complete the correct federal forms to apply for tax-exempt status. The IRS publishes information on their website that will help you choose the right forms, but it is a good idea to seek legal assistance with this process. If you file the application yourself and you are not an attorney or CPA, you will need to register with the IRS. You should receive a determination letter from the IRS in a few weeks to a few months after you submit the required forms. Until you receive non-exempt status, you should consult with a tax professional about filing tax returns.
5. Meet Reporting and Compliance Requirements
Once you have your federal tax-exempt status, you may need to file with your state or local government. Additionally, you will need to file an annual report with the state, file form 990 with the IRS and re-register required items.
Starting a nonprofit organization can be an extremely rewarding experience, but it is not an endeavor to be undertaken lightly. These five steps will help you get your organization off to a good start.