Nonprofits can be extremely rewarding, both personally and professionally. They can be a force for good in the world, providing much-needed services and advocating for important causes.
When starting a nonprofit organisation in the US, there's a lot to learn. You need to educate yourself on the ins and outs of running a nonprofit to set your organisation up for success. This includes everything, from knowing the funding sources accessible to organisations to learning how to incorporate as a 501(c)(3).
So, where do you start? What steps do you need to take to get your nonprofit up and running?
In this blog post, we’ll walk you through the five steps you need to take to start a nonprofit organisation.
What is a Nonprofit Organisation?
A nonprofit organisation is a type of business that is not-for-profit. This means that the money earned by the business is not distributed to the company's owners or shareholders but instead used to support the nonprofit's mission.
There are many types of nonprofit organisations with a variety of missions. Some nonprofits focus on social causes, such as ending homelessness or hunger. Others may be focused on the arts or education. There are also religious and environmental nonprofits.
Nonprofit organisations do not have shareholders, so they cannot make a profit in the traditional sense. However, they still need to generate revenue to keep their doors open and provide services. Donations, grants, and government contracts are the most common ways nonprofits make money.
How to Start a Nonprofit Organisation in 5 Steps
Starting a nonprofit organisation can be a great way to make a difference in your community, but it’s essential to understand the process before you get started.
Here are five steps to help you get started:
1. Research and Organise
Research and organisation will help you ensure that your nonprofit is needed. There are already millions of nonprofits out there, so you want to be sure that yours is filling a real gap in the market. Part of this involves understanding the other organisations working in your field and what sets yours apart.
Doing your research will help you avoid common pitfalls that can trip up new nonprofits. So, start your research by finding out what paperwork is required, what taxes you will need to pay, and what regulations you will need to follow.
You must also find its purpose. What problem does your nonprofit seek to solve? Who will it serve? Once you have a clear idea of your mission, you can move on to the next step.
The next step is to learn the best practices for running a nonprofit. In other words, you need a business plan to run and start a nonprofit organisation. A business plan will help you articulate your mission and goals, set milestones, and make decisions about marketing and fundraising.
Getting organised will also save you a lot of headaches down the road. You’ll need to keep track of things like board meeting minutes, donor information, and financial records. This is especially important if you work with others in your nonprofit. You’ll need systems and processes in place, so everyone is on the same page. You can also invest in progress tracking software to help you keep an eye on essential milestones.
There are a few key things you should get organised before launching your nonprofit :
- Create standard operating procedures (SOPs) for all significant aspects of running your nonprofit. It is a procedure customised to your business that specifies the actions required to execute tasks. Here is an example of SOP for grants.
You can apply this to everything, from how you manage donations to how you can acquire donors.
- Develop templates for commonly used documents, like fundraising letters or thank-you notes for donors
- Create processes for tracking donor data and keeping financial records up-to-date
With proper research and organisation, the tasks of running a nonprofit will seem manageable, and you’ll be well on your way to making positive change in no time.
2. Build a Strong Foundation
A nonprofit board is a group of people who share your commitment to the cause and have the skills and resources necessary to help further the organisation’s mission. All nonprofits must have a board of directors, and this is something you’ll need to do early on in the process.
The board typically consists of the president, vice president, secretary, and treasurer. However, the size and composition of the board may vary depending on the state in which the nonprofit is incorporated.
Regardless of the number of members, all boards have one common goal: to help and ensure the nonprofit has the resources to reach its objective.
Here’s an example of a nonprofit organisation’s board of directors.
To build a nonprofit board, start by defining the roles and responsibilities of the board members. When selecting board members, choose individuals with experience in business, fundraising, and the nonprofit sector. There are many recruiting strategies out there that can help you find qualified individuals eager to serve.
As your nonprofit grows, so will your need for additional board members. However, initially, it’s best to keep the board small. This will allow everyone to get acquainted and learn how to work together effectively.
Also, ensure you set meeting dates and time slots that work for everyone involved. This will show your dedication to the cause and help build trust among the board members.
3. Incorporate Your Nonprofit Organisation
Incorporation can offer many advantages to nonprofit organisations, including personal liability protection for directors and officers, the ability to apply for grants and tax-exempt status, and increased credibility with donors.
The process for incorporation varies from state to state, so you’ll need to check with your state’s secretary of state office for specific requirements. Generally speaking, you’ll need to file articles of incorporation with the office and pay a filing fee.
However, before you start, you’ll need to choose a legal structure for your organisation. Nonprofits can choose from a few different business structures, including sole proprietorships, partnerships, LLCs, and corporations.
The type of business structure you choose will affect things like how much paperwork you have to file, how much money you can raise, and how much liability your organisation has. You should consult an attorney or accountant to help you decide which business structure suits your nonprofit.
It is also crucial to choose a name that reflects the mission and values of your organisation. By following these steps, you can submit articles of incorporation to your state’s secretary of state office. These articles will include the name and contact details of the organisation’s agent. Also, if someone is interested in finding the owner of an LLC, they can obtain the information from these articles.
Once your articles of incorporation have been approved, you’ll need to obtain a federal employer identification number (EIN) from the Internal Revenue Service (IRS). Applying for an EIN is a fairly simple process that can be done online, by fax, or by mail.
Finally, it is critical to comply with all state and local regulations that apply to nonprofit organisations. These regulations may include requirements for filing annual reports and disclosing financial information
4. Obtain 501(C)(3) Tax-Exempt Status
One of the most critical steps in starting a nonprofit is applying for the IRS’s 501(c)(3) tax-exempt status. This status allows donors to make tax-deductible donations to your organisation and exempts your organisation from paying federal taxes.
To obtain 501(c)(3) status, your organisation must be incorporated as a nonprofit corporation in the state where it will be headquartered. You’ll also need an EIN to apply for the IRS's 501(c)(3) status.
To apply for 501(c)(3) status, you’ll need to fill out and submit Form 1023. You can find more information on the IRS website. Additionally, your organisation must not be organised or operated for the benefit of private interests and must not engage in political campaigning or lobbying activities.
If your application is approved, you will receive a letter from the IRS confirming your 501(c)(3) tax-exempt status.
5. Ensure Continuous Compliance
Continuous compliance means meeting all the legal requirements and standards that apply to your nonprofit on an ongoing basis. Continuous compliance helps you avoid any legal trouble that could put your organisation at risk.
Nonprofits are held to a higher standard than other businesses, so you must stay up-to-date on all the latest rules and regulations. Additionally, maintaining continuous compliance demonstrates to donors and other key stakeholders that you’re serious about running a reputable and responsible organisation.
The best way to achieve continuous compliance is to develop systems and procedures for ensuring all the requirements are being met on an ongoing basis. This might include creating checklists, setting reminders, or assigning specific staff members or volunteers to keep track of certain tasks.
Failure to comply with government regulations can result in severe penalties, including loss of tax-exempt status. So, you must be prepared to make changes as necessary to ensure they remain in compliance.
Starting a nonprofit organisation in the US is a great way to give back to your community, but a lot of work is involved.
These businesses provide valuable services to our communities but rely heavily on donations and other forms of support to stay afloat. Use these five tips as a starting point to start a nonprofit organisation:
- Research and organise
- Build strong foundation
- Incorporate you nonprofit
- Obtain 501(C)(3) tax-exempt
- Ensure continuous compliance
Though there are endless formally defined steps to start a nonprofit organisation, these five tips provide would-be founders with actionable advice for getting started on the right foot.
Ready to create your
next campaign?
Jon is the founder of two successful e-commerce and SaaS businesses. He's passionate about sharing what he has learned from working with business owners through Venture Smarter.
