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You probably know of a nonprofit working in a field you care about or advocating for a cause you support.
We all have such issues and causes close to our hearts. Many business people with a mind for positive change set up nonprofits to further their efforts, and in this article we will cover how to start a nonprofit organization.
A nonprofit organization is an entity that exists dedicated to a particular cause, rather than dedicated to generating profits for shareholders or owners.
There are large nonprofits and small nonprofits and they are all working toward a particular public goal.
In this article, I’ll cover:
- What a nonprofit organization is
- What nonprofits do and how they work
- The key steps to setting up a nonprofit organization.
And plenty more. If you’ve ever been curious about starting a nonprofit organization, then read on.
The 7 steps to forming a nonprofit organization
A nonprofit organization is one that exists to further a particular goal. This might be a social goal, an environmental goal, or some sort of public cause.
In any case, a nonprofit organization exists to do good. This structure stands in contrast with private businesses or commercial enterprises that exist to generate profit for their owners.
A nonprofit isn’t about profit, as the name suggests.
If you’ve found a niche in the market and an issue you care about or something you want to change, you might consider starting your own nonprofit organization.
But how do you do so? In this section, I’ll cover how to set up a nonprofit organization in 7 simple steps:
- Research the need in the market
- Choose a nonprofit structure
- Write a business plan
- Explore funding options
- Form your nonprofit
- File for tax-exempt status
- Maintain tax-exempt status
1. Research the need in the market
It goes without saying that you need to be able to identify a need in the market for your nonprofit organization to fill.
While a nonprofit organization isn’t a business, it does hold this requirement in common.
Identifying a need in the market is as simple as finding an issue that is currently not being served or addressed.
It could be a local issue, or it could be national or even international.
2. Choose a nonprofit structure
Nonprofits can take many different forms depending on the market they operate in, the ideas of the people at the helm, and the source of their funding.
For instance, your nonprofit might be a religious outreach program or a social uplift project funded by your local church.
In this case, your nonprofit is probably a 501(c)(3) organization, which is a specific organization structure for charitable, religious, or educational organizations.
That’s just one example of a type of nonprofit organization. Broadly speaking, there are five different types of nonprofits.
- charitable, religious or educational organizations
- social or community organizations
- agricultural or horticultural
- private foundations and political organizations
- recreational and sporting organizations
These are by no means the only types of nonprofit organizations you could launch, but your nonprofit will likely fall into one of these categories.
As you can see, the structure and type of your nonprofit will depend on what exactly your nonprofit does.
A word on internal structure: a nonprofit organization is structured largely in the same way as a corporation.
There is a board of directors, a CEO, and a series of roles beneath them who do the day-to-day running of the organization.
3. Write a business plan
Though your nonprofit is not a business, you still need a strong business plan.
What services will you provide? How will you deliver them? How many people will that require, and what premises do you need?
All of these questions are crucial to running a solid and effective nonprofit organization, just as they are to any business.
As such, you must develop a strong business plan with your goals and your strategy to achieve them.
4. Explore funding options
There are many ways your non-profit can be funded.
You can rely on bequests or donations if you will be able to sustain your organization on the generosity of the public at large.
Other strategies might include charging for particular goods or services like a business does to generate profit.
You might also look for large donations from other organizations. Most likely, your organization will rely on a mixture of funding streams to meet its goals.
There are government grants you can apply for, provided you are able to demonstrate the value of your organization’s work.
There are also government contracts you might take up, where you provide a service on behalf of the state in exchange for the funding required to carry out those projects.
This can be a good option if you possess the skills and infrastructure in a certain market or location that the government does not.
Other funding might come from program-related investment, which is like an investment loan but at below-market interest.
Understanding the different funding streams available to your nonprofit organization will help you deliver the services you’re committed to.
5. Form your nonprofit
This is the legal process by which your nonprofit status is actually established, and you can officially be said to be running a nonprofit organization.
You register your nonprofit with your state government in the same way you would any business.
A distinct name, a business structure, a mission statement, and the appropriate state paperwork are required to establish your nonprofit.
You will need to provide your state government with your business outline, detailing what your nonprofit will actually do.
6. File for tax-exempt status
Charitable organizations like nonprofits are tax-exempt. Applying for nonprofit status is a fundamental part of running a nonprofit organization.
Most likely, your nonprofit will be a 501(c)(3) tax-exempt entity.
Applying for 501(c)(3) requires you to meet the requirements of the federal government in demonstrating that your organization does indeed operate by charitable means.
You will need to fill out a 1023 form from the IRS and await confirmation that you have gained tax-exempt status.
The 1023 form will include a range of questions about service, funding, structure, and initiatives, so be sure you fill it out accurately.
7. Maintain tax-exempt status
Tax-exempt status comes with a set of compliance rules you must maintain in order to retain it.
These include a prohibition on political lobbying, and legislative activities, and a requirement that you continue to operate towards the fulfillment of your charitable goal.
Be sure you follow these rules to the letter, or you will lose tax-exempt status and no longer be a nonprofit organization.
Quickstart: If all this seems like a bit much, or you don’t feel confident in getting everything right yourself, you can always engage with a nonprofit formation service like Instant Nonprofit. These services have extensive experience in establishing nonprofits, so you will always be in good hands.
Is a nonprofit right for me?
If you’re looking to change the world and make it a better place, then yes, a nonprofit can be a great way to do that.
If you are not interested in running or working in such an organization, however, you may prefer to simply donate to a nonprofit or volunteer your time.
Having read this article, you now should have a much better grasp of the ins and outs of establishing a nonprofit organization.
Knowing all of this, you’ll be in a much better position to decide whether a nonprofit is the right path for you.
What are the different types of nonprofits?
There are many different specific types of nonprofits, but the primary 5 types are charitable, religious, or educational organizations, social or community organizations, agricultural, horticultural, or private foundations, and political organizations, or recreational and sporting organizations.
Can I start a nonprofit organization with no money?
You can start a nonprofit with no money, provided you can pay the registration fees. You will need to explore funding, though, because you will need to pay operating costs.
How does a founder of a nonprofit get paid?
A non-profit founder is allowed to pay themselves a reasonable salary for the work they do running the nonprofit.
Can I start a nonprofit by myself?
Technically, yes. However, you are likely better off with a team given the sheer volume of work in starting up and running a nonprofit.