Table of Contents Hide
- How to start a Nonprofit Organization
- #1. Perform a needs assessment
- #2. Choose a name for your company and write your mission statement
- #3. Constitute a board of trustees
- #4. Create a strategic plan for your nonprofit organization
- #5. Finalize the bylaws, register for incorporation, and apply for 501(c)3 status.
- #6. Design a fundraising strategy and get to know your potential donors
- #7. Hire the first employees or recruit volunteers
- #8. Keep your focus on your goal
- How Do Nonprofit Owners Make Money?
- Is It Hard to Start a Nonprofit?
- How Does a CEO of a Nonprofit Get Paid?
- Can You Run a Nonprofit Alone?
- How Do Nonprofits Pay Employees?
- What Is the Average Budget for a Nonprofit Organization?
- What Are the 3 Types of Nonprofits?
Starting a nonprofit organization is one of the most satisfying ways to spend your time. However, one thing individuals fail to realize is that it also necessitates careful preparation and commitment.
You’re probably full of excitement and energy when you first get the brilliant idea for a charitable organization that could really make a difference. It’s critical to turn that energy into tangible action so you can drive full steam forward to make your vision a reality. The will to start a nonprofit organization is the first step, but how do you set one up? How exactly do you go about it?
Well, for one, we’ll give you the resources you need to get up and running in this guide to starting a nonprofit. The following pointers below should serve as a headstart.
Now let’s get on with it …
How to start a Nonprofit Organization
#1. Perform a needs assessment
Do some research first. For the most part, there are more than 1.5 million nonprofits in the United States alone. The first thing you can do is make sure that the need you’ve found isn’t already being met by another group. Therefore, a needs analysis is the method of determining whether or not there is a market or demand for your organization’s purpose.
The following questions are what you’re looking for answers to:
- Is your target market already served by another nonprofit organization?
- How many people are currently in need of the service you’re offering?
- Who is your target audience, and who is in need of what you have to offer? What do they really need or desire?
- Is a 501(c)3 the most effective way to address the problem?
SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis:
A SWOT analysis is a good place to start (Strengths Weaknesses Opportunity Threats). And if at all necessary, enlist the help of others—potential board members, people in your network who have founded nonprofits.
Find out if there is a real need for your service by conducting market research.
Now is a good time to do some market research, both on your target audience and potential donors. That’s after your SWOT analysis.
You can’t know for sure there’s a genuine need for what you’re selling unless you’ve actually interacted with those audiences. The purpose of this step is to figure out what’s really going on. You might discover that the need in your target demographic isn’t what you thought it was.
Alternatively, you may discover that the need exists, only in a different demographic. The goal here isn’t to simply prove your assumptions; it’s fine if you need to make any changes to your plans.
Learn more about IRS non-profit regulation
This is also a good time to learn what it means to have 501(c)3 status in the eyes of the Internal Revenue Service of the United States. The IRS publishes a nonprofit regulation guide you can review early on to ensure you understand what is expected of that form of organization.
#2. Choose a name for your company and write your mission statement
Choosing a name for your nonprofit organization is a crucial next step in figuring out how to start. It must be completed before you can launch your nonprofit or file any other official paperwork.
Make sure no other charitable groups or for-profit companies are using the name you want to use. A little research can fix that. It helps if you’re not constantly vying with another agency for brand visibility—or answering messages from perplexed donors or clients.
Marketing experts believe that taking the time to create a name and logo that you are proud of is time well invested. This is because it instills confidence in your company as it is promoted. You want to be able to confidently give someone your business card or refer them to your website, knowing that they will like what they see.
It’s also time to compose your mission statement now that you’ve confirmed that your organization’s services and mission are genuinely wanted by your target audience.
Keep your mission statement brief, and make sure it stands up to scrutiny when asked: Does it set you apart from other nonprofits?
To an employee, board member, or someone receiving your services, read your mission statement and three other examples (in your niche). See if they can figure out which one belongs to you. If that isn’t the case, go back to the drawing board.
#3. Constitute a board of trustees
Your first board of directors or trustees would be crucial in helping you get the nonprofit organization off the ground if you don’t yet have any employees or volunteers. Your trustees will be able to assist you in taking the first steps toward formalizing your status as a nonprofit organization.
Every state in the United States usually needs nonprofits to form a board of directors, who will be responsible for the organization’s governance and liability. A single person is considered the minimum prerequisite for a board in most states. In other states, three members are required.
Basically, the National Council of Nonprofits has a pretty good guide on what are fair board member roles and standards. They also make some excellent suggestions for putting together a new board member orientation to prepare them for their position in your company.
#4. Create a strategic plan for your nonprofit organization
Nonprofits, like for-profit businesses, need a solid business plan—perhaps even more so. Here’s a step-by-step guide to writing a nonprofit business plan, as well as a free downloadable business plan template to get you started. The method of writing your strategy (also known as a strategic plan) will assist you in considering all facets of your company. Furthermore, if you want to obtain a business loan for larger capital expenditures, such as construction or remodeling, any bank would require a copy of your business plan.
“In reality, you are starting a small business,” Lorrie Lynn King, founder of the international women’s health charity says; Nonprofit management and programming necessitate business acumen, financial planning, strategic planning, and people management skills—all at the same time, in some cases.”
But having a bank loan isn’t the only consideration. Business planning entails determining where the company is headed and how you’ll get there. “Having three-year strategies on both the program and administrative aspects of the company, with observable results, is absolutely critical,” King says. “Know where you want to go, then map out a route to get there and tweak it along the way.”
A description of a nonprofit business plan
Many of the parts of a traditional business plan would apply to a nonprofit business plan:
An Executive summary
Make sure your mission statement is included in your executive summary. You should provide a detailed summary of the organization’s vision.
Your Services and products
Are you creating a life-changing commodity for a community in need at a low or no cost? Do you provide a valuable service to your community? Your products and services are the solutions you have to a problem.
A Market Analysis
A business analysis will help you better understand the demographics of the people you want to help as well as the donor base. This kind of research can also help you understand the competition, both in terms of who else is doing what you’re offering and who you’re asking philanthropic support from.
Who would make up your management or leadership team, as well as your board of directors? What exactly are their responsibilities, and what value do they bring to the table?
“Form a strong board that works well together but brings diverse perspectives and provides an atmosphere that facilitates discussion of those different viewpoints, to arrive at the best decision,” advises Annie Rogaski, founder of the Silicon Valley nonprofit The Club.
A Financial Strategy
The financial plan for your nonprofit is crucial. Just because you’re not focused on making a profit doesn’t mean you shouldn’t devise a strategy for how you’ll keep your business afloat, deal with cash flow, and even expand in the future.
“Start a funding and savings reserve for your organization the minute donations start coming in,” King advises. Create a paper trail and transparency system.”
You’ll want to set up and monitor a few key financials on a regular basis after you’ve established an initial plan for bringing in funds. For a while, it might make sense to run your financials on Excel spreadsheets, but think about your long-term accounting plans. You can stay organized by using a cloud accounting system like QuickBooks or Xero. Plus, putting together financial reports for your board meetings becomes a lot easier with Businessyield consult in the picture.
Furthermore, when you’re getting your new nonprofit off the ground, it can be useful to look over completed nonprofit business plan examples for inspiration.
Your nonprofit business plan will serve as a road map, guiding you to sound decisions with measurable results. One of the most important strategies for establishing and growing a profitable nonprofit is business planning.
#5. Finalize the bylaws, register for incorporation, and apply for 501(c)3 status.
Nonprofits in the United States must comply with state and federal laws and standards. This could be one of the most difficult moves in the process of figuring out how to start a nonprofit organization.
The IRS defines a 501(c)(3) organization as “charitable, religious, educational, science, literary, testing for public safety, promoting national or international amateur sports competition, or preventing cruelty to children or animals,” among the 29 types of 501(c) organizations.
The majority of nonprofit organizations in the United States will fall under the 501(c)(3) group, which exempts them from federal income taxes. (It’s worth noting that these organizations’ workers are also expected to pay income taxes).
It’s best to file for tax exemption as soon as possible, as the process can take up to a year.
“If your nonprofit serves an urgent need, there is a way to get an expedited review,” Rogaski says. “Don’t let the IRS’s categories restrict you—if you can express the urgency of your nonprofit to the IRS, you may be pleasantly surprised by the response.”
You’ll need to register or reserve the organization’s intended name, as well as file articles of incorporation as a nonprofit, in addition to applying for tax exemption. The details of this procedure will differ from one state to another. You should contact a State Charitable Official from the national association for more specific details about what you’ll need to prepare in your state.
Also, it’s always a good idea to hire a lawyer who is familiar with the nonprofit formation process. This is because w When you file your filings at the state and federal levels, knowledgeable counsel can be invaluable.
#6. Design a fundraising strategy and get to know your potential donors
Nonprofits are no exception when it comes to keeping the lights on. Your company would need a set amount of money just to run on a regular basis, let alone for special ventures, unexpected development, or expenses.
Nonprofits typically depend on donors for funding, so cultivating a loyal donor base will be critical to your organization’s success. Consider if you really understand the financial and community support for your proposed nonprofit. Who is the person that joins the organization or makes a financial contribution? Creating a user persona may be useful in this situation.
Consider taking some online courses on how to build a fundraising strategy if this is your first time doing fundraising or nonprofit development work. Although there is a fee to access, the Association of Fundraising Professionals (AFP) is a good place to start. You could also look for a board member with fundraising experience to support you with your initial efforts.
Branding and Promotion
Furthermore, branding and promotion would be crucial. Choosing a good name and logo will go a long way toward instilling trust in your business. You’ll also need to think about how you’ll reach out to your donors and clarify why your message is so important.
What role will social media, blogs, videos, and other forms of media play in helping potential donors and your target audience understand what makes your organization great and deserving of their money?
But while you’re at it don’t forget to do some homework before you start branding and fundraising—find out who your potential donors are. If you can, talk to them and figure out what motivates them so you can create a campaign that speaks to them. Remember that many donors will like confirmation that you have been given 501(c)3 status because they may deduct their contribution from their taxes.
You may want to look at grants as well. We provide a wealth of information about how to find grants to start your nonprofit organization. Keep in mind however that writing grant applications take time. They normally come with reporting conditions, and you can’t count on getting the same grant the next year.
#7. Hire the first employees or recruit volunteers
Your board of trustees is, in essence, your first volunteer. From there, you’ll probably discover that your company still has skill holes, or that you simply can’t do it yourself. Perhaps it’s time to enlist the assistance of a volunteer.
Begin by writing a brief overview of the position you need to fill, as well as an estimate of how much time it will take each week. Then spread the word. You could use a website like Volunteermatch.org to list your volunteer opportunity, depending on the type of volunteer work you’re offering. You may also advertise it on craigslist or in a high school or college newspaper.
A word of caution: if the need is complex or needs a particular skill set, it’s perfectly appropriate to ask a potential volunteer to complete an initial project before committing them to a longer-term project, just to see how things go.
Volunteers can be extremely beneficial, and many charities rely heavily on them. However, now or in the future (when your finances allow), it may be necessary to hire full-time or part-time paying employees.
#8. Keep your focus on your goal
Take time to study both your mission statement and your strategic plan as your nonprofit organization takes shape. While you’ve been working so hard to get things up and running, it will appear that everyone around you should be able to recite (and bring to life) your mission in their sleep. It doesn’t hurt, though, to have your goal at the forefront of any discussion about programs, finances, and recruiting. A great question to ask often is, “Does your next step help our mission?”
Regularly review your business plan, especially the financials. Set deadlines so you can see if you’re on target and re-calibrate if you don’t achieve your objectives.
Remember that your strategic plan is your roadmap for carrying out your mission in the real world. Make use of that plan to guide you in the right direction and ensure that your nonprofit is long-term viable.
How Do Nonprofit Owners Make Money?
Donations, grants, and membership fees generate revenue for non-profit organizations. They may also profit from the sale of branded products. Among the expenses incurred by a non-profit organization are Payments for rent or mortgage.
Is It Hard to Start a Nonprofit?
The bad news is that running a successful nonprofit organization is difficult. You’ll need to consider how you’ll provide value to the public, raise cash, recruit staff and/or volunteers, form a board of directors, and comply with the numerous laws that govern charities.
How Does a CEO of a Nonprofit Get Paid?
The nonprofit hires the founder as executive director (or in a similar leadership role). The founder is paid in this manner, but they give up all authority to the board of directors, which runs the nonprofit and has hiring/firing authority over the founder’s position.
Can You Run a Nonprofit Alone?
Technically, you can form a nonprofit on your own. However, it requires a significant amount of time and effort, so if you are unable to work on it full-time, we strongly advise you to do so with a partner or team. Another thing to consider is that even if you start out fully on your own, you will shortly need to incorporate others.
How Do Nonprofits Pay Employees?
Nonprofit employees are compensated in the same manner as any other employee. They are paid a salary based on their position, and they may be eligible for incentives based on their performance or any additional time spent working beyond what is required of them.
What Is the Average Budget for a Nonprofit Organization?
97 percent of nonprofits have yearly budgets of less than $5 million, 92 percent have annual budgets of less than $1 million, and 88 percent spend less than $500,000 on their operations. The “average” nonprofit is community-based and serves local needs.
What Are the 3 Types of Nonprofits?
Many groups can qualify as either public charities, private foundations, or private operating foundations.