How to Start a Nonprofit | Step 1: Research

Before starting a nonprofit, it is critical to examine the need for another nonprofit. This is particularly true in light of today's economy. There are currently over one million charitable nonprofits in the United States, but many constantly struggle to attract increasingly limited funding, and many organizations have overlapping missions. Most experienced people teaching others how to create a new nonprofit devote a substantial amount of time trying to persuade people that creating a nonprofit may sound at first blush like a good idea, but deserves deeper exploration. There may be better options to accomplish your goals. (Also, have you considered an option that has become more recognized recently which is to  form a private business that is commited to contributing a material, positive benefit to society? Read about certified B corporations.)

The following questions may help you determine whether creating another nonprofit entity is the correct path for you:

"Are we looking past the myths to the realities?"

Many people have misperceptions about nonprofits, as evidenced by reasons some have given for attending a class on how to start a new nonprofit, including:

  • "Running a nonprofit is easy because a foundation will fund its operations" (Fact: Private foundations only support a fraction of charitable nonprofits and only a fraction of their overall revenue. Every nonprofit has to work very hard to attract contributions)
  • "Once I get nonprofit status, I can stop paying taxes" (fact: while the nonprofit doesn't pay taxes on income it receives, its employees still pay taxes on the income they earn, just like employees in the business sector)
  • "Running a nonprofit is easy and not like a real job because everybody is happy and wants to help" (fact: operating a successful nonprofit requires substantial work; while it can be very fulfilling, it is challenging to do so much work with so few resources)
  • "No one else is doing what we want to do" (fact: although it may feel that way, the odds are that multiple nonprofits are doing the same or very similar programs - especially when those making the statement are interested in programs for children, seniors, or animals).

"Where will we get not only start-up funding, but also operational funding to continue thereafter?"

Realtors stress "location, location, location." Creators of nonprofits need to get used to another mantra: "funding, funding, funding." Given the ever-growing competition for limited funding, make sure you have realistic plans for not only start-up funding, but also how you will secure funding thereafter. Avoid the common mistake of believing that your idea is so unique and wonderful that funders will throw money at you. That just doesn't happen. Really. Pragmatically explore where you will get funding, because it makes little sense to go through the time and expense of creating a new nonprofit if it won't be sustainable.

"Who wants to help fine-tune our business plan some more?"

To be successful, a nonprofit needs more than just people passionate about programs. It also needs an infrastructure strong enough to support those programs over time. Accordingly, invest quality time up front to develop a detailed business plan. Such a plan will provide the structured discipline to think through the critically important operational issues. Moreover, once the business plan exists, excerpts can be pulled from it to insert into the federal Form 1023 application for tax-exempt status.

"Do we really know what we are getting ourselves into?"

Even before creating a nonprofit ask this question, because once you incorporate at the state level and secure tax-exempt status from the federal level, then the real heavy-lifting begins: both internal (such as recruiting and orienting a great board, hiring talented staff, finding and equipping an office, setting up financial structures, etc.) and external (such as registering with the state before you can fundraise, launching your fundraising program, securing any required licenses or permits, making withholding tax deposits, and so much more). Plus, given the heightened scrutiny of nonprofits, you will need to have an ethics accountability program in place (including policies regarding conflicts of interests, compensation, travel, whistle-blower protection, and more).

Of course, there is no better teacher than experience. To get help - give help. By volunteering for other nonprofits, you will do three things: help develop your expertise, help make new contacts that may enable you to release your passion through an existing nonprofit, and help you make a difference today.