How to Start a Nonprofit | Step 1: Research

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There are many ways to make in impact in your community and starting a nonprofit is just one. Starting and sustaining a nonprofit can be significant challenges, particularly in light of today's economy. There are currently more than one million charitable nonprofits in the United States, but many struggle to attract increasingly limited funding. Before starting out, you will need to identify and quantify the need for your specific organization, to research whether there are other groups already engaged in the same or similar work, and to ensure that starting a new nonprofit is the right solution. 

Answering the following questions can help you determine if starting a nonprofit is right for you, or if an alternate solution would better benefit you and your community.

Is there a demonstrated need in the community for a new nonprofit with the mission we envision?

The first step to take is to define and quantify the problem that your nonprofit would address in the community. Just as you would do if you were starting a small business, you will need to define the "demand" and "market" for the services your nonprofit would provide. There is intense competition for limited dollars in terms of foundation grants and individual donations. In order to attract funding, you will need to demonstrate that there is sufficient need for your organization's services and that your organization is best equipped to address that need. You may need to pause and conduct surveys to demonstrate the need for the new organization. In many cases, this research will reveal another organization already doing similar work. Rather than starting a new nonprofit, it may be more efficient to work with that existing group as a volunteer, as a board member, or working collaboratively with that organization rather than creating duplicative programs. Consider whether enlisting the assistance of a fiscal sponsor would be a useful first step. 

Do I have a solid plan for financing the organization during start up and in the future?

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 and in fundraising efforts.

What are the costs to start the organization?

Starting a nonprofit will take significant time, effort, and funds. Harbor Compliance has created a helpful chart to illustrate the costs of the necessary filings in each state, along with the anticipated amount of time to complete that paperwork. Beyond those fixed costs will be the costs to get your nonprofit off the ground. What are the infrastructure costs that will be necessary for your nonprofit to deliver services? Will you need office space? What supplies will be necessary? In some cases, special licenses, permits, or certifications will be necessary to provide certain services, such as child care or health care. We recommend finding resources, such as the state association of nonprofits in your state, and/or local lawyers familiar with the operations of nonprofits to get a clear picture of all the many legal and operational requirements.

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

Realtors stress "location, location, location." Founders of nonprofits have another mantra: "funding, funding, funding." Given the ever-growing competition for limited resources (board members are in short supply in some regions; dollars are increasingly scarce), make sure you have a realistic picture not only of what it will cost in time and dollars to create a nonprofit, but also how you will manage the day-to-day activities, and continue to attract revenue into the future. Sustainability may be the most difficult challenge your nonprofit will face. Through its annual State of the Sector survey, Nonprofit Finance Fund found that 24 percent of respondents indicated that they were ending 2014 with a budget deficit and 35 percent of nonprofits predicted that their financial outlook for 2015 was worse.

Can my nonprofit demonstrate its impact?

In order to be sustainable, you will need to demonstrate to funders that your organization is making an impact and is worth continuing to invest in. To do that, you will need to measure and demonstrate your impact. It is important to plan for how you are going to measure impact, so that these measurement systems can be in place from the beginning. If you are not sure how to demonstrate the impact your organization is having, it will be difficult to sustain your organization and you may want to consider alternate options.

Is this the right solution for my community?

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 and managing 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 and accountability program in place (including policies regarding conflicts of interests, compensation, travel, whistleblower protection, and more).

In many cases, there may be better options to accomplish your goal of making a difference. If your research found other nonprofits already working on the issue you want to address, rather than starting another organization and creating even more competition for limited funding, you may want to find a way to work with that already-existing organization. You can donate to the organization, assist that group as a volunteer, join their staff, inquire about opportunities to be part of their Board of Directors, work with them to establish a new or expanded program to reach the people you are hoping to serve, or to investigate the possibility of that organization serving as a fiscal sponsor.

If you have answered all of these questions in the affirmative and have your plans in place, move on to Step 2 | Building a Solid Foundation.

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