How to Start a Nonprofit | Step 2: Build a Solid Foundation
Once you have determined the need for a new nonprofit and put core plans in place, you will next need to build the structure for your organization. It is helpful to think of this step as answering the following questions:
WHO? Who will be involved?
Just as it takes "takes a village to raise a child," it takes much more than a solo founder to keep a nonprofit alive. Having lots of people willing to help launch a nonprofit - as board members, volunteers, etc. - can signal broad community support and a better chance of success. In addition, many states have requirements for how many board members your nonprofit will need.
WHAT? What do you need to do?
- Determine feasibility - Consider the economic climate and funding needs for the organization
- Continue to develop your detailed business plan, considering all aspects of the proposed plan: mission, organizational structure, 3-year budget, marketing plan, and resource development/fundraising.
- Consider potential community partnerships, and the skills needed for volunteer and paid staff.
WHEN? When should you file paperwork?
There are three steps involving quite a bit of paperwork followed by ongoing reporting on an annual basis:
Step 1: Incorporating at the state level (completing the state forms required to create a nonprofit corporation)
Step 2: Securing your tax exempt status from the federal government (Applying for "tax-exempt status" with the IRS)
- How to Apply to Be Tax-Exempt: What new organizations need to know (Source: IRS)
- IRS Checklist for the application for tax-exemption
Step 3: Filing for tax-exempt recognition at the state and local levels (which you can only do AFTER the IRS issues a "Determination Letter" of your organization's tax-exempt status)
Ongoing reporting - (a) annual filings with state entities (to maintain nonprofit corporation status and to register for fundraising purposes - Read about charitable registration requirements), annual federal reporting to the IRS (IRS Form 990), and submitting any required reports to funders (whether foundations or government) and acknowledging contributions from individual donors.
WHERE? Where can you get quality assistance?
For help filling out and filing the mountain of papers at the state and federal levels, make sure you turn to true experts, not just friends who are free. Your next door neighbor just won an award for her skills as a lawyer, yet being "Prosecutor of the Year" doesn't mean she is qualified to give you advice on nonprofit law. Traditionally, law schools have not offered courses on nonprofit law, meaning most lawyers don't have training unless they have chosen to specialize to some degree in this area of practice (known as the "law of tax-exempt organizations"). Seek help from an attorney or accountant who has direct experience working with nonprofits. You may want to consider contacting your state bar association to see if it maintains a listing of lawyers by specialization, and if so, search for those who specialize in tax-exempt organizations or nonprofit law. Your state association of nonprofits of nonprofits may offer educational workshops on starting a nonprofit or be able to connect you with local experts who can assist.
WHY is a new organization the only way to accomplish the mission?
There are over a million charitable nonprofits operating in the United States -- each needs a board of directors, funding to operate, and volunteers/employees to keep its activities going. Is starting a new organization necessary? The answer to this question will be the core of your efforts to recruit board members, staff, volunteers, and donors.
HOW? How do you create and sustain a nonprofit organization?
This may be the most important question and the answer depends on your business plan. If the organization can achieve its mission in less than three years, it would likely be better as a program housed at an exisiting organization. (Read about the option of fiscal sponsorship, sustainable and sound management practices, and strategic and business planning for nonprofits.)
Once your foundation is established, continue to Step 3 | Incorporation and State Forms.