Starting a Non-Profit: The Basics

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Non-profit organizations, also known as 501(c)3 organizations in the United States, are tax-exempt charitable entities that serve a purpose within their community, be that community local or larger. Should a group of people want to make an impact and know that their idea isn’t profitable but is helpful, they may give serious consideration to starting a nonprofit, but it can be overwhelming. This is a basic breakdown of what to expect if you are considering this route with your idea.

Establish a Need

First understand that someone else may already be providing the services you are considering in your area and if so, it’s not a good idea to set up shop unless there is still an overwhelming need. Donors – whether individual or foundational – look for a strong leader and want to avoid duplication of services, so you need to be serving an unmet need not only because it makes sense but also in order to get funding. A great website to access virtually every nonprofit in the U.S. is Guidestar so you can check out what exists.

Build a Strong Foundation

You are going to need resources: money, time, people, and expertise. Some of those things can supplant the others to some degree but you’ll need all of them to varying extents. If you can get an attorney, for example, that would be a tremendous help in decreasing your personal time and some of your costs. You’ll have to build a Board of Directors and you’ll want it to be a balance of individuals who have expertise on nonprofit management, money, and passion for your cause. Have a realistic plan for how you intend to provide services or whatever work you’re going to do on your existing budget with existing funding. You may be able to get grants but it will take time; most grantors prefer to give to established nonprofits who are already active.

Incorporate

Once you’re ready to incorporate, register for your name. Then file for your Articles of Incorporation/Certificate of Incorporation (depending on your state). What’s involved exactly varies from state to state so you’ll need to connect with your individual state’s Association of NonProfits. You may need to form bylaws, a conflict of interest policy, a compensation policy, etc. There may also be miscellaneous extra requirements for filing for your incorporation.

File

Now it’s time for the biggest step of all, legally speaking – filing for federal tax-exempt status. Many nonprofits get turned down the first time, particularly when a lay person is completing the forms themselves. You certainly don’t have to use a lawyer but many nonprofits find it worth the expense to save the time and effort. The IRS, helpfully, has put out tutorials on How to Stay Tax-Exempt which can also be tremendously helpful for nonprofits that are just starting out (and some established ones!). Bear in mind that even though the filing fee costs are based on which forms you use, choice of the form should be based on what is appropriate for your nonprofit, not based on the cost of the filing fee for a non-profit.

Be Compliant and Serve Your Mission

Once you have received your tax-exempt status, go forth and serve your mission statement! Whatever your nonprofit is meant to do, it now has the legal backing to receive donations and be entrusted as a non-profit and all that entails. But you do have to maintain your compliance. Because nonprofits are all about money being put back into the organization instead the pockets of owners, inaccurate or fraudulent bookkeeping is one of the most common ways a nonprofit can lose their tax-exempt status. Many small nonprofits can’t afford a full-time accountant but accounting software for nonprofits can help keep things in order and accurate. Also be sure to track all the services you provide and who you provide them to starting day one for your non-profit.