Key Takeaways

• Starting a nonprofit involves a clear, step-by-step process, from initial research to promoting your cause.
• Thorough planning, covering your mission, target audience, and a detailed business plan, is crucial for success.
• Understanding the legal and financial aspects, including registration and revenue generation, is essential for compliance and sustainability.
• Leveraging the right tools and understanding the commitment and potential costs are important for effective operation.

How to start a nonprofit? This is a common question entrepreneurs ask when they dream of starting one. If you are one of them and have no idea, you are in the right place. Our words will provide you with knowledgeable content.

Let’s first understand nonprofits.

What Is a Non-profit?

A non-profit organization, also known as a not-for-profit organization, works for the welfare of society instead of making money and making a profit.

These organizations never offer their profits to their shareholders. They begin the journey with a specific mission and goal relevant to the upliftment of society. The core actions can be educational workshops, religious activities, healthcare programs, or anything else related to social welfare.

How to Start a Nonprofit: 12 Steps to Follow

When creating a nonprofit business, you should follow a proper strategy. This approach has 12 steps, which are listed below:

1. Start With Research

Before your nonprofit organization begins to serve society, make sure you invest enough time in research. This approach will help you identify the real market scenario that is important to you.

In this phase, you need to think and find the answer to these questions:

• Why do you need to create nonprofits?
• What will be your organization’s purpose?
• What will be your targeted demographic area to serve?

You must also determine whether any other nonprofit organizations are your competitors. If you find any, then analyze their strategies.

2. Create a Solid Foundation

Once you are done with your research, the next step is to create a solid foundation. This phase includes deciding who will be part of your organization as founders or volunteers. When on the board of directors, you must focus on key things, such as the following:

• Ability to solve problems
• Ability to think in a 360-degree way and make decisions accordingly
• Skill to manage the nonprofit business with whole leadership and encouragement
• Possess knowledge of financial management

Similarly, when you hire volunteers for NPOs, the following key skills are essential:

• Ability to work as a team member
• Able to build and maintain commitment to the organization
• Possesses a strong work ethic & communication skills
• Willing to learn new things
• Adaptable to the changing situations during the work

While outlining your foundation, you must also think about how many people you will be required to work with as a founder, as a volunteer, or in any other role. You also need to define their roles and duties.

3. Create a Business Plan

When you think of how to set up a nonprofit, creating a business plan is a crucial phase to include. Like any other business, nonprofit organizations must also create a business plan.

This plan will be the blueprint for their operations and strategies and should cover the mission, vision, and values they will contribute to society. You can bifurcate the business plan into a marketing plan, impact plan, and operational plan.

3.1. Marketing Plan

Without a proper marketing plan for your nonprofit organization, you will not achieve success. Therefore, your business plan must include a marketing plan that indicates your marketing approach scenario.

You must create a marketing plan for your business that clearly covers the scenario of your target audience. It must also include the approach to finding target audiences and the convenience of having them become donors to your organization.

3.2. Operational Plan

The operational plan covers all your organization’s operational strategies. It should include the place where you will operate your organization, equipment, and supplies, as well as the process of delivering the service.

3.3. Impact Plan

The impact plan covers your organization’s objective and the measures for achieving it. It should also cover the approach to measuring success.

4. Choose the Name

Your new organization could not be nameless. It is important to have a name to acquire a position and to distinguish your business from others. While picking a name, you should be careful of the few points below:

• The name should be unique and not be used by anyone else.
• The name should cover relevant words that clearly identify your organization’s purpose.

The best practice to prevent name duplication is to check the availability with the state secretary of state.

5. Choose Your Structure

Nonprofit organizations have multiple structures. Some NPOs are exempt from federal income tax, while some are not.

501(c)(3): Charitable Organizations

These organizations are exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. The category should cover private foundations and public charities. These organizations work for the welfare of education, religion, and other welfare.

501(4): Civic Leagues and Social Welfare Organizations

The core focus of such organizations is social welfare and community welfare. It includes advocacy groups, homeowner associations, and community service organizations. They may also have political connections.

501(c)(5): Labor and Agricultural Organizations

These organizations represent workers’ interests. Their core focus is promoting the interests of those involved in agriculture and horticulture. The donors of these organizations are not subject to tax deductions.

501(c)(7): Social and Recreational Clubs

The core interests and focuses are pleasure, recreation, and other nonprofit purposes. The donors are not subject to tax deductions.

501(c)(9): Employee Beneificiary Associations

These organizations work for the welfare of their employees. They offer health insurance and pension-like benefits to the employees.

6. Official Registration

Registration is a highly important phase when you think about starting an organization. After implementing plans and choosing the name and business structure, you need to incorporate your new organization. To define your organization as a business entity, you need to fill out your articles of incorporation.

To accomplish this process, you need to visit the Secretary of State’s website. There, you need to follow the instructions to fill out the incorporation articles. You need to file IRS Form 1023 for the tax-exempt status. However, those organizations that are projecting less than $50,000 can fill out Form 1023-EZ. Later on, you will get an IRS determination letter of approval.

7. Acquire EIN and Separate Bank Account

EIN stands for Employer Identification Number (EIN). Once your online registration is complete, you can acquire your EIN by visiting the IRS website. You can also opt for an offline approach by taking the form from them, filling it out, and mailing it to them.

Additionally, you must have a separate bank account for your organization. This approach is crucial for managing your business’s financial actions separately from your personal life’s finances. It also prevents confusion and keeps everything clear.

8. Revenue and Capitalization

Once you set up everything, the next thing comes to generating revenue. There are three ways to acquire funds and increase revenue. Have a look below:

8.1. Conveying Value

As an organization, you can offer some value to your contributors. These could be membership benefits, event tickets, or giving merchandise. In return for all these benefits, you need to pay some fees from your contributors.

8.2. Fundraising

Fundraising involves soliciting donations from individual donors. In some states, you must complete “Charitable Solicitation Registration” and “Game of Chances” registration.

8.3. Government Grants

Government grants offer the best funding to organizations. This means that organizations do not have to depend upon donations. Grants are offered at the local, state, and federal levels.

9. Finalizing the Right Software Tool

Utilizing software tools for nonprofit organizations is fruitful in this digital era. It will ease the administrative work, such as receipt generation, billing, expenditure management, and record-keeping requirements. However, you need to choose the right software, like Moon Invoice.

This platform offers the best financial management solution. It offers end-to-end accounting solution that cover receipt generation, billing, expenditure management, and more.

Key Features of Moon Invoice

• Available in multiple languages
• Multi-currency supporter
• 66+ custom templates for receipt, invoice, and estimate
• 20+ payment integrations
• Automation
• Supporting third-party integrations
• Generating business reports
• Project management and time tracking
• Customer management

10. File for Tax Exemption

Once you receive the 501(c)(3) designation from the Internal Revenue System, you can utilize the designation to avoid paying sales tax.

Tax-exempt status is one of the main benefits of starting a 501c3 and incorporating a nonprofit. Under Section 501(c) of the Internal Revenue Code, about 29 types of nonprofit organizations can file for tax-exempt status.

The process of filing for tax exemption is to register with the IRS and fill out Form 1023. This process is quite lengthy and takes from 3 to 12 months.

11. Hire Staff Members

The workforce is a necessary element for running any organization. Therefore, you must hire the right members who possess skills, experience, and specialized abilities. Make sure that hiring staff members will depend upon your work culture.

For instance, if your nonprofit organization relies on public relations, public speaking events, or social media campaigns, you can hire an administrator or communication manager.

Similarly, hiring an event manager will be fruitful if the nonprofit organization conducts events and conferences.

12. Promote Your Organization

Finally, you reach the last step of starting a nonprofit. This step is all about promoting your organization in the market. You need to have a website and social media presence as well to inform your audience about your organization. It is crucial for every organization, no matter what its core purpose is.

How Much Time It Takes to Start a Non Profit?

Starting a nonprofit organization is a lengthy process. It usually takes a few months to one year or more, depending on the organization’s complexity and the IRS’s processing speed.

Here is a breakdown of the time spent on different tasks:

• Planning and research – 1 to 3 months (variable)
• Legal process – 2 to 6 months
• Submitting 501(c)(3) Form – 3 to 12 months
• Compliance & operational setup – 1 to 3 months

Merits of Starting a Nonprofit

There are several benefits of starting a nonprofit organization. Some of them are listed below:

• NPOs are eligible for local and state tax exemption.
• It is easy to receive donations from organizations or individuals.
• Access to grants from government foundations and agencies.
• No federal taxes are imposed on the income.

What Things to Consider Before Initiating a Nonprofit?

Board Selection

Identify the board of directors, volunteers, and other members. It is also crucial to define their roles and responsibilities.

Legal Requirements

You must complete all the legal requirements before running your organization. However, you must be aware of the local laws because these vary from state to state.

Budget Planning

When you initiate a nonprofit organization, you must focus on financial planning. They must build a strong financial plan that includes an investment blueprint. This helps them have a clear picture of their finances.

How Much Does It Cost to Start a Nonprofit?

When entrepreneurs consider setting up a nonprofit, investment and expenditures cannot be ignored. Of course! They will be curious about the cost involved in starting an NPO.

The cost of initiating a nonprofit organization depends on various factors, such as IRS costs, legal expenses, charitable solicitation registration fees, and overhead costs. Let’s have on them one by one:

Incorporating With the State

It is one of the most important steps in creating a nonprofit. You need to register your nonprofit when filing your 501(c)(3) application. It is a time-consuming process but essential. The average cost of this process is $50 to $400.

IRS Registration (tax-exempt application)

You must file an exemption application with the IRS. There are two application options available for an organization.

• Form 1023 – $600
• Form 1023EZ – $275

Legal Process

The legal process is crucial to legalizing your business and protecting it in case of any mishap. The average cost of this process is $2,000 to $5,000.

Other Costing Factors

• Office space
• Staff hiring
• Purchasing of software
• Marketing and promotion
• Insurance

Verdict

We are now closing our guide on how hard it is to start a nonprofit. When you initiate your organization, you must focus on all the above steps. Keep in mind that, like every profession, nonprofit corporations need a solid business plan, dedication, and capital investment.

So, always incorporate these when you are starting your successful nonprofit organization. Additionally, check local requirements.

Frequently Asked Questions