Starting and running a nonprofit can be incredibly fulfilling, especially if the owner draws inspiration from big ideas and a passion for making a difference. However, while the vision might be inspiring, getting a nonprofit off the ground takes time and effort.
To become an owner, you must gather paperwork and documentation to show that the organization serves the public and qualifies for tax-exempt status. Once you’ve cleared those hurdles, you can dive into the real work—fundraising, building a team, and making a positive impact. Keep reading to learn how to launch a successful nonprofit in nine impactful steps.
Table of Contents
What are nonprofits, and what are their benefits?
9 steps to help start a successful nonprofit
Rounding up
What are nonprofits, and what are their benefits?
A nonprofit is a business created to serve a purpose beyond making money. Officially, it’s an organization that the IRS recognizes as tax-exempt because it supports a social cause that benefits the public. Think about things like preserving history, conducting scientific research, protecting animals, or boosting local economies.
Any money nonprofits bring in goes directly toward their mission, not individuals or shareholders. People also call nonprofits non-stock corporations or 501(c)(3) organizations, depending on the specific part of the tax code that gives them their tax-free status.
Here are a few perks of starting a nonprofit:
- The organization can get federal tax-exempt status, meaning owners won’t have to pay federal taxes on their income.
- Nonprofits can also qualify for local and state tax breaks.
- Nonprofit owners can receive donations from people and other organizations to help fund their mission.
- Owners can also apply for grants from government agencies and foundations, which can provide additional support for the work.
On the flip side, nonprofits are not without their challenges. Owners must operate solely for the public good, not to benefit shareholders or private individuals. Nonprofits must also hold regular board meetings, reinvest any profits into the organization, and maintain detailed financial records to maintain their tax-exempt status.
9 steps to help start a successful nonprofit
Step 1: Create a strong foundation
Before tackling paperwork and filing with tax authorities, it’s essential to consider the community or group the nonprofit will serve. Identifying a specific need in the community and backing it up with data is a solid way to start building the nonprofit’s foundation.
A clear, well-crafted mission statement drives the nonprofit forward and inspires staff, volunteers, and donors. When done right, it keeps the organization focused and helps guide important decisions down the road. Here are some tips for writing a strong mission statement:
- Keep it clear, simple, and easy to remember.
- Explain what the nonprofit does and the cause it supports in just one or two sentences.
- Remember, the mission statement can evolve as the organization grows.
Step 2: Build a solid business plan
A detailed business plan for a nonprofit will help owners understand how much money their organization expects to bring in and what they can afford—like hiring employees instead of relying on volunteers or even hiring a president or CEO. It also shows how much they’ll need to depend on donations to support their revenue-generating activities.
A strong business plan will include the following:
- An executive summary: A quick overview of the nonprofit’s mission, a summary of the market research showing a community need, and how the nonprofit plans to meet that need.
- Services and impact: A deep dive into the programs, services, or products the organization will offer and a clear description of its goals for creating positive change.
- Marketing plan: A strategy for spreading the word about the nonprofit and its services.
- Operating plan: A breakdown of day-to-day operations, including the organizational structure and what each role will accomplish.
- Financial plan: This plan examines the owner’s economic health, including cash flow, budget, income, expenses, revenue streams, startup needs, and ongoing costs.
Before proceeding, check if other organizations are tackling the same issues. The nonprofit will compete for the same donors and grants if another group is doing similar work. To avoid this, owners can use the National Council of Nonprofits locator tool to see other nonprofits and ensure the mission stands out.
Step 3: Choose a fitting name
The next thing owners must do is pick a unique name for their nonprofit, ideally something that reflects the mission and what the organization does. If stuck on finding the perfect name, they can use business name generators (like Shopify’s model) to spark ideas and get the creative juices flowing.
Step 4: Decide on the business structure
The IRS recognizes about three dozen types of nonprofits, covering everything from general charities to coal miner benefit trusts and teachers’ retirement funds. Here are four common types of nonprofits:
1. 501(c)(3): Charitable organizations
This category covers various religious, educational, charitable, scientific, and literary organizations. It also includes public charities, private foundations, and even amateur sports organizations that organize national or international competitions.
A 501(c)(3) can also include a fiscal sponsor, which helps manage and support charitable projects. These charitable organizations must serve the public in some way, and donations made to them are tax-deductible for the donor.
2. 501(c)(5): Labor, agricultural, and horticultural organizations
Labor organizations, like unions and agricultural groups, typically fall into this category. They focus on representing workers’ interests and collective bargaining. However, contributions to these organizations are not tax-deductible.
3. 501(c)(7): Social and recreational clubs
This category covers social and recreation clubs set up for their members’ enjoyment and leisure. Examples include country clubs, hobby groups, sports clubs, and fraternities. Additionally, contributions to these clubs aren’t tax-deductible.
4. 501(c)(9): Employee beneficiary associations
These nonprofits offer benefits like health insurance and pensions. Think of organizations that manage employee insurance and benefits plans. They provide life, sickness, and accident coverage to their members, usually employees of a specific company or group.
Step 5: Form the nonprofit officially
Once owners have made the major decisions and drafted the necessary documents, it’s time to incorporate the tax-exempt nonprofit officially. While each state has its process, generally, owners will need to:
- File articles of incorporation that include the organization’s name.
- Provide contact details for the board members.
- Choose the legal structure (nonprofit corporation, LLC, partnership, etc.).
- Submit the incorporation papers to the state’s secretary of state office.
- Complete the registration for charitable solicitation in their state and pay any fees.
- Apply for tax exemption with the IRS.
Most organizations use IRS Form 1023 (the long form) to apply for tax-exempt status. If the nonprofit expects to make less than US $50,000 annually, owners may qualify for the simple 1023-EZ form. If the IRS accepts the application, owners will receive a determination letter to show their approved tax-exempt status.
Step 6: Get an EIN and open a bank account
To get an Employer Identification Number (EIN), complete the IRS Form SS-4. Owners can find this form online, by mail, or by fax. After that, they can send it to the IRS.
Next, nonprofit owners can open a bank account. They’ll need their EIN, the organization’s name, address, and contact information. Here are some top banks for nonprofits, according to NerdWallet:
- LendingClub
- Bluevine
- US Bank
- Live Oak Bank
Step 7: Choose the board of directors
The size and makeup of the board will depend on the state’s laws and the organization’s bylaws. Typically, boards have between three and 31 members, with most being independent, meaning they are not directly involved with the organization.
Board members play key roles: hire and oversee the executive director, approve the budget, and ensure the organization stays true to its mission. Once owners have a few potential board members, they must vote on them during a meeting, especially if the organization has members.
After the board is in place, owners can elect officers, including the president, vice president, secretary, and treasurer. These roles usually last about a year, and the officers are responsible for running board meetings and ensuring decisions are implemented.
Step 8: Draft the bylaws and conflict of interest policy
A nonprofit’s bylaws lay out the rules for how the organization runs, how it will make decisions, select officers, and hold board meetings. Similarly, conflict of interest policies ensure officers, board members, and employees don’t use the nonprofit for their own gain. The board is responsible for approving these policies and ensuring they stay up-to-date.
Step 9: Launch a fundraising campaign
In the early stages, the nonprofit will need a solid plan for raising money and where it will come from. If owners don’t have strong funding from the start, it’ll be tough for their organization to last long enough to take off. Some possible ways to secure financing include grants and startup accelerators.
Rounding up
Once nonprofit owners have all their legal documents approved and the funding source secured, they can proceed with their official launch. But that’s not the end of the journey. Nonprofit owners must also market their launch to all potential supporters.
Although creating a successful nonprofit will take some time, a proper marketing plan can help streamline the process. For example, the faster nonprofits can reach their potential donors, the better their chances for success beyond the first launch. Nonprofits may be a lot of work, but they’re definitely worth it for people hoping to make a difference.
