BlogOrganizational Management How to Start a Nonprofit in 12 Steps Organizational Management How to Start a Nonprofit in 12 Steps Author: Terry Ibele March 8, 2022 Contents 🕑 22 min read If you’re thinking of starting a nonprofit, congratulations! It’s an amazing way to bring people together and make a difference in your community. It can also be quite an overwhelming process. That’s why we created this comprehensive guide — it covers absolutely everything you need to know about how to start and grow a successful nonprofit. It’s a lengthy one, so feel free to use the table of contents on the left side to jump to the sections you’re interested in the most. Without further ado, let’s dive in! What Is a Nonprofit? A nonprofit is an organization that exists to serve a community or advance a social cause. It can be a club, society, trade association, social advocacy group, or charity, for example. Unlike for-profit businesses, nonprofits don’t distribute their profits to their shareholders, but instead, funnel them back into their operations. It’s also important to note that nonprofits typically have an ongoing mission and are established without an end date in mind. If you have an idea for a short-term project that would benefit a certain community, consider partnering up with an existing nonprofit organization instead. How Long Does it Take to Start a Nonprofit? Starting a nonprofit can be a lengthy process. Some of it depends on how quickly you can get organized, assemble a board of directors, incorporate your nonprofit, and prepare everything you need to apply for tax-exempt status. For most new nonprofits, this stage can take a few months. Once you’re ready, you’ll apply for tax-exempt status by filling out Form 1023. But keep in mind, it can take the IRS 3-12 months to get back to you with their decision. If you think your nonprofit will make less than $50,000 in annual revenue, you can file the expedited version called Form 1023-EZ, which will take 2-4 weeks to process. Don’t worry, we’ll go over the details of how to apply for tax-exempt status in a later section. There are other legal nuances you’ll need to take care of, and how long they’ll take really depends on where you live. All in all, expect to wait a few months to a year before you can start operating your nonprofit. Can You Make Money from a Nonprofit Organization Technically speaking, yes, your nonprofit will generate profit! However, all of this profit must go back towards covering the expenses associated with operating your organization and furthering your mission. These expenses can include things like rent, equipment and software, marketing costs, and paying staff. You might be wondering, can you, as the founder, receive a salary? The answer is yes! Just like any other employee, you deserve to be paid for your hard work. That being said, your salary can’t be directly tied to how much profit your organization makes. Your board of directors will decide on a reasonable salary and will count as part of your organization’s expenses. How to Start a Nonprofit in 12 Steps Now, let’s take a look at the 12 steps you’ll take and everything you’ll need to consider when starting your nonprofit. Step 1: Research Unfortunately, nearly half of all nonprofits are set up to fail from the start because they don’t put enough time into research and planning. To maximize your chances of success, consider the following questions: Is There a Need? Do you have proof that your nonprofit will fill an unmet need in your community? Gathering support, receiving grants, and getting donations will become a whole lot easier if you have strong numbers to back up your idea. If you can’t find tangible proof, consider conducting your own survey. Identify your target demographic and ask them whether or not they think they’d benefit from the programs and services your nonprofit would offer. Are There Any Existing Organizations That Already Address This Need? Are any other organizations already doing what you’re planning on doing? How would your nonprofit add extra value to your community? If two nonprofits have exactly the same mission, they would end up competing against each other for grants and donor support. Neither one of them would generate enough revenue to make a substantial impact. The National Council of Nonprofits offers a locator tool to find nonprofit organizations in the United States. Before you start your nonprofit, take a look and make sure your efforts won’t be redundant. Can You Consider Alternatives to Starting Your Nonprofit? If you’ve identified that starting a nonprofit is not the best course of action at this time, there are still plenty of ways you can help advance a cause you care about. Here are just a few ideas: Donate to other nonprofits Fundraise from your friends and family to make a large donation to a nonprofit Organize an event and donate the proceeds Start a chapter of an existing nonprofit Join a nonprofit as a staff member Volunteer or serve on the board of another organization Offer consultant services or become a fiscal sponsor Set up a for-profit business that helps support other nonprofits Are There Other Considerations to Keep In Mind? If you do believe there’s a real need in your community and your organization would be the only one to address it, also consider the following: Is starting a nonprofit really feasible? Do you have the time and energy to devote yourself to starting this nonprofit? Do you have a cause that people would be excited to support? Do you have a few people in mind who’d be excited to join your board and commit themselves to your organization’s success? Do you have enough money to cover the startup costs? (More on this in the next section.) How are you planning to fund your nonprofit? How is the economic climate right now? Will you be able to get the necessary support from donors and members? Will your nonprofit be able to survive financial hardships in the future? What Startup Costs Do You Need to Consider? Here are a few of the startup costs you can expect: Incorporation: Depending on your state, this can cost you from $8 (Kentucky) to $270 (Maryland). Becoming incorporated is necessary to remove personal liability from you as the founder, as well as to attract grants and funding later on. 501c3 Status: Expect to pay between $275 for Form 1023-EZ and $600 for Form 1023. Office Space: We cover how to set up your office at a low cost in this article. Software Tools: You’ll need a member/donor management software, accounting software, marketing tools, a website builder, and a few other tools to manage your nonprofit. Staff: Although you may not have any paid staff to begin with, if you want to scale your nonprofit, expect this cost to rise, as well. Step 2: Build a Foundation Now that you’ve done your research and know exactly what to expect, it’s time to build a strong foundation. This includes deciding what kind of founder you’ll be, identifying who else will be involved, and creating a plan for starting your nonprofit. What Kind of Founder Will You Be? According to leadership expert Brian Tracey, who’s worked with more than 1,000 organizations, there are five traits that all successful founders possess: Self-Discipline: As Brian says, “If you can discipline yourself to do what you should do, whether you feel like it or not, your success is virtually guaranteed.” Integrity: All successful organizations are built on trust. People will be more willing to work with you and support you if they can trust you, especially during difficult times. “Be perfectly honest in everything you do and in every transaction and activity,” Brian says. “Never compromise your integrity.” Persistence: If you are able to develop a habit of persistence even before you meet obstacles, they will be much easier to get through once you meet them. “The courage to persist in the face of adversity and disappointment is the one quality that, more than anything, will guarantee your success.” A Clear Sense of Direction: In Brian’s experience, he’s seen motivated entrepreneurs get hijacked by the day-to-day tasks and short term problems that naturally arise from starting an organization. That’s why Brian says to develop a clear sense of direction, not only for your own work, but for the people who work with you. Decisive and Action Oriented: Successful founders must think and make decisions quickly. Seek feedback just as quickly and self-correct when needed. Brian says, “The key to triumph is for you to try. Successful people are decisive and they try far more things than other people do.” Who Will Be Involved In Your Nonprofit? Starting a nonprofit is a huge undertaking, and you can’t do it alone. Make a list of roles you’ll need to fill — these will be board members, volunteers, and maybe even a few staff members. Make sure to check your local requirements for how many board members you need to recruit, as this can depend on where you live. Also think about people you’ll be able to go to for support. They can include: Someone who can offer legal advice Someone who can help fill out the paperwork Someone who’s started a nonprofit before and can mentor you People in your network with expertise in things like finances, hiring, fundraising, marketing, etc People, businesses, organizations, and media outlets who can help spread the word about your new nonprofit What Needs To Be Done? Create a checklist of everything you’ll need to do to start your nonprofit. You can use the headings of this article as a starting point and add more details as necessary. Be sure to also do some research into what forms you’ll need to fill out, as required by your state and country. If you live in the U.S., you’ll need to: Incorporate your nonprofit Obtain an Employer Identification Number (EIN) Apply for tax-exempt status Register with your state to collect donations File Form 990 on an annual basis to maintain your tax-exempt status Individual state requirements vary, so if possible, consult a legal professional to make sure you don’t miss anything. Choose Your Name The best nonprofit names are easy to remember, explain what they do, and sound appealing. If you haven’t come up with a name yet, Nonprofit Ally has a number of tips on giving your nonprofit the best name. They say that the best nonprofit names answer three questions: My nonprofit will…? Write all the action words you can think of to describe your nonprofit (give, teach, heal, feed, rescue, etc.) My nonprofit helps…? Describe the market you plan to serve (children, hungry, homeless, elderly, cats, environment, etc.) Our members are…? If your nonprofit has a specific type of member then it may be important to include them in your name. Doctors without Borders and Mothers Against Drunk Driving are good examples of this. Once you’ve picked a name, make sure another organization doesn’t have the same name as you with a quick Google search. Then, you’ll need to check if it’s available with the Secretary of State in your State. Here is a map with links to each Secretary of State where you can check. Read More: 5 Things to Consider When Naming Your Nonprofit Create a Mission Statement Your nonprofit’s mission statement is a brief description of what you do and why you do it. It plays an important role in your organization’s success because it tells people why your work is worth supporting. Here are a few tips for crafting the perfect mission statement: Keep it short and simple: Write a mission statement that a 12-year-old could understand and remember. Stick to just one or two sentences and avoid using jargon and buzzwords. Make it specific: How is your nonprofit different from other nonprofits with a similar mission? Make it timeless: It should be apply to work you’re doing in the near future, as well as your long-term goals. Create Vision and Organizational Values A vision statement is a description of your end-goal—what do you want your community or the world to look like after your work is done? It should act as a motivator and a driving force behind your day-to-day operations. Your values are a set of principles that everyone at your organization—staff, volunteers, board members, and supporters—will follow. They’ll be used to guide every single decision and action at every level and in every corner of your organization. Step 3: Create a Business Plan A business plan is the blueprint for how your nonprofit will run and how you’ll achieve your goals. It’s helpful for your planning purposes, but also anyone who’s considering supporting your organization. They could request to see this document before making their decision. Let’s briefly go over what to include in your business plan. Executive Summary An executive summary is a short overview of your business plan. When writing yours, think of it as an elevator pitch. If your reader only has time to read this section, what would you want them to know? Be sure to include your mission, vision, and values, a brief summary of your goals, and how you’re planning to achieve them. Programs and Services Describe in detail what need you’ll be addressing in your community, whom you’ll be serving, and what value you’ll provide them with. For many nonprofits this includes things like programs and services, membership benefits, resources, and events. Market Analysis Explain what the market landscape currently looks like and include a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) that will help you determine how to set your organization up for success. Marketing Plan Develop a strong marketing plan that will help you spread the word about your nonprofit. The plan should answer the following questions: Who is your target audience (i.e. potential members, supporters, and donors)? Who will you find these people? How will you convince them to get involved? Read More: Follow These 7 Steps to Create a Nonprofit Marketing Plan Operational Plan Your operational plan will guide your nonprofit’s day-to-day functions. It should answer the following: Where will your office be? What supplies and equipment will you need? How will you deliver your services? What staff and volunteer roles will you need to fill? Impact Plan Your impact plan is all about the positive change your nonprofit will create. It should answer questions like: What are your objectives? What do you need to accomplish them? How will you measure success? How will you share impact with your community (i.e. impact reports, annual reports, stewardship activities, etc). Financial Plan Your financial plan will help you get donations, apply for grants, and maintain a healthy budget for your nonprofit’s operations. If possible, recruit the help of someone with a background in accounting to put it together, but if not, The Wallace Foundation has some excellent resources and calculators to get you started. Step 4: Recruit Your Board According to The Nonprofit Answer Guide, your board should be made up of individuals who have expertise and resources in different areas. A good board should be evenly split between: Members who are comfortable asking for donations within their own networks. Members who have expertise in finances, marketing, and legal matters. Members who are connected at the community level and have expertise in your service field. Start your recruitment process by identifying key roles and drafting job descriptions. These should include: Benefits of the position Length of term General duties Weekly time commitment Legal / Financial commitments Qualifications / Skills requirements This is also a good time to note that board members are typically not paid, and are often expected to contribute financially to the organization. When writing up your job description, it’s a good idea to mention this. Once you have full job descriptions, it’s time to find the best candidates. Most nonprofit founders look for candidates in their personal connections and recommendations, since these people usually already share their interests and values. If you need help finding potential members for your board, there are a number of great resources, including: Board Match Board Net USA The Bridgespan Group To help you out during the interview process, here are five necessary questions developed by Joan Garry, the “Dear Abby” of nonprofit leadership to ask your candidates: What do you know about our organization? Why are you interested in committing your time and energy to us? What do you think are the characteristics of a great board member? Fundraising is a significant obligation of board service. Can you tell us about your experience in fundraising? Board members bring experience, wisdom, strategic thinking, and their rolodexes. Can you tell us about yours? What kind of autonomy do you have over your calendar? There will be meetings between board meetings, occasional donor lunches. Once you’ve selected your board members, have them sign a Board Member Contract to officiate their role. Here’s a great Board Member Contract template you can use. The next step to ensure success is to give your board members the training and tools to let them hit the ground running. A comprehensive orientation program will do just that. Rachel Muir, a seasoned nonprofit founder, suggests four critical steps to orient your members in the most effective way: One-on-one orientation. This should be done by the founder, or CEO. Include a tour, meeting the rest of the board, and a review of the board contract. Match them with a board buddy. At the beginning, everyone will feel like the new kid on the block. Board buddies can help eliminate feelings of intimidation from insecurity. Plus, one of the most common reasons people become board members is so they can network and socialize. Provide them with your orientation guide. Include an overview of your organization, an organizational chart, a schedule of board meetings, and contact information. Since your board members are volunteers, take-home materials will allow them to get up to speed in their spare time. Host a welcome reception. This is a great way for everyone to get to know each other. Read More: The Complete Guide to Building a Nonprofit Board Step 5: Identity and Brand You’ve already selected a name for your nonprofit, but there’s more that goes into your identity and brand. Consider creating a catchy slogan — this can be a short version of your vision — that will be used in all your marketing and promotional materials. Design a logo and create versions with or without the slogan. Think about things like your voice and tone, brand colors, and design guidelines. Very soon you’ll be producing print and digital assets to spread the word about your nonprofit — a cohesive brand will help you stand out and be easily recognizable and memorable. Step 6: Funding and Revenue Now, it’s time to think about how your organization will generate revenue. Most nonprofits do this in three ways: through providing value, fundraising, and government grants. 1. Providing Value This category includes things like membership dues, event fees, and selling merchandise. People pay a fee in return for membership benefits, attending an event, or getting access to a publication, for example. This is similar to how a for-profit business would generate revenue, but in this case, the profits would go directly towards advancing your nonprofit’s mission. Read More: 15 Elements of Successful Nonprofit Membership Programs 2. Fundraising Fundraising includes soliciting donations from individual donors, corporate sponsors, and organizing fundraising events. Before you can accept donations or engage in fundraising activities, many states require you to complete a Charitable Solicitation Registration. You can do this in tandem with incorporating your nonprofit. Some states even require you to register for “Games of Chance” like raffles and 50/50 draws, whereas in other states, these activities are actually illegal. To find out your state’s regulations, and to register, select your state from this map. The Nonprofit Council has also put together a great article on Ethical Fundraising to help guide you when it comes to soliciting donations. Read More: 200+ Amazing Fundraising Ideas Any Organization Can Try Today 3. Government Grants Here are some helpful places to begin your search for grants relevant to your nonprofit: Foundation Directory Online Grants.gov Catalogue of Federal Domestic Assistance National Endowment for the Humanities National Endowment for the Arts The Puffin Foundation is a private fund for individuals and foundations. To help you get started with an application, the United States Government has a great guide on how to determine your eligibility, application instructions, and even how to avoid grant scams. Or, if you enjoy webinars, Charity How To has a free webinar on how to write your first grant. Read More: How to Start Grant Writing (+ Templates) Step 7: Incorporate Here are the steps to incorporating your nonprofit: 1. Choose a business name 2. Appoint a board of directors 3. Decide on a legal structure: Choose whether your organization will be a trust, corporation, or association. 4. File your incorporation paperwork: Regulations differ from State to State. Check with the National Association of State Charity Officials (NASCO) for your state. If you plan on soliciting donations from more than one State, you will have to register there too. Generally you will have to register: Your nonprofit’s name Name and address of the registering agent (the founder) Address of the nonprofit Names and address of the board members Statement of purpose to which your nonprofit will operate 5. Get an Employer Identification Number (EIN) Just like any business, your nonprofit needs to get an EIN, or Employer Identification Number. You’ll need it to hire staff, open a bank account in your organization’s name, and fill out many of the necessary registration forms that your local government requires. You can think of it as being like a Social Security Number, but for your nonprofit. To apply for an EIN, you can visit the IRS website and complete it online, or download the form they provide and mail it in. All you need to complete it is the physical mailing address of your nonprofit, its legal name, and your SSN. Read More: 5 Nonprofit Fundraising Laws You Should Know About Step 8: File for Tax Exemption One of the main benefits of incorporating a nonprofit and starting a 501c3 is tax-exempt status. This means that your organization doesn’t pay any tax to the IRS. There are 29 types of nonprofit organizations that can file for tax-exemption under section 501(c) of the Internal Revenue Code. The most common of these is the 501(c)(3), which includes all charitable, religious, scientific, and literary organizations. Other types of tax-exempt nonprofits fall under different 501(c) codes such as: Fraternities: 501(c)(8) Social and Recreational Clubs: 501(c)(7) Trade associations and Chambers of Commerce: 501(c)(6) If your nonprofit identifies with another type of organization, you can view the whole list here. In order to receive tax-exemption, you’ll need to register with the IRS as your appropriate 501(c) organization. This involves filling out Form 1023, which the IRS estimates can take about 90 hours for record-keeping requirements. There’s also a Form 1023-EZ, which is an expedited form. You can find out if you’re eligible to fill out a 1023-EZ here. If you need help, you can phone the IRS Tax Exempt and Government Entities Hotline. The application process can be lengthy (anywhere from 3-12 months to receive a decision), so start as early as possible. You should also familiarize yourself with all related IRS resources, which offer more details on completing your application: Application for Recognition of Exemption Governance and Related Topics for the 501(C)(3) Life Cycle of an Exempt Organization Compliance Guide for 501(C)(3) Public Charities It’s also important to note that there are fees for filing for tax-exemption: $600 for Form 1023 $275 for Form 1023-EZ (a streamlined form you may be eligible for if you have gross receipts of less than $50,000 and less than $250,000 in assets) The final step to receiving tax-exempt status for your nonprofit is to register with your state. This is usually accomplished through the state tax commission, but the IRS State Links for Exemption page will help you find the correct office, filing procedures and annual reporting requirements in every state. Step 9: Hire Staff Members You’ve done all the planning, incorporated your nonprofit, and applied for tax-exempt status. Now, there’s even more work to be done. Now is the time to figure out your office space and recruit staff members. This article on how to set up your nonprofit space on a tight budget is a great place to start. When it comes to hiring staff, many small nonprofits start with only one part-time or full-time staff member until they reach a point where they need extra help to grow larger. If you’re not sure how many staff members you’ll need, here are some common nonprofit staff roles and what type of organizations they’re typically found in. Membership Manager / Administrator: If your nonprofit will gather members (like in a club, association, or society), this role is crucial for maintaining member records, developing member recruitment strategies, and engaging/retaining members. Communications Manager / Administrator: If your nonprofit will greatly rely on social media campaigns, public relations (PR) activities, public speaking events, and member and volunteer management, then consider hiring someone to fill this role. Fundraising Manager: If your nonprofit relies primarily on government grants, donations, or corporate sponsors, you may consider hiring someone who specializes in fundraising. Events Manager: If your nonprofit will coordinate large monthly events, yearly conferences, and other types of events like a speaker series, or educational workshops, then an events manager is a must. Hiring staff members is an involved process that requires a few extra steps. Don’t forget to: Determine how much you can spend on salaries. Determine whether your staff will be contract work or salaried. Decide what types of benefits you can offer employees. Create a formalized performance review process. Here is a free template you can use. Register for all necessary programs with your state, including setting up worker’s compensation, and unemployment insurance. Here are some helpful resources to help you with this step: IRS: Hiring Employee Guidelines US Small Business Administration: Hiring Your First Employee Hiring Your First Nonprofit Employee Step 10: Choose the Right Software Tools It’s possible to use software like an army of helpful robots to do all the administrative work for your organization so you can focus on the activities that will actually create more member value and help you grow! You can set up software to automatically: Allow members to join your organization and pay online Register attendees for events and accept online payments Collect donations online and send them to your bank account (or PayPal) Manage a database of members, volunteers, donors, and sponsors Update your website and email your contacts with ease When it comes to choosing the right software tools, you have two options: Use multiple software programs to handle separate administrative tasks Use all-in-one nonprofit software called membership management software to handle all administrative tasks Option 1: Multiple Software Programs For example, you can get finance software to help with finances, Customer Relationship Management (CRM) software to manage members and donors, and email software to send out newsletters. Advantages: Freedom to choose or switch software whenever you like. Many software tools offer a free version for low-usage customers. Only use and pay for what you need. Disadvantages: You will have to learn how to use and teach others how to use multiple systems. No integration between platforms, so you will have to copy and paste data between systems. May end up more expensive in the long run as each software will require pay upgrades as you use them more. Read More: 200+ Free or Cheap Nonprofit Software Tools You Need to Know About Option 2: All-in-one Nonprofit Software — Membership Management Software All-in-one nonprofit software is called membership software, association management software, or membership management software. If you’re unfamiliar with membership management software, think of it as a one-stop shop that can handle all the administrative tasks in all areas of your organization. You won’t need to purchase any additional software tools. Membership management software enables you to: Create and manage a contact database including members, donors, and sponsors. Create and manage online event registration and payment Accept and manage online donations Create and easily update a membership website for your nonprofit Allow new members to join your organization through your website Automatically create financial reports Process payments without needing an external vendor and more. Advantages Integration between functions (the events module integrates with the database module, etc.) means that you save time and don’t have to switch back and forth between systems. Lower costs in the long run as you’re only paying for one system. You also only have to learn one system. The software is set up for nonprofits to hit the ground running and caters specifically to nonprofit needs. Disadvantages It’s hard to get highly customized, advanced functionality if your nonprofit has very specific needs. It doesn’t integrate well with other software tools if you do choose to buy other software. Here at WildApricot, we’re proud to be the number one rated membership management software on the market. We regularly help new nonprofits attract, engage, and retain members in order to grow. If you’re interested in learning more, start a free 60 day trial and see for yourself how WildApricot can help get your nonprofit off to a great start. Once the trial is up, you can continue to use your free account until you’re ready for your new nonprofit to grow. Step 11: Plan and Prepare for Growth Once you have your new nonprofit software set up, the next step is to start spreading the word about your organization. But before you do this, you’ll need to set up a website and a presence on social media—after all, this is the first place people will visit to learn more information about you. We already have some great resources about this on the WildApricot blog, so be sure to check out: The 22 Features Every Top Nonprofit Website Has 7 Steps to Create a Donation Website for Your Nonprofit + 10 Great Examples The Ultimate Social Media Guide for Nonprofits Social Media Fundraising: 6 Tips to Make It Work for You Finally, let’s take a look at a few of tactics that nonprofits often use to spread the word and find their first members and donors: Email everyone you know about your new nonprofit and ask them to pass the message on to all their contacts. Host an open house networking event and invite everyone you know. Publish industry resources online and drive website visitors to them through blog posts, emails, social media, speaking events, and news publications. Connect with similar organizations in other cities. Join established communities where your target market is (like Facebook or LinkedIn Groups, Meetups, or similar events). Leave informational bookmarks at your local library’s check-out desk. Ask your local radio hosts to mention your organization on the radio. Step 12: Ongoing Compliance Once your nonprofit is up and running, there are a number of things you must do every year to keep your tax-exempt status. The first thing you must do is file a 990 Form. This form collects information regarding your revenue, expenses, board members, achievements, and other operational information. However, which form you fill out depends on your gross receipts. If you have gross receipts over $50,000 (or gross receipts plus total assets), file a 990 Form with the IRS If you have gross receipts under $50,000, file a 990-N form, or e-Postcard with the IRS After the 990 Form, there are a number of things you must do to remain in good standing with the IRS. If you’d like to learn more, we’ve created a full checklist to nonprofit compliance here. Best of Luck With Your New Nonprofit We hope this comprehensive guide has given you the understanding, tools, and resources to start a successful nonprofit. We have hundreds of other helpful articles on the WildApricot blog, so be sure to check those out. Whether you have questions about marketing, fundraising, event planning, or anything in between, you’ll probably find an answer there. For more specific information regarding starting a nonprofit in your state, reach out to your state’s nonprofit association. And if you’re considering using all-in-one membership management software to run your nonprofit, don’t forget to give WildApricot a try. Click here to start the trial and see if it’s for you. Best of luck with your nonprofit! 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