How To Start a Nonprofit
Learning how to start a nonprofit organization is one of the bravest career moves you can make. You're stepping out of your comfort zone and committing to making a difference in the world.
Fortunately, you don't have to go it alone. You may be the only person you know who wants to form a nonprofit, but the world is full of experts whose footsteps you can follow. The first step is learning what it means to be a nonprofit startup.
What is a startup nonprofit organization?
Startups are new organizations with missions. Each startup, whether for-profit or nonprofit, hopes to impact the world.
For-profit startups often pursue a mission related to their industries, such as tech or medicine. For instance, a tech startup may strive to provide a better way for individuals and families to manage their money. However, because it has shareholders and investors, it needs to drive profits that it can distribute.
Nonprofits aren’t obliged to make anyone richer. In fact, the government doesn't allow a nonprofit to distribute its profits to individuals. It may pay fair salaries to paid employees but can't distribute revenue to shareholders or any other individual. It must use all revenue after expenses to further its mission.
Nonprofits need to secure income to fund their projects, but their missions are their sole reasons for existing. For example, a nonprofit community clinic only exists to expand access to medical care. An animal rescue reduces the number of homeless pets in communities. The list is nearly endless.
This distinction makes a startup nonprofit one of the most mission-driven organizations. It exists to make a positive change, pure and simple.
How to start a nonprofit in 10 steps
Every healthy business goes through a development and launch process. As you realize your nonprofit business ideas, follow this roadmap to ensure you're prepared for each step.
1. Do your research and plan thoroughly
Starting a nonprofit corporation is much different than running a one-time outreach project. For your organization to be viable long-term, there must be an ongoing need and the resources to meet that need.
An unmet need is crucial for securing funding. Most communities have plenty of competition for donor dollars, and people want their money to go where it will make a difference. If organizations already do what you're doing, you'll need to work harder to stand out.
You'll also need donors, volunteers and staff. Running a nonprofit is like running any other business — it can't fall to one person. Make sure you have people willing to help you get off the ground, whether at the volunteer level or as a staff member.
2. Create clear goals for your nonprofit
Organizational goals give you the direction you need as a new nonprofit. They give you a target to work toward and help you decide how to allocate limited resources.
The most effective goals are SMART:
- Specific: Detailed with a clear who, what and how
- Measurable: Trackable using quantifiable data
- Achievable: Possible given the resources available
- Relevant: Related to your organizational mission
- Time-bound: Matched with a deadline to measure success
Create short-term and long-term SMART goals, as well as smaller and larger ones. For instance, your first financial goal might be to research the best business checking accounts and choose one by the end of the month. Meanwhile, you also pursue the larger goal of generating $50,000 from three donation streams by the end of the calendar year.
3. Consider your budget and startup costs
Even if you don't need to rent a space or buy equipment, there are costs involved in becoming a nonprofit. One such cost is the legal fees for registering as a nonprofit. These vary by state and include:
- Incorporation fees: The cost of registering as a business
- 501(c) fees: What the IRS charges to register as a nonprofit
- Registration as a charitable organization: Fees some states charge organizations that intend to fundraise
Add the cost of an accountant if you want to hire one to help with the paperwork. Call a few accountants in your area for estimates. If you know nonprofit professionals, ask them whom they use.
Also, consider "hidden" costs. These are smaller and easily overlooked expenses like web hosting and design, printing and copying and any materials needed for hosting educational programs and events.
Once you've listed your costs, look at expenses you can cut. For example, research how to get a free business phone number so you don't pay out of pocket every month.
4. Define your mission statement
A mission statement is a brief summary of your nonprofit's core values and reason for being. It serves as the guidepost for every decision you make as an organization, including which resources should go to furthering which goals. A strong mission statement for your nonprofit should describe its:
- Purpose: What you do for whom and why you do it
- Goals: What you hope to accomplish
- Core values: The beliefs that guide your decisions
If you need inspiration, look at the mission statements of nonprofits you admire or support. For example, here's the mission statement of the American Red Cross:
The American Red Cross prevents and alleviates human suffering in the face of emergencies by mobilizing the power of volunteers and the generosity of donors.
This mission statement is clear, specific and achievable. It's not overly broad — it doesn't aim to alleviate all human suffering everywhere — but it does what it can.
5. Put a business plan together
A business plan is your nonprofit's roadmap to success. It outlines the impact you want to have, the programs you'll create to get there and how you'll pay to run those programs.
- Organizational mission
- Community need and existing services
- Desired impact
- Programs and services
- Organizational structure
- Publicity and outreach
- Financial report and plan
- Fundraising strategy and donor profiles
Your fundraising section needs to be detailed and concrete. Funding streams are the lifeblood of nonprofit organizations and you need to be sure you'll have enough money coming in to keep offering your services.
Ensure your structural and budget plans are solid, as well. Funders will want to know that you've thought through how you'll use their money. They need to feel confident that you won't suddenly fold, leaving the community without the services you provide.
6. Consider how you'll market your organization
Every nonprofit needs a steady supply of donors, volunteers and service recipients. As a new organization, you need a marketing plan targeting all three groups.
Start by crafting a message for each target audience. For example, what might you say to individuals or corporate donors to encourage them to contribute? Your message might be different for each. Then, identify the resources you have for getting that message out there.
Your marketing channels will depend on your target audiences and resources. Options include:
- Social media
- Video content
- Blog posts
- Press releases
- Traditional advertising
- Special events
An experienced marketing professional can help you develop a plan. And some will offer their services for free if they respect your mission.
7. Know who you want involved and hire them
Even a brand-new nonprofit needs a core staff with the essential skills to get things up and running. Consider your skills and those you'll need to pay someone to provide. Most new nonprofits need people to handle the following functions:
- Executive leadership: Providing direction and keeping the team on the same page
- Bookkeeping: Tracking your nonprofit revenue and expenses; maintaining financial records
- Fundraising: Planning and executing the campaigns that bring in funding
- Marketing: Building awareness and connecting to the broader community
At a minimum, a new nonprofit needs an executive director and someone to manage the fundraising. If you're building a membership-based organization, you'll also need a membership director to handle member needs.
Determine a salary and job description for each role you need to staff. Even if you plan to take on one of these roles yourself, you'll need to have a record of your responsibilities and pay.
Reach out to any individuals you have in mind for a role you need to hire. You can also post the role on job boards, including nonprofit-specific resources such as Idealist and the National Council of Nonprofits.
Finally, don't cut a necessary position unless you can allocate the task to someone on staff or find software to automate it. For instance, if you don't want to hire an accountant, find the best accounting software for small businesses and sign up for an affordable plan.
8. Establish partnerships with the right entities
Community partnerships can fast-track your new nonprofit's growth. Partner with other local organizations, including nonprofits, small businesses and media outlets. The only must-haves are a good fit and the ability for both organizations to benefit each other.
- Determine what you can offer and what you need. Nonprofit partnerships need to promote growth on both sides.
- Make a list of local organizations and businesses that fit that mutual need. Who can benefit from what you have to offer and can also help you meet your goals?
- Set your goals for the partnership. What could you achieve with each potential partner?
- Evaluate cultural fit. Given that nonprofits are values-based organizations, will yours align with your potential partner?
- Start a conversation. Pitch your partnership to someone you trust within your target organization.
Remember that each potential partner will have its own agenda and needs. Come prepared to discuss how you can meet those needs so the partnership is mutually beneficial.
9. Come up with a name and branding
A memorable name and brand help your organization to stand out among supporters and funders. Choose a name that's easy to remember and related to your nonprofit's mission. Use well-known nonprofits like Save the Children or Habitat for Humanity as inspiration.
Then, think about graphics and color schemes that fit your nonprofit's name and mission. Consistent visual branding helps people remember you and helps you build your organization's identity. Color is particularly important because of its emotional impact. For example, blues are soothing, while yellows are cheerful and upbeat. Browns and greens are earthy, and oranges are confident. Choose your colors based on the effect you want to have.
10. Choose a legal structure and file incorporation and 501(c)(3) paperwork
Although you don't have to be a nonprofit organization to do charitable work, incorporating your nonprofit is the safest option legally and financially. Unlike a private foundation, nonprofit incorporation helps to protect your personal assets and gives you tax exemption status.
To become an incorporated nonprofit, you need to register with tax authorities. This requires:
- An organizational name and address
- A board of directors (required in many states)
- Written bylaws
- Articles of incorporation as required in your state
Once you've incorporated, you can file for tax-exempt status with the Internal Revenue Service (IRS) by filing Form 1023 and becoming a 501(c)(3). This will allow you to claim federal tax exemptions. (To keep those exemptions, you'll need to file your tax returns on an annual basis.)
What does a nonprofit do with revenue?
A nonprofit uses its revenue to further its mission. All income beyond current costs — including employee salaries — goes back into the organization to fund more projects and provide more resources.
How long does it take to create a nonprofit?
The most time-consuming part of becoming a nonprofit is developing your vision and communicating it to others. Incorporation typically takes an average of seven business days, though it can take up to four weeks in some cases. Tax exemption approval takes longer. Depending on which form you file, it can take between two weeks and six months for the IRS to approve your 501(c)(3) exemption request.
What obstacles, if any, should you expect?
- Lack of funding. Especially if you're starting from scratch, raising enough money to start operating could be your biggest challenge. If you're passionate about starting as quickly as possible, research the best small business loans and apply for funding.
- Overworked personnel. Your people can burn out if you lack staff and volunteers. Prioritize securing enough hands to do the work.
- Disagreement over your direction. Running a nonprofit means working with others on causes that people are passionate about. This often leads to disagreement, and sometimes that disagreement touches on big questions such as "What's the purpose of our organization?" Settle those big issues before they cause friction, even if it takes courage and time.
- Confusing legal documents. Paperwork can be confusing, so don't be afraid to seek legal counsel. Professional legal advice will keep your paperwork on the right track and ensure you don't miss any basic steps.
Define your goals and create your ideal nonprofit
Learning how to start a business can be overwhelming, even with the passion and drive of a nonprofit founder. The clearer you can be about your nonprofit organization's goals and ideas, the easier your path will be.
Begin by articulating why you want to start a nonprofit. What change do you want to see in the world? From there, you can start thinking about what actions you need to take and who can help you reach your goals.