Starting a Nonprofit: What You Need to Know

Introduction

Starting a nonprofit can be an exciting and successful way to address societal issues, but it requires careful consideration, planning, and commitment. Before jumping in, it's essential to understand both the strategic and tactical aspects of starting a nonprofit. Below is a step-by-step guide to help you make informed decisions and navigate the processes involved.

Is there already a nonprofit doing similar work?

Before starting a nonprofit, explore whether other organizations are already addressing the issues you care about. Duplicating efforts can dilute resources and create unnecessary competition. Consider partnering with an established nonprofit to leverage existing infrastructure rather than creating something entirely new.

• Tactical Step: Research similar nonprofits through websites like GuideStar or Charity Navigator, and reach out to potential partners before deciding to create a new organization.

Do you have a solid plan for sustainability?

A great idea alone won’t sustain a nonprofit. You need a plan. What is often referred to as a business plan for a company is more often referred to as a strategic plan for a nonprofit. A tool like PlanPerfect, with or without a consultant, will help. You will create a clear mission, articulate your vision and values, and build goals and objectives that will pave the way toward long-term sustainability. Many nonprofits struggle with cash flow and fundraising, especially in the early years. Creating a plan will help secure seed funding and build credibility with donors and partners. This is critical to your nonprofit's success.

• Tactical Step: Develop a strategic plan that includes financial projections. Check out PlanPerfect, other online tools, and the possibility of using these tools with a consultant who specializes in nonprofit planning. Consider earned income models, where your nonprofit provides a service or product for a fee to supplement donations.

Should you consider partnerships instead of starting a new nonprofit?

Strategic alliances can be more powerful than starting from scratch. Collaborating with other nonprofits allows you to leverage their resources, infrastructure, and networks. The Power of Possibility campaign highlights how partnerships and alliances can amplify your impact while avoiding the fragmentation that often comes with new nonprofits.

• Action: Reach out to nonprofits in your area to see if they would be interested in a partnership or collaboration. This could lead to faster scaling of your idea without creating additional competition for funding.

Step 1: Incorporating Your Nonprofit

If you decide to move forward, legally incorporating your nonprofit is the first formal step. This involves drafting Articles of Incorporation that outline your nonprofit’s name, purpose, and governance structure. Incorporation protects board members from personal liability and provides legal credibility to your organization.

• Action: Check your Secretary of State's website to find the required forms. File your Articles of Incorporation either online or by mail, and pay the filing fee.

Step 2: Apply for an Employer Identification Number (EIN)

An EIN is required for tax purposes and to open a bank account for your nonprofit. It acts as a Social Security number for your organization.

• Action: Apply for an EIN for free through the IRS website. The process is straightforward, and you’ll receive your EIN instantly online.

Step 3: Apply for 501(c)(3) Tax-Exempt Status

To receive tax-deductible donations, you’ll need to file Form 1023 or the shorter Form 1023-EZ with the IRS. This is a crucial step in qualifying for tax-exempt status.

• Action: File Form 1023 or 1023-EZ via the IRS website. Prepare your bylaws, mission statement, and financial projections to submit with your application.

Step 4: Draft Bylaws and Form a Board of Directors

Your bylaws detail how your nonprofit will be governed, including the structure of your board and how decisions are made. You’ll also need to recruit a board of directors, which is legally responsible for overseeing the organization.

• Action: Use online templates to draft your bylaws, and recruit passionate and qualified individuals to serve on your board.

Step 5: Open a Nonprofit Bank Account

Once you have your EIN, you can open a business bank account for your nonprofit. This account will be used to manage donations, expenses, and operational costs.

• Action: Bring your EIN, Articles of Incorporation, and a board resolution to your chosen bank to open the account.

Step 6: Secure State-Level Tax Exemptions

In addition to federal tax-exempt status, you may need to apply for state-level tax exemptions. This could include exemptions from sales tax, property tax, or other state-specific taxes.

• Action: Visit your state’s tax agency website to determine what forms are required for state tax-exempt status.

Step 7: Get Necessary Licenses and Permits

Depending on your nonprofit’s activities, you may need additional licenses or permits, especially for fundraising events or soliciting donations.

• Action: Research local and state requirements for permits related to fundraising or public events. This could involve a charitable solicitation license or other relevant permits.

Step 8: Protect Your Name and Logo with Intellectual Property Protections

Your nonprofit's name and logo are valuable assets that should be protected. Registering them with the U.S. Patent and Trademark Office (USPTO) ensures that no other organization can legally use them.

• Action: Visit the USPTO website to file for trademark protection for your nonprofit’s name, logo, or other unique branding elements.

For more detailed guidance, visit BoardSource’s resources or explore the Power of Possibility campaign.