Starting a nonprofit seems like a dream for most people. Have you ever felt like your calling was to help others? It's like there's a lack of information for those who truly want to do good in the world. My goal as a nonprofit consultant is to help others create a clear vision on how to start and run their organization at affordable prices. I always advise the first concept that should be understood is the process of starting your nonprofit.
Before you even start the filing process, do you truly have an understanding of what a nonprofit is? In Nonprofit For Newbies World, when we use the term "nonprofit" we are referring to a tax-exempt 501(c)3 corporation. Simply put, we are referring to a nonprofit that does not have to pay most normal business taxes and can also receive donations that are tax deductible for the donor. You may think of a nonprofit as an easy, "legitimate" way of helping others and receiving grants and donations. However, just like any other REAL business, it is not easy and you have to be willing and ready to dedicate time, energy, and resources (including money) into getting your nonprofit started. The first thing you should do is organize all of the thoughts floating around in your head. Who doesn't want to help everybody and anybody? You can! Or maybe you have a very specific demographic of people that your calling is to serve? Do it! But, you need a plan of action. Grab a nonprofit planner- Nonprofit For Newbie's Nonprofit Startup Planner is a great resource for taking you step by step through organizing your ideas and mapping out a clear and concise plan for getting started. Grab yours at www.NonprofitStartupPlanner.com
Once you've completed the planner you will have:
Weighed the pros and cons of starting a nonprofit
A powerful mission statement
Found the unmet need in your community
Recruited your board members
Developed at least 3 programs/services for your clients
A specific goal for your organization to accomplish
A SOAR Analysis to help your organization construct its future
You may be wondering "Is all of this really necessary"?! Yes, it is! Once you have a game plan, you will be more effective in the next steps of the process. Now that you've nailed down your mission it is time to start your nonprofit paperwork. The first step is to choose the name of your nonprofit. You want to do a business search on your state's designated website (usually Secretary of State aka SOS website) to make sure no other company in your state has the same name as your nonprofit. The best way to check is to go
to google and type in "sos ___your state___ business search". Google will pull up a list of websites for you to choose from. Make sure you choose the state website that ends in .gov.
You cannot have the same name as anyone else in your state. You should also try typing the name you've chosen in google to see if anyone has a website with a similar name. The last thing you want is to get mistaken for another organization in another state that does not represent your values or is so similar that you end up confusing donors.
Use this free resource to find out what other requirements your state has for the name of your nonprofit. Once you've chosen your name, it is time to file your Articles of Incorporation. Your articles (also known as Certificate of Incorporation or Corporate Charter) is the first legal step in being recognized as a nonprofit. Done correctly, incorporation will register your nonprofit’s name, limit personal liability of directors, add credibility, and put you on the right track toward 501(c)3 tax exempt status. The price of Incorporation varies, with some states being as low as $8 and other states being as high as $170. I put together a full list of pricing for each individual state here . These fees are the starting prices for standard processing time in each state. In most states, processing can be expedited for an additional cost. You should also keep in mind that some states will require other additional forms and fees, such as a docketing statement or notice of incorporation in your local and/or legal newspaper. The 3rd step is to structure your board of directors. Your board should be unrelated to avoid conflicts of interest. This includes familial and business relationships. No matter what your state requires, you need to have at least 3 members on your board to meet IRS requirements for tax exempt status. Board positions do not get paid. They are volunteers who take responsibility for the nonprofit. It is for that reason that I recommend you to take position of Founder/CEO. Founder simply means that you started the organization. CEO is a paid employment position within the nonprofit. As CEO you are responsible for:
Day to day management of the nonprofit
Working directly with the board to fulfill the nonprofit's mission
Managing fundraising and other funding sources to ensure the nonprofit's financial performance
Your board president is the chief volunteer representative of the nonprofit. She will work closely with the CEO (you) to ensure communication between the staff and the board. Your board secretary is the official keeper of the organizational records and will record all of the decisions made during board meetings. Your board treasurer works closely with the CEO to report summaries of the nonprofit's finances to the board. She will also help set up the organization's budget. oversee accounting systems, and monitor all tax related paperwork. Although these individuals do not get paid for being a board member, there are other positions within the nonprofit that they can be paid for. For example, if you need help running your food bank- you can assign a board member to take an employment position as a program director for a fixed salary. Once you have your board in place, you must all go over and vote on your organization's bylaws and conflict of interest policy. The bylaws are the rules under which your nonprofit will operate. A conflict of interest policy prevents directors with conflicts from participating in discussion, reporting, or voting on an issue where there is a real or perceived conflict. An example of a conflict would be if your nonprofit is ready to purchase office space, and your board secretary has a building with the space available. Major decisions such as office space transitions should be voted on by the board. In any normal situation, the secretary would be able to vote for or against the decision. However, in a situation like this, where the secretary is voting yes based on her personal and business interests (She wants the rental $!) , the conflict of interest policy takes away her power to vote. Without this conflict, the board can then make a more responsible decision about which office space is most convenient for their clients, more affordable, or has enough space for the nonprofit. While you have been working on your internal policies and structuring your board, you are probably close to receiving your Articles of Incorporation back from the State. Once you've received your articles, you can apply for your EIN number. Among many other things, your EIN is important for opening a business bank account and credit cards. You can get your EIN instantly at www.IRS.gov. Once you have your EIN you are able to apply for tax exempt 501(c)3 status with the IRS. There are two different applications for 501(c)3. The original application is the 1023. The 1023 is $650 and takes anywhere from 2-12 months to be approved by the IRS. The 1023-EZ streamlined application is $275 and is approved in 30 days or less. If you are wondering which application you qualify for, you should complete the 1023-EZ worksheet. If you are able to answer "NO" to all questions on the worksheet, then you qualify to file the streamlined application. After you submit your application, (CONGRATS!) you have completed all of the necessary steps to starting a nonprofit!
Now that you have established your nonprofit, you need to start researching what funding is available for nonprofits and take the necessary steps for you or a board member to master the business plan, fundraising, budget, logic model, and grant writing process. If you would like assistance with nonprofit startup visit www.NonprofitForNewbies.com This article is just for informational purposes. It is not intended to be legal advice. Check other sources, such as the IRS, and consult with legal counsel or an accountant.