Starting a Nonprofit Organization Checklist
Starting a nonprofit organization is an exciting venture because it is not only a business, but one that is rewarding and benefits a cause that the owner(s) are passionate about.
The early phases of a nonprofit organization are crucial to its success.
There is a lot of planning and research that needs to happen in preparation of opening its doors.
Founding members need to make sure they have done their due diligence and identified a need in the community for the nonprofit they are proposing.
With competition for donors being very high, founding members want to make sure they are offering a nonprofit that will attract donors and grants so that they can stay afloat and succeed.
Nonprofits generally require larger start-up funding which makes it even more crucial that they succeed.
Keep reading to learn what it takes to start a successful nonprofit organization and a checklist of items to complete before opening your doors.
What is a Nonprofit Organization?
Nonprofit organizations or foundations (NPOs) are quite different than other business entities because their purpose is not to make profits for the owner(s).
Instead, nonprofits are formed to further a particular social cause for charitable, literary, scientific, religious, educational, or other cause and they operate under section 501(c) of the Internal Revenue Code.
Furthermore some nonprofits operate with a tax exemption.
Their main purpose is not to make a profit but to further a social cause or a shared goal or mission
Under the IRS 501(c) code, there are two main types of nonprofits:
- Nonprofit Organizations (NPO) – serve the public via goods and services
- Not-for-profit Organizations (NFPO) – may serve just as a group of members or a more private focused group of members
Aside from the two major types of nonprofits mentioned above, there are actually about three dozen different types of nonprofits that fall under those two categories.
Other popular types include:
- Section 501(c)(4): civic leagues and social welfare organizations, homeowners associations, and volunteer fire companies.
- Section 501(c)(5): labor unions
- Section 501(c)(6): chambers of commerce.
- Section 501(c)(7): Social and Recreational Clubs
- Section 501(k): childcare-related organizations.
There are many others in the U.S. Internal Revenue Code and you can view them here.
You will want to identify which type of nonprofit you are under the IRS 501(c) code as it will determine your tax implications.
Identify the type of Nonprofit Organization you want
You most likely already have an idea of what type of nonprofit you want to have and so the next step is to determine whether there is a need for this type of nonprofit.
Founding board members need to carefully assess whether there are already these types of nonprofits in the same area/region to identify if there will be too much competition for donations and grants.
If there are already similar nonprofits, you will all be competing for the same donors and grants which makes it more challenging to secure funding.
The existing nonprofits will probably be more favorable in the eyes of donors because they are already established, vs a new nonprofit that is just entering the market.
If you’ve identified a need that other nonprofits aren’t already addressing, you will need to try to define the market and the demand for the services.
This step is crucial because donors will want you to demonstrate a need before they send you that all-important reward letter.
One more thing to consider when refining your nonprofit organization is the current and future economic climate.
When the economic climate is down or going through a recession, people are less likely to donate as much as during times when the economy is booming.
You will want to identify ways that you plan on staying sustainable during the more challenging economic times.
Tax Status for Nonprofit Organizations
Certain types of nonprofit organizations qualify for a tax-exempt status under the law.
Founders should see if their idea for a nonprofit will qualify for federal and state tax-exempt status.
The law states that nonprofits seeking tax-exempt status must primarily be involved in educational, scientific, religious or charitable endeavors.
The government wants nonprofit organizations to succeed because they often provide products and services that the government can’t provide on their own.
They offer this tax-exempt status so that nonprofit organizations can use the money they save on taxes to benefit the people they serve.
Checklist for Starting a Nonprofit Organization
Write a business plan
A business plan is a written document that describes, in detail, how a business will operate and meet their goals and objectives.
Business plans include your companies mission and vision statements, source of startup funds, marketing plan, etc.
Get a board portal
A board portal is a collaborative software where all founding documents are stored and collaborating with new board members happens.
This gives all board members secure online access to important information and documents pertaining to the nonprofit.
Many board portals include messaging features, voting tools, meeting, meeting minutes, agenda features and other tools to help make communication as seamless as possible.
Write the Articles of Incorporation
In order to incorporate your business, you have to file your articles of incorporation.
Filing articles of incorporation is legally required for any business owners planning to structure a new or established company as a professional corporation, nonprofit corporation or other classification.
Elect a Registered Agent
You must list a registered agent in your nonprofit filing, and provide the information of the person listed.
Write your Bylaws
This includes when board meetings are held, voting procedures, how to handle conflict, who serves on the board, how to create or end committees, and how to change or amend bylaws
Bylaws work in conjunction with the articles of incorporation to form the legal backbone of the business.
If your state requires, you will also want to file state-level tax exemption forms for 501(c)(3)
Obtain the required licenses and permits
After you have successfully incorporated your nonprofit (this means you’ve filed your articles of incorporation and they have been accepted and approved), you must obtain a business license to manage sales and employment taxes.
The local business license allows the nonprofit to operate locally.
You can find all business license and permit requirements at your local Secretary of State’s website.
Policies and Procedures
Your business policies and procedures are like a drivers manual for your business.
They address certain policies and procedures that you want to maintain and keep consistent in order to run a smooth business.
Examples include new client admissions process, care plans, hiring practices, training and orientation, time and expense reimbursement policies, etc.
Consider a Fiscal Sponsor
Fiscal sponsorship is often used by newly formed nonprofits that need to raise money during the start-up phase, before they are recognized as tax-exempt by the IRS.
They are a little complex so we won’t dive into them here, but you can learn more about fiscal sponsors here.
Find a Location
Most nonprofits have a physical location or office that they operate out of.
You will want to establish a location and get that setup if applicable.
Startup costs and Budget Planning
Nonprofits are not usually cheap to start and they often require a larger startup investment than other types of business structures.
In addition to your initial investment into your nonprofit, you will want to consider other startup costs such as:
- Computers or laptops
- Cell phones
- Office supplies
- Accounting software
- Board portal software
- Insurance plans
- Transportation if applicable
- Fundraising and marketing funds
- Marketing expenses
- Website design
There are probably more that you will find along the way and writing them down can help you prepare for them when the time comes.
You will want to make a budget and plan how these expenses will fit into your budget and how you plan on paying for them.
Many nonprofits operate off of funds received from donors, community partners, and from fundraising events.
You will want to plan your first fundraising event pretty close to when you opened your door to not only raise money, but get your name out there.
Fundraising events are a great way to gain community partners and build ongoing relationships.
Hire Staff & Volunteers
Nonprofits have a lot of moving parts and require a lot of time and attention.
If you don’t quite have the funding to hire employees yet, consider reaching out to volunteers.
Nonprofits have an under-hand because they can find people who believe in their cause and will volunteer for free.
Hold your first board meeting
Don’t forget to schedule and hold your first board meeting and continue them thereafter.
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IRS.gov "Organization Reference Chart" Page 1 . May 4, 2021
IRS.gov "About Form 1023-EZ" Page 1. May 4, 2021
IRS.gov "State and Federal Online Business Registration" Page 1 . May 4, 2021
IRS.gov "Charities and Nonprofits" Page 1 . May 4, 2021
Council of Nonprofits "Fiscal Sponsorship for Nonprofits" Page 1. May 5, 2021