How to Start a Nonprofit - The Right Way
If you’re thinking of starting a nonprofit (association, club, charity, etc.), first of all, congratulations!
Secondly, you’ve come to the right place. Below is a comprehensive guide that covers absolutely everything you need to know about how to start a nonprofit and what it takes to become successful in today’s world.
Before we dive into this guide, I think it’s important to mention that new nonprofits face more challenges than ever before, because of how the internet and emerging technologies are changing the ways in which people interact with organizations. Here are some quick examples I cover in this guide:
While this may sound worrisome, I’ve seen many new nonprofits meet these modern-day challenges and gather hundreds of members and thousands in donations very quickly. In this comprehensive guide, I’ll share some of their stories and show you how to start a nonprofit that can succeed in today’s world just like them. I will also cover everything else you need to know, like how to register for tax exempt status, hire your first staff, build your website, and attract your first paying members.
Guide - Six Steps to Starting a Nonprofit
Secondly, you’ve come to the right place. Below is a comprehensive guide that covers absolutely everything you need to know about how to start a nonprofit and what it takes to become successful in today’s world.
Before we dive into this guide, I think it’s important to mention that new nonprofits face more challenges than ever before, because of how the internet and emerging technologies are changing the ways in which people interact with organizations. Here are some quick examples I cover in this guide:
- The rise of the internet and smartphones has actually decreased people’s attention spans, making it harder for nonprofits to stand out and get their message across.
- Online shopping and same day delivery has made people expect instant gratification from the organizations they interact with (not to mention being able to pay dues, or donate online).
- Large organizations are using “big data” to deliver extremely personalized experiences to large groups of people, meaning they can now fulfill the roles small organizations used to play.
While this may sound worrisome, I’ve seen many new nonprofits meet these modern-day challenges and gather hundreds of members and thousands in donations very quickly. In this comprehensive guide, I’ll share some of their stories and show you how to start a nonprofit that can succeed in today’s world just like them. I will also cover everything else you need to know, like how to register for tax exempt status, hire your first staff, build your website, and attract your first paying members.
Guide - Six Steps to Starting a Nonprofit
What is a Nonprofit Organization?
In simple terms, a nonprofit organization takes any profits it receives from goods, services, donations, or sponsorships, and cycles them back into the organization to further achieve its mission. Nonprofits commonly serve communities (clubs, associations, or chambers of commerce, etc.), or are organized around social causes (humanitarian aid, disease research, education funding, etc.). In contrast, for-profit businesses distribute profits to the shareholders and investors of the organization.
Advantages and Disadvantages of Starting a Nonprofit
While starting a nonprofit is a worthy cause, any ambitious individual can quickly become overwhelmed by all the rules and regulations. Before you jump in, consider this list of the advantages and disadvantages of starting a nonprofit to make sure you’re ready for what’s ahead.
Advantages of Starting a Nonprofit
Eternal Life: Nonprofit organizations (just as for-profit organizations) can exist long after their founders leave as long, as their purpose stays relevant and they continue to generate revenue. The oldest company in the world, the Kongō Gumi construction company in Japan has been around for nearly 1,500 years.
Organization at Scale: If you are a mission-driven individual who wants to make the world a better place, organizing a nonprofit around your chosen cause is the best way to build a team to expand your efforts and make a bigger impact.
Protection from Personal Liability: Employees of nonprofits are not personally liable for the debts of the nonprofit. This means that if someone wants to sue your nonprofit for a business-related debt, or injury, they can only go after the corporate entity, not the personal assets of its owners.
Tax-Exempt Status on Net Income: Nonprofits do not pay taxes, so all earnings can be cycled back into the organization.
Public and Private Incentive to Help You Out: Donations made by individuals and corporations are tax-deductible, thereby incentivizing people to contribute to nonprofits. All you have to do is create a clear mission and a strategy to collect donations. I will cover both of these areas in this article.
Grants Eligibility: An additional source of funding for nonprofits is through government grants.
Employee Benefits: If your nonprofit has enough employees, it may qualify for group discounts to health or life insurance programs.
Formalized Structure: Incorporating a nonprofit can allow you to create formalized roles with job descriptions and responsibilities, which can attract more professional and skillful candidates to work with you.
Volunteer Board Members: Typically, nonprofits do not pay their board members, which can save a lot of money. Another pro about board members is that they bring a variety of valuable skills, expertise, and greatly expand your network.
Highly Motivated Employees: Research shows that nonprofit employees are highly motivated by intrinsic rewards like achievements of their clients and a good work/life balance, rather than pay. This means you can expect to attract employees who care about your nonprofit’s purpose and want to help you make a difference in the world.
Disadvantages of Starting a Nonprofit
Time and Money: Starting a nonprofit is likely to take months of preparation and devoted work. It can also cost up to $800 just to submit your application to the IRS. Depending on your bandwidth and knowledge, you may need to hire a consultant to make sure you’re filing everything correctly.
Continued Maintenance: All nonprofits are required to submit annual filings and comply with all laws of incorporation. There are also quite a few activities which may jeopardize a nonprofit’s status (like lobbying). Note that legal requirements differ from country to country. See here for Canadian requirements.
Prohibition from Political Campaigning or Lobbying: nonprofits which engage in attempts to influence legislation risk their tax-exempt status.
How to start a nonprofit Public Scrutiny: Anyone may request copies of any nonprofit’s filings and review their expenditures, salaries, and income. If your nonprofit will have a large public facing, you can expect some scrutiny over how you handle administrative expenses. There are always articles about overpaid nonprofit CEOs being published. Just take a look at this image that showed up in my Facebook feed and received hundreds of comments (whether true or not).
No Profits: No individuals or shareholders can receive profits from your nonprofit. This can make it more difficult to generate interest from potential investors.
Volunteer Board Members: Volunteer Board Members can be a pro and a con. From a con perspective, sometimes it may be had to activate your volunteer board to contribute to achieving goals.
Funding Difficulty: While listed as a pro before, getting funding for your nonprofit can be a constant struggle. Given that there are over 1,500,000 nonprofits in the US alone, there is high competition to receive funding from donors, funds, and grants. Many nonprofits hire professional grantwriters to give themselves a better chance.
Overworked Employees: Small to medium-sized nonprofits typically have tight budgets and only a handful of employees, meaning more work for less pay. It’s a scenario some are calling “The Plight of the Overworked Nonprofit Employee.”
If these advantages and disadvantages are inline with your expectations of starting a nonprofit, the next section will cover everything a new nonprofit needs to be successful.
Advantages of Starting a Nonprofit
Eternal Life: Nonprofit organizations (just as for-profit organizations) can exist long after their founders leave as long, as their purpose stays relevant and they continue to generate revenue. The oldest company in the world, the Kongō Gumi construction company in Japan has been around for nearly 1,500 years.
Organization at Scale: If you are a mission-driven individual who wants to make the world a better place, organizing a nonprofit around your chosen cause is the best way to build a team to expand your efforts and make a bigger impact.
Protection from Personal Liability: Employees of nonprofits are not personally liable for the debts of the nonprofit. This means that if someone wants to sue your nonprofit for a business-related debt, or injury, they can only go after the corporate entity, not the personal assets of its owners.
Tax-Exempt Status on Net Income: Nonprofits do not pay taxes, so all earnings can be cycled back into the organization.
Public and Private Incentive to Help You Out: Donations made by individuals and corporations are tax-deductible, thereby incentivizing people to contribute to nonprofits. All you have to do is create a clear mission and a strategy to collect donations. I will cover both of these areas in this article.
Grants Eligibility: An additional source of funding for nonprofits is through government grants.
Employee Benefits: If your nonprofit has enough employees, it may qualify for group discounts to health or life insurance programs.
Formalized Structure: Incorporating a nonprofit can allow you to create formalized roles with job descriptions and responsibilities, which can attract more professional and skillful candidates to work with you.
Volunteer Board Members: Typically, nonprofits do not pay their board members, which can save a lot of money. Another pro about board members is that they bring a variety of valuable skills, expertise, and greatly expand your network.
Highly Motivated Employees: Research shows that nonprofit employees are highly motivated by intrinsic rewards like achievements of their clients and a good work/life balance, rather than pay. This means you can expect to attract employees who care about your nonprofit’s purpose and want to help you make a difference in the world.
Disadvantages of Starting a Nonprofit
Time and Money: Starting a nonprofit is likely to take months of preparation and devoted work. It can also cost up to $800 just to submit your application to the IRS. Depending on your bandwidth and knowledge, you may need to hire a consultant to make sure you’re filing everything correctly.
Continued Maintenance: All nonprofits are required to submit annual filings and comply with all laws of incorporation. There are also quite a few activities which may jeopardize a nonprofit’s status (like lobbying). Note that legal requirements differ from country to country. See here for Canadian requirements.
Prohibition from Political Campaigning or Lobbying: nonprofits which engage in attempts to influence legislation risk their tax-exempt status.
How to start a nonprofit Public Scrutiny: Anyone may request copies of any nonprofit’s filings and review their expenditures, salaries, and income. If your nonprofit will have a large public facing, you can expect some scrutiny over how you handle administrative expenses. There are always articles about overpaid nonprofit CEOs being published. Just take a look at this image that showed up in my Facebook feed and received hundreds of comments (whether true or not).
No Profits: No individuals or shareholders can receive profits from your nonprofit. This can make it more difficult to generate interest from potential investors.
Volunteer Board Members: Volunteer Board Members can be a pro and a con. From a con perspective, sometimes it may be had to activate your volunteer board to contribute to achieving goals.
Funding Difficulty: While listed as a pro before, getting funding for your nonprofit can be a constant struggle. Given that there are over 1,500,000 nonprofits in the US alone, there is high competition to receive funding from donors, funds, and grants. Many nonprofits hire professional grantwriters to give themselves a better chance.
Overworked Employees: Small to medium-sized nonprofits typically have tight budgets and only a handful of employees, meaning more work for less pay. It’s a scenario some are calling “The Plight of the Overworked Nonprofit Employee.”
If these advantages and disadvantages are inline with your expectations of starting a nonprofit, the next section will cover everything a new nonprofit needs to be successful.
