The Beginner’s Guide to Starting a Nonprofit

Take a second to think of all the best pairings in life: peanut butter and jelly, mimosas at brunch, pineapple on pizza. One of our favorite pairings? The combination of an entrepreneurial spirit with the strong desire to do good for society.  

If you’re an altruistic entrepreneur with a big idea to change the world, you may have explored the idea of starting a nonprofit. And while you have the enthusiasm and the drive to make it happen, you also need the know-how. What do you do next?   

Read on for a crash course in making your nonprofit dreams a reality.  

Step 1: Make sure your mission is crystal clear:

Eureka! You have your brilliant idea. You’ve now got to turn that idea into a mission statement. A mission statement is necessary for clearly communicating what your purpose is and how you’ll use that purpose to serve a specific community. (Stay tuned for our post next week on writing a killer mission statement!)  

Your mission statement will only succeed with specificity and clarity. Consider:  

• Have you done adequate market research to determine the needs of your community?  
• Are there other organizations already responding to those needs? Where do you fit in? 
• Have you considered alternatives to starting a nonprofit? Nonprofit, for-profit, or hybrid model – it’s important to understand which will work best for your goals.  

Once you’ve written your mission statement, it’s time to iron out some of the nitty-gritty in your business plan. Will you keep with a traditional plan or go for a lean startup model? It’s entirely up to you… the most important thing is that you have one!   

Step 2: Choose your location carefully:

Choosing a physical location for your nonprofit isn’t so different from a small business owner’s search for the perfect brick-and-mortar. Be mindful and take your time with this step to ensure that you stay within your budget, as location can dictate everything from property costs and insurance premiums to minimum wage laws and salary standards.  

Depending on your mission and structure, you may not need a physical storefront. But your choice of where you’re based will determine certain legal paperwork requirements for running a nonprofit organization.  

Each state has a different application to form a legal nonprofit corporation, and 41 states plus the District of Columbia currently require nonprofits to hold a charitable solicitation license.   

Step 3: Find your people, form your corporation:

You’ve found your home sweet home, and now you’re ready to incorporate. Congratulations! Often, you’ll start by simply contacting the state’s Attorney General or Secretary of State. Each state has different protocols, though, so it may be helpful to use the contact list provided by the National Association of State Charity Officials (NASCO).  

Forming a legal nonprofit corporation will help you to establish credibility in your community, and it’s a required step before obtaining 501(c)(3) nonprofit status.  

Most states adhere to the IRS standard that a minimum of three officers of the nonprofit corporation be named: a secretary, a treasurer, and the board president/chairperson.   

Now’s a great time to re-evaluate your team picks for any gaps.   

• Do any of your board members come from the community you’ll be serving?  
• Are you pleased with the diversity of voices and backgrounds that you have?  
• Are you confident in your team’s ability to make sound decisions and fulfill the various legal responsibilities of a nonprofit board?  

Step 4: Seal the deal with 501(c)(3) status:

Once you’ve completed Step #3, you’ll have 27 months to apply to the IRS for your charitable status. While legal counsel can always be helpful, filing under section 501(c)(3) can be an entirely DIY process. The IRS provides helpful resources, including this video explaining the process.  

Along with your paperwork to file for tax exempt status, you will also be required to pay a user fee of $275 or $600, depending on which form you choose to apply with.  

And now…you wait. Your application can take anywhere from three months to a full year to process. While that might seem like a long time to be in limbo, remember that you earned a PhD in patience from the school of pandemic lockdown restrictions. You can handle anything!   

Step 5: Apply for your license to legally fundraise:

Stop! Do not pass go, do not collect $200… unless you’re in one of the nine states that don’t require a charitable solicitation license. These rules don’t apply to you!  

If you’re looking to (legally!) raise funds in one of the 37 states that do require registration with a state agency, you’ll need to get that license first. Be aware that if you are operating in one of those license-free states but looking to raise funds in another state that does require a license, you need to register with each state you’ll be fundraising in.  

This is a critical step in fulfilling your requirement as a 501(c)(3) public charity to pass the IRS public support test that one-third of your operating budget comes from the community.   

Step 0: Consult an accountant:

Step zero for any organization, nonprofit or for-profit, is finding a knowledgeable accountant to maintain your financial health. There are plenty of ways to lose your tax-exempt status, so it’s always smart to seek help when preparing your annual federal, state, and local reporting and renewal documents.  

Know Your Numbers is here to help set your organization up for financial success. Contact us today to get started on building a nonprofit that will change the world!  

Which steps do you find most intimidating or confusing? Let us know in the comments below and we’ll dig into them further in future blog posts!