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The Ultimate Guide on How to Start a Nonprofit Organization

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I have a long-time friend who, over the past year, has worked hard to establish his own nonprofit organization. All of the time he spent organizing, planning, and networking to get his organization off of the ground really impressed me.

How to start a nonprofit organization

One thing he said to me, frequently, was that he wished he had more guidance.

He was astounded by the maze of regulations and steps needed to make his organization a reality. All of the research he had to do and donors he had to speak to were a challenge, but in the end, he was successful and now has a growing political education nonprofit here in Washington D.C.

How to Start a Nonprofit Organization

My friend’s lament spurred me to build this ultimate guide to starting your own nonprofit organization from nothing. W In the below guide, I’ll cover legalities, necessary paperwork, and specific steps to create a nonprofit infrastructure that can survive long term.

1. Research like you’re preparing a for a dissertation

Few successful business owners start a company without doing tons of market research into the viability of their product or service. The same principle applies to people who want to found a nonprofit organization.

When researching for your prospective nonprofit, there are several questions you should consider to figure out if your nonprofit is viable.

The questions you need to answer:

  • What problem or issue are you looking to address?

You should be as specific as possible when pinpointing your issue. By establishing a niche, your chances of intersecting with other organizations decreases.

For example: Young Americans for Liberty and Students for Liberty are both politically oriented nonprofits with similar views, but one (YAL) specializes in college activism while the other (SFL) deals in philosophy education.

  • How many other organizations exist to address this issue?

While other organizations may exist to deal with an issue, this does not rule out the viability of your own nonprofit.

  • If others exist, what do you bring to the table that they do not? (aka: your secret sauce)

This is why multiple organizations exist to solve a common issue. Each organization has a secret sauce, whether it be a strong network, talented staff, or a unique strategy for dealing with the issue (advocacy, education, fundraising, etc.).

  • How many people out there want to see this issue addressed? If not many do, are there ways you can make them interested?

Just like starting a company, there has to be demand for what you are proposing. However sometimes people don’t know what they want until you show it to them. So if there is no significant demand for what your nonprofit is offering, you should have a plan to make them interested or abandon the idea altogether.

  • Do you have the resources and connections necessary to make this organization a reality?

If not, where do you propose these resources will come from?

  • What is your timeline for rolling out this nonprofit?

When would you like to see your organization up and running?

Once you’ve answered these questions, you should have a decent idea about the viability of your organization as well as your niche and market. However, before you act on this information, it’s important that you tackle the legalities of your organization first.

Addressing the legal hurdles of creating and running a nonprofit:

There are unique tax laws to abide by (which I will address later in this guide) and failing to make yourself familiar with these laws can and will cost you your preferential status. Not only will you navigate the federal government’s behemoth set of laws, but tax law also differs depending on which state your organization will reside in.

The IRS has plenty of guides on how to apply and maintain your nonprofit status, and each state has their own resources on how to do the same. If legalese is foreign to you, consult experts on the matter rather than applying blind. If you can’t afford a nonprofit attorney, the next-best resource would be other nonprofit founders, though a specialized lawyer is frequently better.

2. Name and incorporate your nonprofit

If you passed the research stage and realized that there is enough evidence to justify starting your nonprofit, the next step is making your organization official.

Starting off you will need a name. As easy as that sounds, choosing a recognizable and effective name is too-often a challenge.

For example, in the 1950’s, after spending tons of resources researching new names for their supposedly “revolutionary” new sedan, the Ford Motor Company settled on naming their biggest failure after the founder’s own son. This colossal failure was the Edsel. While the name wasn’t solely responsible for its demise, it has been attributed as one of the many reasons, because “Edsel” is hard to pronounce, was not a well-recognized name among potential buyers, and didnt evoke the “coolness factor that Ford was looking for.

While your nonprofit’s name won’t guarantee success or failure, it’s key to establishing an effective identity. Nonprofit names can’t be too long (unless that long name is formed into a clever acronym), and it’s best to make sure it isn’t easily confused with similarly named organizations. (For example, the American College of Pediatricians is NOT the same thing as the American Academy of Pediatrics.)

Entrepreneur has solid tips for naming your business, and their tips easily translate to nonprofits:

  • The name needs to sound good when it’s said out loud
  • Use a name that has meaning to it and conveys benefit
  • Avoid “web 2.0” syndrome (Ex: Avoid “u” in lieu of “you”)
  • Beware of initials (Ex: IBM)
  • Use specific details about your business
  • Make sure you can trademark the name

Once you’ve settled on a name, it’s time to incorporate.

Incorporating

Incorporating your nonprofit will give it the formal structure and the credibility that it will need to promote your programs and benefits to the public. Other benefits of incorporation include limiting the liability of your organization’s directors and personnel in legal situations. Furthermore, the IRS requires documentation and structure similar to incorporated businesses.

And it’s always better to be pre-emptive when dealing with the IRS.

From there, you have to decide where your nonprofit is going to live. According to Nonprofit Hub, the most highly recommended states for starting a nonprofit are Idaho, Oklahoma, Utah, and Texas due to their licensing regulations, zoning laws, and other minimized constraints. Community Enterprise Law also makes the case for my home state of Delaware as an attractive location for incorporating your nonprofit, because it doesn’t have a separate nonprofit corporations statute and requires fewer approvals than most other states.

The point is, if you can help it, you don’t have to settle for whichever state you currently reside in. Shop around and find out which state will offer the most benefit to your new organization in the short and long run.

After you’ve settled on a state, it is time to draft your articles of incorporation. Think of your articles of incorporation as your organization’s constitution. It contains the name, address, head of the organization, purpose or organization, declaration of disengagement from political and legislative activities, and a declaration of intention to distribute all assets to either another organization or government agency upon dissolution of the nonprofit.

These last three aspect are very important for nonprofits, because these statements will be the crux of making your case for 501(c)(3) tax exempt status with the IRS. This tax status is what sets your organization apart from standard for-profit businesses.

Sounds intimidating, right? Luckily there are plenty of free templates out there to help you draft your articles of incorporation:

(templates ordered alphabetically)

3. Develop a business plan

Wait, why would you need a business plan for your nonprofit? You aren’t in the business of making it big—you just want to help others, right?

There’s a lot of debate over whether your should treat your nonprofit like a business or not, but the business plan falls out of that debate. Regardless of your nonprofit’s intentions, you will have to demonstrate its viability to major donors, prospective board members, and to banks if you plan on applying for loans. If nothing else, a business plan will help serve as your guide to make sure your nonprofit stays on the right path during rough times.

The Balance has a comprehensive list of everything you need to include in your nonprofit business plan:

  • Executive Summary: A clear overview of the business plan, including your mission, your unique assets (always remember to sell your secret sauce!), your programs, and your financing proposals. This section forces you to boil down what your nonprofit is all about in a form short enough for donors and lenders to reference.
  • Organizational Structure: Not only do others have to know what your organization intends to do, they need to know how the ship is run. Be sure to include either a written description of your organization or some sort of visual aid such as a chart.
  • Products, Programs, and/or Services: Don’t go skimp on the specifics on what you will offer for the money that is being given to your organization. Be sure to list out the programs, functions, and beneficiaries of your nonprofit.
  • Marketing Plan: How will you sell these products, programs, and/or services in the court of public opinion?
  • Operational Plan: How will your offerings be delivered? Where will your operations be located? What assets do you currently have to deliver on these programs and services?
  • Management and Organizational Team: Who is at the wheel of all of these programs?
  • Capitalization and Financial Plan: What finances are you currently sitting on? What more do you need to become fully operational? Where do you plan on obtaining that funding?
  • Appendix: This is where you will put all of your lists of key staff and their resumes, important charts and graphs, any promotional material, and, once available, your annual reports.

Your business plan isn’t a static document either. It is a living framework that should update along with the changes in your nonprofit’s outlook and goals. After your business plan is built, it’s time to start focusing on who will serve on the board of your nonprofit.

4. Select your board members

It’s time to begin the search for your nonprofit governing dream team, AKA your nonprofit board of directors.

Your board of directors is meant to provide credibility, council, and direction to your organization to make sure that it is achieving its mission. Selecting the right board members is a tedious, but important process.

Board members aren’t just figureheads for your nonprofit. Each member is meant to provide relevant skills or expertise in the area of steering an organization in the right direction.

Nonprofit Information has put together a few rules to abide by while on the search for board members:

  • Decide what the board should look like

Think of every major team you’ve ever known, whether it be a sports team, a creative team, or even a superhero team like The Avengers.

Each team member has a particular skill to offer. Captain America has his shield and superhuman soldier abilities, Black Widow can infiltrate and crack skulls, Iron Man blows things up in his Mark V suit, Hawkeye never misses with is bow and arrow, Thor sees every head as a nail with his hammer, Mjolnir, and the Hulk smashes everything in sight. There are obviously more Avengers, but you don’t have all day to witness me geeking out.

The point is, each person has a specific job to do and fits neatly into your nonprofit’s system. The members that will make up your board ought to have professional and relevant skills, such as fundraising experience, significant networking abilities, or a financial management background. The more diverse in experience, the better. Find exactly what kinds of skills and personalities that you need in order to run your organization effectively though and leave it at that. There isn’t a magic number of board members to hit.

  1.   Establish a nominating committee that reflects the board’s strengths

When selecting members to make up your board, make sure that you have the input of people who have the best interests of your organization in mind. Sometimes it is hard to see the bigger picture if you are the only one searching for members without the perspective of other contributors.

If your strength is organization and keeping everyone on task, then it is obvious that your role on this nominating committee ought to be executive director. Each member of your nominating committee ought to have some unique insight into the organization, whether that be in networking, fundraising, marketing, management, etc. These committee members will have different perspectives on admitting new board members, which in turn will lead to a more diverse board overall.

  1.   Look for a search firm that aligns with your organization’s priorities and values

Selecting a good board may also require outside help. Luckily there are a number of search firms available for aid. Finding and choosing the right one is the hard part.

In order to find the right search firm you must ask the right questions, such as:

  • Do you have any experience working with organizations in our field?
  • What does your search capacity currently look like?
  • Do you have any past clients willing to speak kindly on your behalf?

Questions such as these will help you determine if the goals and aspirations of a search firm will mesh with the mission of your nonprofit organization.

Be sure to check out this list of the top five nonprofit executive search firms.

  1.   Don’t compromise the quality of the board

No one means to elect a low quality board of directors, but poor decisions sometimes happen. The most common pitfall distills to emotional ties. Just because you have a friend or family who is looking for a board seat doesn’t mean they ought to get the job.

Don’t feel compelled to fill seats for the sake of filling seats. What is most important is that your nonprofit organization has a board that understands your mission and will do whatever it takes to see that those goals are met.

5. Develop a fundraising plan

Fundraising is the cornerstone of any nonprofit organization, so it is important that you take care when developing your first fundraising plan. Your fundraising efforts will determine the future of your programs, you potential expansions, and how prospective donors will view you in terms of credibility. Consider investing in fundraising software to jumpstart this process.

The Fundraising Authority has developed a solid, replicable framework for nonprofit fundraising plans:

  • The Goal

Similar to the “where do you see yourself in five years?” question you were probably asked in college, it’s best to begin your framework with the end in mind. In this case, what is your fundraising goal within a set period of time? In order to determine this number more research will have to be done to assess the estimated costs of your programs, services, and infrastructure of the organization.

  1.   The Mission / Your Message

Just like your business plan, your fundraising plan should include a declaration of what you intend to do with the funds raised, what your message is, and what your operating budget is.

  1.   The Tactics

Now that you know how much you will need and what it will go towards, it’s time to develop the methods you will use to raise this money now and in the future.

Fundraising tactics often include:

  1.   The Timeline

How long do you expect your fundraising campaigns will take to raise your stated goals? Timelines are perfect tools for transparency and accountability, so your nonprofit organization doesn’t lose sight of what it needs and when it needs it to be successful.

Now it’s time to start fundraising!

6. Begin fundraising and setting up programs

Now that your organization has been pieced together with leaders, a board, a mission, your tax-exempt status, and your plans, it’s time to put those plans into action and begin fundraising.

Your first fundraisers are important, because just like first impressions, they set the tone for what your organization is all about. This is the first time that prospective donors will hear from your nonprofit and you have to make your case on social media, at events, and through direct mail.

Your campaigns should feature the issues you intend to solve along with quick summaries about what your nonprofit can do to make these solutions a reality. Create marketing videos or social media images (since visuals perform far better than text alone) that sell these messages to new or prospective donors and followers.

At Capterra, we have plenty of resources on our nonprofit blog to help you make the most of your fundraising campaigns, including:

There are many other tools to reference, including membership management software, fundraising software, and other nonprofit software to help digitize your entire operation.

Other nonprofit resources

As stated before, our nonprofit blog is a treasure trove of information for nonprofits, not only in fundraising, but for leadership, technology and new software. If you want to stay up-to-date with all of the latest nonprofit trends, check out these blog posts:

Also, follow me on Twitter @TheNickTerra for nonprofit updates and clever quips in 140 characters or less.

Did you enjoy this article? Use it? Did I miss any points on how to start a nonprofit organization? Be sure to let me know in the comment section below!

Looking for Nonprofit software? Check out Capterra's list of the best Nonprofit software solutions.

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About the Author

Nick Morpus

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Nick Morpus is a Content Writer for Capterra, a free resource that matches buyers and sellers of business software. He has a background in politics, economics, and journalism, which he dedicates his off-time to contributing his thoughts to other political sites. In his free-time he enjoys reading, playing guitar, writing, cooking, and dominating the world of video games.

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