This article was originally published in January 2024. It has been updated to include more relevant and current information.
In this post, I’ll address the pain points and questions that aspiring changemakers often encounter, bringing clarity and insight to the process of starting a nonprofit. I hope to inspire and empower you, offering guidance and actionable tips teaching you how to start a nonprofit.
Have you ever felt the powerful tug of empathy, urging you to make a difference in the world? Perhaps you’ve dreamed of starting a nonprofit, a platform to channel your compassion into tangible impact. Now, imagine the ripple effect of that impact, as lives are changed forever. Welcome to “The Empathy Engine: How to Start a Nonprofit” where I dive into the essential steps and strategies of launching a nonprofit organization that can make a lasting difference in society.
If you landed here after a search for “how to start a nonprofit,” I have been where you are right now. I don’t mean on this website because I’m here all day, every day. 😊 I’m referring to searching online for information about starting a nonprofit. I love helping people and have always been quick to notice issues in society that should be changed or improved. At one point I thought about starting a nonprofit, but changed my mind after trying to find information on how.
I like simple, clear step-by-step instructions when I’m doing something new. I found a plethora of sites teaching people how to do it, but none of them spoke to “me” as a regular person. I felt like the authors were already business owners or worked for companies that offer B2B services. The steps weren’t easy for me to follow and I had to look up parts of each step just to understand what they were telling me to do!
Regular readers of my work know that I am honest, authentic, and real. I’m not afraid to admit mistakes or that I don’t understand something. I didn’t understand the instructions I found that were supposed to be helping me through this process. That’s why I created this resource for people like you and I who are kind, caring human beings with a desire to make a difference in someone’s life or in society in general.
I hope I achieved my goal of creating something that provides you with the information you need to take this giant step while also communicating in a way that anyone can understand. I’ll be honest and admit that I never started my nonprofit. I didn’t decide not to move forward because I decided it was too difficult. I just wasn’t at a point where I could afford to put money into creating the business structure. I chose to start this website instead.
Contents
Understanding Nonprofit Organizations
What is a Nonprofit Organization?
A nonprofit organization, also known as a not-for-profit organization, is a type of organization that operates for the benefit of the public or a specific cause, rather than for the purpose of generating profit. It is driven by a mission to make a positive impact on society, improve quality of life, or address a specific societal need.
The Benefits of Tax-Exempt Status
Starting a nonprofit organization involves a complex landscape of legal requirements and paperwork. One of the key benefits is obtaining tax-exempt status, which not only provides financial advantages but also validates the organization’s credibility and commitment to its mission.
Enhancing financial stability
By gaining tax-exempt status under section 501(c)(3) of the Internal Revenue Code, your nonprofit won’t have to worry about federal income tax. More resources can then be directed towards fulfilling your organization’s mission.
Donors who contribute to tax-exempt organizations can claim tax deductions for their contributions, providing an additional incentive for individuals and businesses to support your cause. This is sometimes the one “selling point” that will convince bigger donors and businesses to donate to your cause. If you don’t have tax-exempt status, it could also cause donors to feel wary of the legitimacy of your nonprofit.
Having tax-exempt status will also open doors that might otherwise be closed. The ability to apply for grants and seek funding from foundations, corporations, and government agencies is often limited to tax-exempt organizations. Having this status opens up significant opportunities for financial support.
Increased Credibility and Trust
Attaining tax-exempt status is a rigorous process that involves demonstrating your organization’s purpose, structure, and financial accountability. This scrutiny by the Internal Revenue Service (IRS) provides an assurance to stakeholders that your nonprofit is committed to transparency and accountability.
Being recognized as a tax-exempt organization enhances your reputation and credibility within the community and among potential partners, donors, and volunteers. It signals that your nonprofit meets certain standards and has been vetted by the IRS. This was another part of why I decided not to move forward with starting my own nonprofit. The initial investment required and all of the requirements of getting that tax-exempt status. To learn more about exactly what the IRS requires, you can visit the 501(c)3 information page on IRS.gov.
Greater Legitimacy and Permanence
Once you have tax-exempt status, you become part of a broader network of nonprofit organizations. This gives you an opportunity to connect with and learn from experienced peers, through platforms like the National Council of Nonprofits, for valuable advice and shared insights.
Obtaining tax-exempt status ensures that your nonprofit can continue its work in perpetuity, as long as it fulfills its exempt purpose. This long-term perspective promotes stability and reinforces your organization’s impact.
Access to Expertise and Resources
Certain tax-exempt organizations, such as public charities, may also benefit from additional support, guidance, and training offered by local and state organizations, further deepening your expertise and knowledge in nonprofit management.
Key Takeaway: Achieving tax-exempt status for your nonprofit brings financial benefits, credibility, and access to resources.
Building a Strong Foundation: Board Members and Governance For Your Nonprofit
Building a strong foundation for your new nonprofit involves putting together a competent and dedicated board of directors to ensurie effective governance. This step will not only provide expertise and guidance but also establish the credibility and legitimacy of your nonprofit. If you already looked at the IRS page linked above, you know that having a board of directors is also one of the requirements to obtain tax-exempt status.
Selecting the Right Board Members
Choosing the right individuals to serve on your board is essential to the success of your organization. Look for individuals who share your values and principles, their goal(s) align with your mission, they have relevant expertise, and likely the most important thing: they are passionate about making a difference. Consider the following when selecting board members:
Skills and Expertise: Look for people with diverse skill sets that complement the needs of your organization. This could include financial management, marketing, legal, fundraising, or program management expertise. Tip: Think about your own strengths and skills and then find people who possess skills you lack or maybe you hate math, and they love finance and accounting. Perfect!
Commitment and Dedication: Look for people who are committed to the cause and willing to devote time and effort to the organization. Passionate and engaged board members can significantly impact the success of your nonprofit. You don’t want board members who could care less about dogs if your nonprofit rescues dogs from abusive situations.
This might be extremely obvious to you, but you’d be surprised how many business owners bring on a partner or manager who is intelligent, hardworking, and have an impressive set of skills they are bringing into the company—yet they have no interest in the people the company was created to serve, or they have beliefs/values that contradict the mission of the business. This is simply a reminder that someone’s personality and values are just as important as the skills they have.
Connections and Networks: Consider individuals who have connections and networks that can help your organization achieve its goals. These connections can provide valuable resources, collaborations, and funding opportunities.
Defining Roles and Responsibilities
Clearly define the roles and responsibilities of your board members to ensure smooth and effective governance. This includes:
Board Chair: The board chair typically leads board meetings, sets the agenda, and facilitates discussions. They also serve as the primary liaison between the board and executive staff.
Secretary: The secretary is responsible for maintaining accurate records of board meetings, taking minutes, and ensuring that all legal requirements are fulfilled, such as filing necessary reports and documents.
Treasurer: The treasurer oversees the financial affairs of the organization and ensures accuracy and transparency in financial reporting. They also work closely with the finance committee to develop budgets and monitor financial performance.
Establishing Governance Policies
Implementing strong policies is essential for maintaining transparency, accountability, and ethical practices within your nonprofit. Consider the following policies:
Code of Ethics: Develop a code of ethics that outlines the expected behavior and standards for board members, staff, and volunteers. This will ensure everyone involved in your organization adheres to principles of integrity, fairness, and confidentiality. The organization will run more smoothly when everyone involved is working with the same rules and guidance.
Tip: I printed a hardcopy of the ethics policy for my own business and put it in a binder to have it easily accessible should I hire employees in the future. I also have the digital version available on the website for anyone to read. Transparency is super important in gaining the trust of your community and the population you are helping.
Conflict of Interest Policy: Adopt a conflict of interest policy that requires board members to disclose any potential conflicts and recuse themselves from decisions where their personal interests may interfere with the best interests of the nonprofit.
Board Meeting Procedures: Establish clear guidelines for board meetings, including frequency, agenda preparation, and decision-making processes. Encourage open and constructive discussions to create an environment that encourages collaboration and keeps members informed. Don’t worry if you aren’t sure about every detail. You can change the procedures in the future, some of these steps are required in order to file with the state or for tax-exempt status, but can be changed at any time.
Navigating the Legal Landscape: Nonprofit Corporations and Articles of Incorporation
Starting a nonprofit organization requires a solid understanding of the legal requirements and processes involved. In this section, we will explore the crucial steps of establishing a nonprofit corporation and filing the articles of incorporation. By following these guidelines, you can ensure that your nonprofit is properly recognized and compliant with the law.
What is a Nonprofit Corporation?
A nonprofit corporation is a legal entity that operates for the benefit of the public or a specific cause, rather than for private profit. It provides a structure for organizing and managing a nonprofit organization, protecting its members, and ensuring compliance with state and federal regulations.
The Importance of Articles of Incorporation
Articles of Incorporation are essential legal documents that formally establish a nonprofit corporation. They contain information about the organization, including its name, purpose, registered agent, board of directors, and more. Filing these articles with the Secretary of State in the government of your state, or the state your non-profit will operate in, is a necessary step in obtaining legal recognition for your organization.
A registered agent is the person you designate as being responsible for all mail and legal documents on behalf of your organization. Opinions vary on whether every business needs to designate someone outside of the organization as the agent. When you file with the state, you’re required to list the name, address, and phone number of your chosen registered agent so they know where to send legal documents for your nonprofit.
I had wavered in the beginning while deciding if I needed to have one, but in the end I decided to pay an agency because, 1) it’s not expensive (I pay $49 per year) and 2) I decided I’d rather avoid a situation like this: The state sent a legal document that required my signature but I never received it and missed the deadline. In a case where I chose to designate myself as registered agent, it’s now my word against the state’s. With a company providing the service, there’s an added protection of a professional notifying the state that the form never arrived in the mail.
Drafting Your Articles of Incorporation
When drafting your articles, it’s important to include specific elements to meet legal requirements. These elements may vary from state to state, but generally include:
Nonprofit Purpose: Clearly define the mission and goals of your nonprofit organization. This should align with your charitable, educational, or social service objectives.
Statement of Exempt Purpose: Identify the specific purpose for which your nonprofit seeks tax-exempt status under the Internal Revenue Code.
Dissolution Clause: Outline the process for dissolving the nonprofit in the event that it ceases operatations.
Registered Agent: Designate an individual or entity within the state to receive legal correspondence on behalf of the nonprofit.
Filing the Articles of Incorporation
To officially establish your nonprofit corporation, you’ll need to file the articles of incorporation with the Secretary of State (or an equivalent state agency). This requires completing the appropriate forms and paying any necessary filing fees. Be sure to follow the specific instructions provided by your state for a smooth application process.
Note: I didn’t understand the process well enough, and didn’t want to get anything wrong, so I had an online service do it for me. They also serve as my registered agent. Research online services. Some of them are very affordable!
Mission of your Nonprofit: Crafting a Compelling Mission Statement
Your nonprofit’s mission statement acts as the guiding light for everything you do. It succinctly captures the purpose and goals of your organization, and it communicates your values and the impact you aim to create. Crafting a compelling mission statement is crucial in attracting support, engaging stakeholders, and defining your nonprofit’s identity and direction.
Here are some key steps to help you create a mission statement that resonates with your audience and sets a solid foundation:
Understand Your “Why”
Reflect on the reasons why you decided to start a nonprofit. What problem are you passionate about solving? What change do you want to bring to the world?
Ask yourself: What void exists within the community that your nonprofit aims to fill? What specific needs or issues are you addressing?
Define your Core Values
Identify and articulate the core values that guide your nonprofit’s work. These values should align with your mission and serve as a compass for decision-making.
Consider values like integrity, collaboration, equity, transparency, or innovation, depending on your organization’s focus.
Be Clear and Concise
Keep your mission statement concise, preferably one to two sentences.
Avoid jargon, technical terms, or excessive detail. Aim for simplicity and clarity so that anyone can understand your purpose at a glance.
Focus on the Impact
Clearly state the positive impact your nonprofit seeks to make. How will communities or individuals benefit from your work? Use inspiring language that evokes emotion and resonates with your target audience.
Describe your Approach
Briefly explain how your organization plans to achieve its mission. Highlight your unique approach or strategies, and outline the activities or programs that support your goals.
Seek Input and Feedback
Engage stakeholders, including board members, staff, volunteers, and community members, in the mission statement development process. Their insights and perspectives can help refine and strengthen your statement.
Consider conducting surveys or holding focus groups to gather input from different perspectives.
Revise and Refine
Crafting a compelling mission statement is a process. Don’t be afraid to revise and refine your statement based on feedback and evolving circumstances.
Strive to create a timeless statement that can adapt to changes in focus or strategies while staying true to your core purpose.
Remember, your mission statement should be inspiring, concise, and memorable. It should convey your goals and values. Reflect on why you decided to start a nonprofit and build off of that.
Creating a Solid Business Plan for Your Nonprofit
Going through the entire process, each step that’s required to start a nonprofit organization is a noble endeavor that requires careful planning and a solid business plan. A well-structured business plan will serve as a roadmap to guide you through the initial stages of your journey and ensure that you are on the right track to achieving your mission and goals.
If you don’t know the first thing about creating a business plan, find your local chapter of the Small Business Administration (SBA). It’s made up of business owners (unsure if they’re all retired, or just the volunteers I met with) who volunteer to help people start small businesses.
I had a pet sitting business in the past and met with them for help with a business plan, with the financial aspect of the business, and to ask their advice on hiring employees. They were extremely helpful. The service is free, so take advantage of this invaluable resource.
Define Your Mission and Goals
Start by clearly defining your mission statement. This statement should succinctly capture the purpose of your organization, why you chose to start a nonprofit, and how it aims to make a positive impact.
Identify the specific goals you want to achieve through your nonprofit. These goals should be measurable and aligned with your mission statement.
Conduct Market Research
Research the needs and challenges of the community or population you intend to serve. This will help you understand the demand for your services and identify any gaps that your organization can fill.
Study existing nonprofits in your field to gain insights into successful strategies and potential partnerships.
Develop Programs and Services
Outline the programs and services you will offer to fulfill your mission and meet the needs of your target audience.
Determine the scope of each program, the resources required, and any partnerships or collaborations needed to implement them effectively.
Create a Budget and Financial Plan
Estimate the costs associated with running your organization, including overhead expenses, program development, staff salaries, marketing, and fundraising.
Develop a comprehensive financial plan that includes projected revenue streams, such as grants, donations, sponsorships, and membership fees.
Consider consulting with experts or financial advisors who specialize in nonprofit finance to ensure accuracy and compliance with federal tax regulations. These regulations are not easy to understand, so having someone walk you through them is priceless.
Establish Governance and Organizational Structure
Determine the appropriate governance structure for your nonprofit, such as a board of directors or advisory council.
Define the roles and responsibilities of board members and ensure diversity and representation within your governing body.
Develop policies and procedures for decision-making, conflict resolution, financial oversight, and accountability.
Craft a Fundraising and Marketing Strategy
Identify various fundraising strategies that align with your mission and cater to your target audience. This may include grant writing, individual donations, corporate sponsorships, or fundraising events.
Develop a marketing plan to raise awareness about attract supporters. This may include creating a compelling brand identity, utilizing social media platforms, and networking within your community.
Key Takeaway: A well-crafted business plan is an essential part of your decisionto start a nonprofit. It provides a roadmap to guide your organization’s growth.
I saved the complicated, not-so-fun part of the process for later in the article to prevent readers from feeling so overwhelmed and discourages that they stop reading and abandon their vision.
Details About the Application Process for Federal Nonprofit Tax-Exempt Status
Applying for federal tax-exempt status is be most important part of establishing your organization. It not only provides you with certain financial benefits but also lends credibility to your cause. This section will guide you through the application process, ensuring you are on the right track to getting federal tax-exempt status.
Understanding the Eligibility Criteria
Before diving into the application process, it’s important to ensure your organization meets the eligibility criteria set by the Internal Revenue Service (IRS). The IRS recognizes certain types of nonprofits as tax-exempt, primarily section 501(c)(3) organizations. These organizations must have an exempt purpose, such as charitable, educational, religious, or scientific in nature.
Preparing the Application
To begin the application process, you’ll need to fill out Form 1023 or Form 1023-EZ, depending on your organization’s size and resources. Form 1023-EZ is a simplified version designed for small nonprofit organizations with projected annual gross receipts of $50,000 or less.
The application will require detailed information about your nonprofit, including its mission statement, activities, and structure. It’s important that you provide accurate and comprehensive answers to all of the questions in order to avoid any delays or complications.
Submitting the Application
Once you have completed the application, you will need to submit it along with the necessary filing fee. The filing fee varies based on your organization’s projected gross receipts, so be sure to check the current fees on the IRS website.
It’s important to note that the application process can be time-consuming, and it may take several months for the IRS to review and approve your application. It’s advisable to submit your application well in advance of any planned fundraising activities or events.
Working With Professionals
The application process can be complex, especially for those unfamiliar with the requirements and paperwork involved. Consider seeking assistance from professionals, such as experienced attorneys, accountants, or consultants specializing in nonprofit organizations. They can provide valuable guidance and help ensure your application is accurate and complete.
Obtaining federal tax-exempt status for your nonprofit is a significant milestone, opening doors to funding opportunities and enhancing your organization’s credibility.” —Nonprofit ConsultantClick to tweet
Fundraising Strategies for Nonprofit Success
Fundraising is an important aspect of running a successful nonprofit organization. Without adequate funding, it can be challenging to achieve your mission and make a lasting impact on the lives of those you aim to serve. In this section, I’ll discuss effective fundraising strategies that can help propel your nonprofit to new heights.
Set Clear Fundraising Goals: Start by defining specific and measurable fundraising goals that align with your nonprofit’s mission. Whether it’s raising a certain amount of funds for a specific project or establishing a sustainable donor base, having clear goals will guide your fundraising efforts.
Understand Your Target Donors: Identify who your potential donors are and what motivates them to contribute to causes similar to yours. Conduct thorough research to develop donor personas and tailor your fundraising strategies accordingly. Consider demographics, interests, past giving history, and preferred communication channels in your donor analysis.
Develop a Compelling Story: Craft a compelling narrative that effectively communicates your nonprofit’s mission, impact, and why people should support your cause. Use storytelling techniques to connect emotionally with your audience and make them feel invested in your organization’s journey.
Diversify Your Fundraising Streams: Relying on a single fundraising method can limit your financial stability. Explore diverse revenue streams such as individual donations, corporate sponsorships, grants, events, and online crowdfunding. Having multiple sources of income will protect your organization from potential financial downturns.
Engage and Nurture Donors: Building meaningful relationships with your donors is key to long-term fundraising success. Show genuine appreciation for their support, provide regular updates on your impact, and create opportunities for them to engage with your organization. Consider implementing a donor recognition program or organizing exclusive events for your supporters.
Leverage Technology: Embrace digital tools and platforms to streamline your fundraising efforts. Set up a user-friendly website that showcases your nonprofit’s work and provides an easy way for people to donate online. Utilize social media channels to amplify your message, engage with potential donors, and promote fundraising campaigns.
Grant and Proposal Writing: Investigate grant opportunities that align with your nonprofit’s mission and apply for funding. Develop strong grant proposals that clearly outline your goals, strategies, and anticipated outcomes. Seek professional assistance, if necessary, to increase your chances of securing grants.
Collaborate with Partners and Community: Forge partnerships with other nonprofits, businesses, and community organizations that share similar values and goals.
Engaging the Community: Programs and Services
To run a successful nonprofit organization, you have to engage the community through impactful programs and services. By offering valuable resources and addressing urgent needs, you can make a significant difference in the lives of those you serve.
Tailor programs to the community: Take into account the unique characteristics, preferences, and challenges of your target community when designing programs. This ensures that the services you provide are relevant, impactful, and meet the specific requirements of the people you are trying to help.
Develop a membership program: Consider implementing a membership program for individuals who want to actively support and engage with your nonprofit. Offer exclusive benefits, such as access to specialized resources, events, or networking opportunities. This not only provides a sense of belonging to your community but also helps generate additional funding to support your programs.
Foster community education: Offer educational workshops, seminars, or webinars to empower members of the community with knowledge and skills related to your nonprofit’s focus area. By providing educational resources, you can inspire individual growth, encourage community involvement, and raise awareness about the issues you address.
Continuously assess impact: Regularly evaluate the effectiveness and impact of your programs and services. Collect feedback from beneficiaries, track key performance indicators, and make data-driven decisions to improve and evolve your programs.
Making the decision to start a nonprofit and embarking on that journeycan be a truly transformative experience – not only for those you want to help, but also for yourself. By leveraging the power of empathy, you have the ability to change lives for the better. Remember, starting a nonprofit is a journey that requires careful planning, dedication, and a deep understanding of the cause you are passionate about.
Take the time to research and connect with like-minded individuals who can support and guide you along the way. Don’t be afraid to reach out to local resources and experts in the nonprofit sector – they can provide valuable insights and advice.
Now that you have a better understanding of the steps you need to take in order to start a nonprofit, it’s time to take action! Good luck!
