Written By: Tammy Drost
Have you ever thought about what’s involved in starting a nonprofit? While it’s similar to starting any business, the most significant difference is that a nonprofit provides liability protections and tax advantages that a for-profit company doesn’t, such as:
- Limited liability protection: This separates your assets from company liabilities. You, your directors, and officers are not personally liable for the organization’s debts and liabilities.
- Permanency: If you, an officer or director, die or leave the organization, the nonprofit continues.
- Grants: Nonprofits are eligible for funding through public and private grants.
So, if you’re ready to get started, come along with me, and I’ll take you step-by-step on how to get your nonprofit up and running:
Note: As you conduct your research, be sure to document all the qualitative and quantitative data. This data will help build your business plan and provides an excellent benchmark for a longer-term evaluation of your organization.
Step 1: Do your research
Any successful business fills a unique need that differentiates them from the competition. Over half of the companies that fail do so because they didn’t invest adequate time into research and planning. Nonprofits cannot survive on grants alone; they must be able to bring in revenue. To make sure you set your organization up for success, a market analysis is imperative to confirm that your market will support your organization’s financial and volunteer needs. You will want to be prepared to be able to outline your plan for financing your organization in the startup phase as well as the long-term. This will be key as you develop your business plan and position your organization for long-term success.
- Identify and understand the demographic you want to serve. This is your target audience. The US Census Bureau is an excellent resource for local demographic information.
- Will your offerings fulfill their needs and add value? Are they easily accessible?
- Are other organizations (nonprofit and for-profit) already servicing your demographic? The National Council of Nonprofits has a locator tool that can help you see what organizations are already in your area.
- If other organizations are filling this need; consider what your organization can offer that is unique or fills a niche that the other organizations don’t.
- Research and understand local, state, and federal laws that would impact your organization.
- If you are committed to moving forward after answering the questions above, perform a SWOT Analysis to identify any strengths, weaknesses, and potential challenges.
- Understand the costs of filings in each state and processing time. Harbor Compliance can help with this.
- Document your startup costs for office space, supplies, special licenses, permits, and certifications. The State Association of Nonprofits can help you identify the legal and operational requirements specific to your state and nonprofit.
- Financial sustainability Have a realistic picture of how your organization will compete for often limited resources. What will your investment of time and money be? How will you fund operational expenses and day-to-day needs?
- Make a list of the type of supporters you want, such as donors or volunteers. For each type, build a brand persona. What are the ideal characteristics for each supporter? Think about things like lifestyle, occupation, income, age, causes they are committed to, and why they might be interested in supporting your organization.
- Be able to demonstrate and measure the impact your organization is making to funders so they know your organization is worthy of their investment.
- Conduct focus groups, surveys, and interviews to find out what makes donors tick. What motivates them to give? What is the best way to communicate with them? Are there marketing channels they respond to best?
Step 2: Position your brand
Brand positioning refers to the place that your brand occupies in the minds of your customers. It distinguishes your business, products, services, and programs from your competitors.
Best practices for naming your nonprofit
- Keep it simple! Hard to spell, complicated names create brand confusion.
- Choose a name that will evolve with your business that is memorable and meaningful.
- Say the name out loud to make sure it sounds good.
- Do your research. Is anyone else using the name? Could your business be confused with theirs? Could there be a reputation issue if you used the name because another not so reputable organization uses it? Once you’ve done the research and reached a decision, secure the .com, org, and .net names so that they remain exclusive to your brand. GoDaddy.com or NetworkSolutions.com can help you check on domain availability. If the domain name is taken, you can find the owner and see if they are willing to sell it using the “Whois” tool on GoDaddy or Network Solutions.
- Secure your brand name on all social media sites that you intend to use. Even if you don’t plan to use a particular social platform, it’s always a good idea to lock down the name to keep another business from using the name or you may decide to use that platform in the future.
- Set up a Google Business page so that people can find you on Google Search and Google Maps.
- Conduct a trademark search at USPTO.gov to determine if you can get a trademark or service mark for your business name.
- If you need an LLC, conduct a Secretary of State search to make sure your name isn’t similar to a business name that’s already registered. Nolo, LegalZoom, Rocket Lawyer, or a Corporate Attorney can help with this. It may be wise to work with online legal resources or attorneys, they often have a package deal for handling all the legal requirements for setting up your nonprofit.
Create a mission statement: Think is your “WHY.” It sums up your purpose and what your organization stands for. It should be clear, concise, powerful, and provide long-term direction for your organization.
Example mission statements
Doctors without Borders: To provide lifesaving medical care to those most in need.
MoMA: To share great modern contemporary art with the public.
For more inspiration, check out these nonprofit mission statements.
Create a vision statement: Your vision statement should incorporate some elements of your mission statement while being more forward-thinking.
Example vision statements
Hunger Rights Campaign: Equality for everyone.
Habitat for Humanity: A world where everyone has a decent place to live.
For more inspiration, check out these nonprofit vision statements.
Decide on your values: Your values are the moral compass of your organization. They are the qualities that guide your organizational decisions, help you achieve your mission and vision, unite your employees and define your brand.
Example value statement: We act with integrity.
Common values include Integrity, Innovation, Courage, Transparency, Trust, Honesty, Diversity, etc.
Step 3: Develop your business plan
Just like you wouldn’t build a house without a set of blueprints, you wouldn’t build a business without a business plan. A solid business plan is necessary before incorporating your nonprofit. Potential investors, donors, and board members will want to see your business plan. Without a plan, you are going to miss out on many opportunities.
There are several nonprofit business plan templates online to help you. You can also build your plan from scratch—making sure to cover all the major areas:
Executive summary: This short overview is your elevator pitch.
Products, services, and programs: Define the unique value your products, services, and programs deliver.
Market analysis: Here you describe the market, competitors, stakeholders and revisit the SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) from “Step 1” that shows how your organization will succeed.
Marketing plan: A strong marketing plan should:
- Define your target market
- Define how you with reach your target market
- Describe how you will get support from your target market, board members, volunteers, and the community
Operational plan: Answers basic questions such as:
- Where your office is located
- Supplies, equipment, software, and technology needs
- How you plan to deliver your products, services, and programs
- What staff and/or volunteers you need
Organizational structure: Define your staff, their functional roles, departments, and organizational hierarchy. Describe what each functional role brings to the table, their expertise, and how your organizational structure will be successful. Organimi can help you create a simple organizational chart.
Financial plan: Any potential investor or donor will want to see your financial plan before they commit to supporting your organization. Your financial plan will also be needed for any grant and loan applications. If you have never created a financial plan, check out The Wallace Foundation for help. Your financial plan will also need to account for how you plan to generate revenue.
Step 4: Assemble your team
Having the right team in place is vital. You want leaders, board members, staff, and volunteers who are passionate about your mission with diverse skills and areas of expertise who can easily collaborate. At a nonprofit, there are four types of roles:
Leaders: This is the CEO, Executive Director, etc. Typically, the CEO/ Executive Director reports to the board. With other leaders reporting to the CEO/Executive Director.
Board of Directors: Board members are unpaid volunteers who offer distinct expertise. A board should be well-rounded with a diverse set of skills. The board is responsible for regulatory compliance, strategic planning, decision-making, operations support, hiring, and other high-level tasks. Finding committed board members is worth the time investment because they serve as brand ambassadors for the organization, are donors, and can help with events and fundraising.
Staff: Staff members are paid hourly or salary. The team you hire should support your operational plan and the type of nonprofit you operate. For example, if you do a lot of fundraising, hire a Development Manager. Or, if a crucial part of your revenue is memberships, hire a Membership Manager. Job descriptions should outline key responsibilities, skills, and measures of success.
NOTE: Before you hire, you must obtain an Employer Identification Number (EIN). An EIN is also required to open a business banking account in your organization’s name and for many government forms.
Volunteers: Non-paid volunteers help nonprofits with daily operations, events, fundraising, communications, marketing, and more. To determine your volunteer needs, think about:
- What areas within your organization can benefit the most from volunteers?
- What skills are you most in need of?
- What does your volunteer application process look like?
- How many volunteers and hours do you need to sustain your organization each week? Each month?
- How will you recruit and retain volunteers?
- How will you onboard your volunteers?
Step 5: Create your brand identity
Your brand identity is more than just your logo and visuals, it’s who your organization is at its’ very core. It’s your mission, vision, and values, brand voice, the market’s perception of your organization and the experience people have with your brand.
Best practices for building your brand
- Position your brand to align with and support your overall business strategy.
- Be able to communicate your mission, vision, and values.
- Connect with your target audience in a relatable and relevant way while also speaking to donors and volunteers.
- To ensure consistency, consider all marketing and communication channels and the restriction or limitations they may have in applying your visual identity and brand voice. For example, online, social media, email marketing, print, digital, large format, events, merchandise, environmental, etc.
- Keep your logo simple, compelling, relatable, and memorable to communicate who you are.
- Keep your content free of jargon and simple to understand—especially in an online environment. You lose people when content becomes overwhelming and hard to navigate. You want your content to flow and easily guide the reader.
- Train your employees, board members, and volunteers on how to deliver brand correctly and consistently through onboarding programs, brand quick guides, guidelines, templates, tools, and resources.
- Have a brand asset management system to organize brand logos, templates, guidelines, and tools in a specific location.
- Conduct routine brand audits to make sure your brand is being delivered consistently and not breaking down. If it isn’t, take steps to rectify it. If you feel the disconnect—so will your target audience.
NOTE: When it comes to branding, you get what you pay for. If you want a compelling and unique brand, it is worth the cost of a designer or agency specializing in brand development for nonprofits.
Step 6: Address, legal, tax, and compliance matters
Legally incorporating your nonprofit is a multi-step process. It’s similar to creating a regular corporation with a few extra steps to secure federal and state tax-exempt status. Different types of nonprofits and their structures and impact on tax status may vary from state to state. It’s essential to make sure you understand your state regulations to get your legal structure right.
To get started:
- Contact your state’s corporate filing office: The Secretary Department of State’s office typically can provide a packet of materials that will aid you in forming your nonprofit. The packet often includes sample articles of incorporation, a list of filing fees, and forms and instructions on how to determine if your business name is available.
- Choose an available business name: Refer to your nonprofit packet and legal and state requirements to be sure your name meets the requirements of state law (See “Step 2”)
- File “articles of incorporation”: You can do this through an online legal service such as Nolo, LegalZoom, or Rocket Lawyer through a private attorney or the Secretary of State for your state. Note that some states use the terms, “articles of organization,” “certification of incorporation,” “certificate of formation,” or “charter” instead of “articles of incorporation.”
- Apply for your federal and state tax exemptions:Your state tax exemption will be automatically granted in some states when you obtain your 501(c)(3) tax-exempt status. Other states require a separate application for state exemption, while others need a copy of your IRS determination letter confirming federal exemption. Contact your state tax agency to find out what steps you must take and the requirements. The main (standard) form for tax-exempt status is IRS Form 1023 (long-form). The IRS Form 1023EZ (short form) is more straightforward. Check to see if you qualify for the shorter form because it will save you time and money.
- Create corporate “bylaws”: Bylaws are internal rules that govern your nonprofit corporation. They include rules and procedures for holding meetings, voting on issues, and electing directors and officers. You can create bylaws using self-help legal sites or a local attorney. The corporation’s directors adopt bylaws at their first board meeting.
- Appoint the initial board of directors: Some states will require you to choose your directors before your file articles of incorporation so that you can list their names. Directors have the authority (and responsibility) to manage and run the nonprofit corporation. While some states allow nonprofits to have just one director, other states require at least three.
- Hold a board of directors meeting: Directors should use the first board meeting to conduct the initial business of the corporation and address formalities, such as recording the receipt of federal and state tax exemptions. Directors will also need to adopt the bylaws and elect officers—state law usually requires a president, secretary, and treasurer, and sometimes a vice president. Directors then authorize newly elected officers to take actions necessary to start the nonprofit’s business, such as setting up bank accounts and admitting members. Once the meeting concludes, meeting minutes need to be created and completed, and filed in your corporate records book.
- Obtain licenses and permits: Check with your State Department of Consumer Affairs (or similar state licensing agency) for your state licensing and permit requirements for your type of organization.
NOTE: A local attorney can work with you, or online legal service such as Nolo, LegalZoom, or Rocket Lawyer will typically have a package rate for establishing your nonprofit. If you plan on a do-it-yourself approach, be sure to be thorough, and it’s always advisable to consult with an attorney.
Step 7: Secure startup cash
Funding is one of the most challenging aspects of getting your organization off the ground. Most nonprofits secure startup funding through grants. Nonprofits can use grants to fund services, programs and program development, operations, and capital expenses. Applying for grants is time-consuming and requires someone with grant-writing skills to write a winning application.
Tips for writing grants
- Have an experienced grant writer on your team, or someone to mentor you or willing to trade professional services.
- Source grants that are aligned with your mission, vision, and values.
- Start with small grants and build up to larger grants.
- Read the grant requirements carefully, making sure you can meet them if awarded the grant.
- Invest the time and effort into writing a good grant.
Step 8: Get down to business
By now, you should have your nonprofit up and running from a business, legal, and compliance standpoint. Now, it’s time to shift your attention to operations. In this step, you will want to focus on:
Building relationships: This is an opportunity to build brand awareness of your brand, alliances, attract potential partners, donors, volunteers, connect to resources, and build a rapport within the community you serve. Utilizing a combination of marketing and communication channels can help with this.
Location: Determine what type of space you need short-term vs. long-term. If you’re working out of a home office, set up a PO Box for mail (for professional and safety reasons, you won’t want to use your home address). If you need a space for staff and volunteers, a local realtor can help you find a location that meets your needs and budget.
Online presence: Often, the first interaction people have with your brand is online, so you want to have a strong online presence.
- Website: A user-friendly, well-written site should provide information about your organization, mission, vision, values, upcoming events, a blog, email signup list, resources, and links to your donor and social media platforms.
- Social Media: This is one of the best ways to get FREE marketing, build a following, engage with potential donors and volunteers, share information, updates, upcoming events, and fundraising activities. It’s not necessary to be on every social media channel available. It’s more important to be on the social channels that your target audience is frequenting. Quality is more important than quantity so take some time to determine which platforms or combination of platforms are best for your nonprofit.
- Google: Set up your free business profile on Google to help you connect with your audience across Google Search and Google Maps.
- Marketing plan and content strategy: If you’ve already done this as part of your business plan, now is the time to refine it and add in critical details. Be proactive versus reactive with your marketing and content strategy. Without a well-thought-out marketing and content plan, the result is a lot of wasted time and effort.
Team: Put effort into recruiting and hiring the best person for the job.
- Job descriptions: Position your team for success with realistic job descriptions and expectations. Decide what you need and hire for that expertise. For example, if your most urgent need is fundraising, google “Job Description for NonProfit Development Director” as a starting point. If you’re hiring for a specific role, you are hiring a particular skill set and should not expect that person to perform other jobs they aren’t qualified for. Bridgespan provides some sample job descriptions for nonprofits. You’ll also want to develop a job description for board membersand an application for volunteers.
- Onboarding: Anyone working or volunteering for your organization should go through onboarding training to familiarize them with your policies, procedures, brand, and expectations.
- Employee engagement: Once you have a great employee, you don’t want to lose them. Keep your staff excited about their role within the organization, give them autonomy, promote from within and have a solid retention strategy in place.
Tools: It’s easy to get overwhelmed with all the platforms, systems, and tools available. Less is more here. The important thing is that your tools are user-friendly, accessible, communicate with each other, and free you and your team up to do more meaningful work. You want your tools to work together. Tools you’ll want to explore include:
- Donation platform
- Email marketing software
- CRM System
- Google Analytics
- Social Media Dashboard
- Project Management
Step 9: Know where your funding is coming from
Nonprofits cannot survive on grants alone; they must be able to bring in revenue. It’s essential to know where the funds are coming from.
Online donation platform: An online platform is one of the easiest, user-friendly, and accessible ways to fundraise. You’ll want to do your homework to determine which Donor Platformis best for your organization.
Funding models: Get to know the different funding models and decide which one or combination of options is the one that will best support your organization.
- Individual donors: Individuals who are one-time or recurring donors—often volunteers, community-minded people who donate through an online platform, fundraising events, etc.
- Grants: Local, state, and federal government agencies, as well as public and private foundations, provide grants. There is an application process, and grants do not require repayment.
- Corporate sponsorships: Corporations provide funding through one-time and recurring donations, individual giving, event sponsorships, or fundraising activities. Many corporations offer their employees a donor matching program where they match donations made by their employees.
- Membership fees: A prime example of this is a credit union fee. For example, a $20 member fee allows you to open a checking and savings account, apply for a loan or participate in a program while generating revenue for the credit union.
- Sale of products, services, and programs: To bring in revenue, a nonprofit can sell branded merchandise. For example, Habitat for Humanityhas a brand store where 100% of the profits support Habitat’s work. Organizations can also charge admission fees, sell tickets, charge dues, require tuition, have raffles, paid programming, and more to generate revenue.
- In-kind donations: Many non-profits accept donations of supplies, resources, and materials they need to serve their target audience. For example, Habitat for Humanity has an in-kind donation program that accepts building materials, appliances, furniture, and more.
- Crowd-funding: The practice of funding a project or venture by raising money from many people via an online crowdfunding platform.
Step 10: Position your nonprofit for long-term success
Now that you’ve done all the hard work, it’s essential to make sure your nonprofit remains compliant with tax, legal, licensing, and certification requirements. To do this:
- Have a 3-5-year strategic plan in place that clearly defines your mission, vision, organizational business goals, funding, marketing plan, and how you will track and define success.
- Create Key Performance Indicators (KPIs) that help you stay on target with your goals and track and measure performance.
- Keep all records up-to-date and accurate.
- Keep employee, donor, and volunteer information secure.
- File the IRS 990 Form
- Pay taxes on unrelated activities over $1,000.
- Abide by your nonprofits Bylaws and Articles of Organization
- Govern board meeting schedules and minutes
- Keep any licenses and certifications up to date, renewing any that are due to expire.
- Ensure your organization is aware of trends and aligned with regulations that are specific to your industry.
- Be proactive in identifying relationships, alliances, and partnerships that will help grow your organization.