How To Start a Nonprofit

You want what you do to matter more. You want to make a difference in the lives of others. You believe passionately about helping the community. You don’t understand why someone isn’t doing more to help solve a social problem. These are just a few of the reasons you might be drawn to the idea of starting your own nonprofit. Social Entrepreneurship — building a business focused on impacting others — is on the rise. Even Forbes is beginning to recognize the incredible achievements of these individuals. But how do you start a nonprofit?

According to our recent report, 2016 Nonprofit Trends to Watch, the number of nonprofits in the U. S. has climbed significantly in recent years, and is only projected to climb more.

Unlike the private sector where mergers and acquisitions are common when strengths and offerings overlap, nonprofits are more likely to remain separate, to stay true to their mission.

Having served on numerous boards, and assisted a variety of nonprofits, I am frequently asked this potentially life-changing question… How do I start a nonprofit? When it happens, I often provide a general list of steps the would-be executive director would need to take, and the key, initial issues they will want to consider before launching a new nonprofit.

I believe if someone is going to do important work — like start and lead a nonprofit agency — they should do it the right way. A back-of-the-napkin sketch, for something this important, won’t generally cut it.

A solid foundation, especially from the very beginning, will help ensure success, change lives, and enable you to make the biggest impact possible. To help you build that foundation, here are 10 things you need to do, if you want to learn how to start a nonprofit.

1. Think Critically (Ask the Right Questions)
2. Do Your Homework (Collect Research)
3. Create Your Strategy (Define your Vision, Mission, Values)
4. Cover Your Bases (Check with Legal / Accounting)
5. Build Your Leadership Team (Identify & Recruit Board Members)
6. Expand Your Reach (Recruit Volunteers and/or Staff)
7. Fund Your Mission (Get Good at Fundraising & Financial Planning)
8. Share Your Message (Create Your Marketing & Awareness Strategy)
9. Turn Your Plan into Action (Take Your Idea Into The Real World)
10. Track Your Success (Measure Your Results)

To help you move your dream forward, I’ve broken down these 10 things in to a series of steps you can take, to get your idea moving.

Step 1: Think Critically. Ask the Right Questions.

Before you even think about the details of how to start a nonprofit, I urge you to consider the following:

• Have you run this idea past others whom you respect for their input? Have any seasoned nonprofit leaders offered you any suggestions? Is there someone you know that could possibly mentor you during your pursuit?
• Are you absolutely clear on what client base you want to serve and how you will do so? What are the results, the outcomes, you expect to deliver, if you start a nonprofit?

Step 2: Do Your Homework. Collect Research.

• How well do you understand this client group? Are you sure you are going to provide something of great value to them, that they need right now?
• Do any other agencies currently offer similar services? If so, should you consider joining or partnering with them?

Step 3: Create Your Strategy. Define Your Vision, Mission, Values. 

• Have you developed and created absolute clarity on your agency’s Mission, Vision, and Values Statements?
• Download and complete the Strategic Planning tool, to help create a plan for success.

Step 4: Cover Your Bases. Check with Legal / Accounting.

• You should consult with an attorney and a CPA who are competent in nonprofit issues. That way, you will start off on the right track and avoid possible problems later on.
• Who is your attorney and who is your CPA?

Since this has become such a prominent topic lately I approached two friends of mine who are very experienced in serving nonprofit agencies. One is attorney, Sally Wagonmaker of Wagenmaker and Oberly , the other is Ron Marklund, CPA of Dugan and Lopatka

I asked each one to tell me what kind of questions a CPA (or an attorney) typically gets from someone who wants to learn how to start a nonprofit. Here is the advice they gave me…

LEGAL

Sally Wagenmaker, Esq.:

When someone asks me for legal guidance about starting a new nonprofit organization, I first check in with the following two questions:

A. Is this something that you need to do through a new nonprofit organization?  Why not join forces with someone else, instead of creating something new?  Client answers vary, but they typically focus on donor development, independent control, and a unique vision – all very legitimate!

B. What will be your “economic engine”?  Stated differently, why should the proposed activities be in the nature of a charity, rather than a business?   Nonprofit organizations often depend significantly on charitable fundraising rather than fee-based revenue, which is an excellent answer for tax-exempt qualification.

We then move forward with considering two key legal tracks for nonprofit development: (a) incorporating under state nonprofit law; and (b) seeking IRS recognition of Section 501(c)(3) public charity.  These steps overlap but are distinctly different. 

Much more information can be found at Wagenmaker & Oberly

FINANCIAL

RON MARKLUND, CPA DUGAN AND LOPATKA, CPA

New non-for-profits typically ask us three questions.  The first is, “What type of tax-return must we file with the Internal Revenue Service?”  The Internal Revenue Service requires all non-for-profits to file either a postcard return (990-N) or an informational return (990 or 990-EZ).  The postcard return (990-N) is generally for any entity that receives $50,000 or less in revenue for the year.  The informational return (990 or 990EZ) is generally required for any non-for-profit that receives over $50,000 or more in revenue. 

The second major question we receive is, “Is there an audit requirement?”  That question depends on where the non-for-profit is located and what kind of funding the organization receives.  We tend to ask for more details before we provide a definite answer, as an audit depends on state requirements or if an audit is required by a grant the non-for-profit received during the year.   

The last question we receive is, “How do we keep track of contributions that are restricted or grants that have specific costs that can be charged to them?”  We recommend for small non-for-profits an Excel spreadsheet that shows the restricted revenue and then the expenses applied to the contribution or grant.   

More information can be found at  http://www.duganlopatka.com/

Step 5: Build Your Leadership Team. Identify & Recruit Board Members.

This can be one of the most critical steps to take, if you want to know how to start a nonprofit designed for impact.

• How will you identify, recruit, and train, high value new board candidates? What expectations will you set for them if they agree to join you? What will be the composition of your founding board—skills, experiences, nonprofit backgrounds?
• How do you intend to use your board during those crucial first 12 months to leverage their connections, resources, experiences, capabilities? Spouses, personal friends, and neighbors excluded.
• Who are your closest advisors to help you navigate the early days? Who will bring experience in running the business side of the agency, fundraising, client services, volunteer management, bringing new connections and leveraging what already exists?

Step 6: Expand Your Reach. Recruit Volunteers and/or Staff.

• Who do you have lined up to help you with all the grunt work involved in getting the agency off the ground? What skills and experiences with nonprofits do they have?

• How will your services be delivered? Will it be by you, volunteers, paid staff?  What do you know about identifying, recruiting, and managing volunteers?
• What are you really good at and therefore should focus on, and what areas will you need help to fill in those gaps?

Step 7: Fund Your Mission. Get Good at Fundraising & Financial Planning.

• Who will provide seed money; how much will you need?
• You will need some seed money to get started. Have you created a budget and cash flow projections to help you plan your first 6 months cash needs versus expenses?
• How can you keep expenses as low as absolutely possible yet making critical investments until your fundraising strategy begins paying off?
  

Step 8: Share Your Message. Create Your Marketing & Awareness Strategy.

• If you can’t tell a compelling story, and get others interested in your cause, it will be really difficult to start a nonprofit.
• You will need to create a marketing plan for both fundraising and “friend-raising”. Do you have someone who can help you with that?
• Your marketing plan should include a vision of your brand, and story — something compelling enough to make others want to help. It should also provide a high-level strategy of the tools you plan to use, and how you plan to use them to build awareness and generate interest in your organization.

Step 9: Turn Your Strategy into Action. Take Your Idea Into The Real World.

• How will put your strategy into action and ensure everyone stays the course and aligned with the overall plan?
• How will you confront someone who may be well-meaning but not following the strategy?
• When will you commit to completing each portion of your plan? When will you contact an attorney? When will you meet with potential board members? When will you start marketing your organization?
• What is the very next step you need to take, to move your idea forward?

Step 10: Track Your Success. Measure Your Results.

• You will need a variety of reports both for legal reason and general management purposes. What kind of reporting will you and your board need to monitor your progress and to make improvements along the way?
• What kind of reporting and monitoring processes can you install to be sure everyone stays focused and on track?

This decision you want to make — whether or not to start a nonprofit — is not to be taken lightly. Ignoring any of the critical 10 components can be a recipe for disaster. Not everyone has what it takes to build a new organization. Keep in mind… just because you have a strong passion, and a great idea, doesn’t mean it’s enough to get your organization off the ground, and keep it running.

If you’re serious about learning more about how to start a nonprofit, and you think you have what it takes, I encourage you to explore your idea further. While it can be a tremendous amount of work, and require long hours, and endless resilience, building an organization with the sole purpose of helping others, can be a very rewarding experience.