Starting a Nonprofit Series: SHOULD I start a nonprofit?
This is the first in a series of posts describing the process of becoming a tax-exempt organization.
One of the most common questions I have encountered is “How do I start a nonprofit?” The next question is “How long will it take”. One question I don’t hear often enough is “How much will this cost?” The real question should be: “SHOULD I start a nonprofit?”
If you are thinking of starting a nonprofit organization, the first step is to really dig deep and think about the process. Write down your thoughts as reference for your tax-exempt application.
What do I want to accomplish?
Part of applying for tax-exempt status is being able to articulate on the application what you will be doing and how it will make the world a better place. You need to a very clear picture of what you’re going to accomplish. This is your mission and everything you do will flow from that.
Who will you serve? Where are they? What is the need? Can you point to objective research to ground your plan? What resources will you need? Will a person with no background in your area be able to understand what your organization does?
Is anyone else doing this work?
Before you do anything, do some research and find out if anyone else is already doing what you would like to do. There are so many nonprofits out there and many are duplicating efforts and in direct competition for the same dollars. Can you point a niche that isn’t being served? Is there a larger or established organization that could provide the infrastructure to carry out your mission? Can you volunteer or partner with them?
Can we survive three to five years on our own?
Funders generally won’t help start up nonprofits. Groups like the United Way want to see an established organization where they can make a solid investment. Funders usually want to see three years of audited financials as part of the application package.
Take a close, hard look at what you want to accomplish. How much money do you really need to make that work? How much cash do you have committed to make that happen?
What is a nonprofit and would I benefit from this structure?
Generally speaking, a nonprofit (used interchangeably with charity, 501(c)(3), or tax-exempt organization) is an organization formed to accomplish some sort of public good. It is recognized by the Internal Revenue Service as providing a public service under the tax code section 501(c)… hence the term 501(c)(3).
Most funders require 501(c)(3) before making grants. The other benefits are being able to solicit donations and in Maryland, a sales tax exemption which is a big help with major purchases (and over time the savings adds up office supplies). Are these things that will make a difference in your ability to carry out your mission? It is okay if it doesn’t!
Can I afford this?
Start to finish, achieving tax-exempt status is going to take upwards of two years (you have 27 months) and will cost in the neighborhood of $2,500 in fees to the various federal and state agencies.
Do I have enough help?
Getting started, you need an initial board of directors. For the IRS, the minimum seems to be five but seven is the optimal number. The IRS is looking to ensure that two people can’t dominate the organization and with only three, that can happen.
Do you know four to six other people with the same vision? Are they willing to contribute the time? Applying for tax-exemption is a big job and many hands make light work. Will they take on pieces of the process? Can you count on them? Do they have deep pockets and want to support financially?
If you can’t convince a group of individuals you know personally to support your idea, you’ll not be able to convince a group of IRS agents and funders who don’t know you!
Do you have what it takes?
Take your time. There’s no hurry. Bear in mind that you are starting a business. Yes, its a not for profit business but you still have costs to cover. Approach this the same way. The more thought and planning you do, the better and more successful your application, and over time, your organization will be in fulfilling your vision.