How to Start a Nonprofit: 12 Essential Steps for Success
Do you have an idea for an organization that will bring good to the world and serve a charitable purpose? You might be inspired to bring your idea to life by starting a nonprofit. There are over 1.8 million registered nonprofits in the United States, making these charitable organizations a staple of modern society.
However, any new nonprofit needs a strong foundation to thrive. Around 30% of nonprofits cease to exist within 10 years of their founding. Further, a Concord Group Study found that 49% of nonprofits don’t have a strategic plan. These statistics underscore the importance of establishing a clear purpose and solid plan for your organization to ensure its longevity.
This guide will teach you what you need to know to get your new organization up and running. We’ll cover:
No matter what type of nonprofit you’re looking to start, this guide will provide you with the common steps that all organizations need to follow.
Starting a Nonprofit: Basic FAQs
What is a nonprofit?
In the U.S., the IRS defines nonprofits as “Organizations that are organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational or other specified purposes.” In contrast to for-profit organizations, nonprofits rely on donations, usually a combination of individual donations, grants, sponsorships, and corporate donations, to fund their operations and further their charitable missions.
What are the different types of nonprofits?
In addition to charitable organizations, the IRS distinguishes many other types of tax-exempt organizations with the 501(c) designation. Here’s a quick overview of some of the organization types that fall under 501(c):
- 501(c)(3): Charitable organizations, churches and religious organizations, private foundations
- 501(c)(4): Social advocacy or lobbying organizations
- 501(c)(5): Labor, agriculture, and horticulture organizations
- 501(c)(7): Social and recreational clubs
There are many other distinctions in this category—read the full list of other tax-exempt organizations here. However, most individuals looking to start a charitable organization create 501(c)(3) organizations. That’s because donations to these organizations are usually tax-deductible for the donor, making it easier to raise funds.
How much does it cost to start a nonprofit organization?
Starting a nonprofit organization does require some investment up front to cover startup costs. Some of the fees involved include:
- Legal fees
- Accounting costs
- Incorporation fees
- Form 1023 fees to apply for tax exemption
- Office rental/purchase
- Staff salaries
- Other office-related overhead, like equipment and supplies
- Fundraising startup costs, such as fundraising software or event planning costs
These fees can range from several hundred dollars to a few thousand dollars, depending on the type of investments you choose to make.
How long does it take to start a nonprofit?
It can take several months to a full year to complete each step of the startup process, which we’ll cover in the next section.
What questions should you ask before starting a nonprofit?
Starting a nonprofit requires a decent amount of time and energy. Before you start a new organization, it’s worth it to fully think through the problem you’re hoping to address and whether a nonprofit is the right way to solve the issue.
Before taking the steps to start a nonprofit, ask yourself these questions:
- What need or problem will the nonprofit address? Can you clearly articulate the issue you’re hoping to solve? Is it one distinct problem or multiple issues? Nonprofits are most successful when they’re focused on one primary issue because it makes it easier to communicate the organization’s purpose to potential donors. You can always expand your operations later on as your organization and donor base grows.
- Does the community have a strong need for this nonprofit? Are there other nonprofits in the area already focusing on the issue you’ve identified? Make sure that by starting a new nonprofit, you’ll be able to fulfill an unmet need in the community.
- Is there a long-term need for your nonprofit, or could the issue be solved with a smaller-scale fundraising campaign or project? The answer could be “both.” For example, perhaps your idea for creating a nonprofit focused on raising funds for children fighting cancer started with one family’s need for support in a challenging time. However, if your idea isn’t very large in scope, a one-time crowdfunding campaign or peer-to-peer fundraising event could achieve the results you’re hoping for.
- Does the community seem excited about your nonprofit idea? Do you receive enthusiastic responses when you tell family, peers, and community members about your new nonprofit idea? If community members seem confused about the nonprofit’s mission, it could be a sign to go back to the drawing board.
- Where will we turn to for financial support? Consider whether your community has a wide range of potential giving sources willing to help out, including individual donors, corporate sponsors, foundations, and government agencies.
- What potential challenges or risks will the nonprofit face? Challenging economic conditions, finding reliable funding sources, local or federal regulations, and staffing challenges are all potential obstacles your new nonprofit could face on the road to getting up and running. Carefully think through these risks and consider how you plan to mitigate them or whether they’d be too challenging to overcome.
If, after thinking through these questions, you determine a clear justification for a new nonprofit, you’re ready to move forward with the steps of getting your new organization in motion.
How to Start a Nonprofit in 12 Steps
Starting a nonprofit requires a combination of strategic planning, financial investment, and regulatory approval. Follow these steps to start your organization on the right foot.
1. Conduct initial research
Before taking any steps to formally establish your nonprofit, conduct background research into the people and groups who will help you get your new organization off the ground.
2. Choose a board of directors
A nonprofit’s board of directors is a governing body typically made up of unpaid volunteers who set policies, determine strategic priorities, and provide oversight.
3. Write a mission and vision statement
Your nonprofit’s mission and vision statements are guiding principles that justify your organization’s purpose.
4. File for incorporation
File articles of incorporation within the state your nonprofit will operate from.
5. Create bylaws
Nonprofit bylaws are legally binding regulations that outline how the organization will operate.
6. Develop a conflict of interest policy
A conflict of interest is any circumstance where an individual’s personal relationships or financial situation could influence their ability to make unbiased decisions on behalf of your nonprofit.
7. Apply for tax exemption at the federal level
Next, you’ll file with the IRS as a 501(c)(3) nonprofit organization to apply for tax-exempt status.
8. Register to fundraise where applicable
According to the National Council of Nonprofits, the majority of states require charitable nonprofits to register before soliciting donations.
9. Hire staff members
Nonprofit employees are the lifeblood of charitable organizations, ensuring that the necessary work is completed to advance the organization’s mission.
10. Invest in nonprofit software
Nonprofit software solutions are digital tools that help organizations manage all aspects of their operations.
11. Start fundraising
Your new nonprofit might start with minimal funding, and that’s normal! Launch a fundraising campaign to grow your supporter base.
12. Maintain compliance
After going through all the hard work of setting up your nonprofit, make sure it isn’t derailed by compliance issues.
