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11 Steps to Starting a Nonprofit Organization

10 Steps to Starting a Nonprofit Organization
Lauren Ward
Lauren WardUpdated January 23, 2023
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Starting a nonprofit requires commitment, hard work, and plenty of patience. While the idea for a nonprofit may come to you instantly, actually getting one up and running can take several months, and often much longer.If you’re up for the challenge, read on. What follows are key things you need to know about starting a nonprofit, plus a simple step-by-step guide to help you get your new nonprofit off the ground.

What Makes a Nonprofit a Nonprofit?

A nonprofit is a type of business that is organized with the intention of furthering a specific cause or mission rather than earning profits for its owners. All the money that is earned by or donated to a nonprofit must go towards the organization's programs and operating costs.

How Do Nonprofits Work?

Unlike other types of businesses, the funds a nonprofit organization brings in can’t be distributed to the group’s directors or members. Instead, the money must be used to help the organization meet its objectives. This includes funding programs and events, paying salaries, and covering day-to-day operating costs. Also unlike other types of businesses, nonprofits are generally exempt from paying taxes — what’s known as 501(c) status. In order to be recognized as a 501(c) organization, your nonprofit will need to apply for a Recognition of Exemption through the Internal Revenue Service (IRA).

Types of Nonprofits

There are many types of 501(c) designations for nonprofits. Here’s a look at threecommon types of nonprofits.

501(c)(3)

  • The most common type of 501(c)
  • May not participate in political campaigns
  • Unrelated business activities (like selling merchandise or renting the organization's space) are subject to limitations
  • Exempt from paying federal income tax  

501(c)(4)

  • Used by civic leagues and social welfare organizations
  • May participate in political campaigns and political lobbying
  • Donations to the organization are not tax-deductible
  • Exempt from paying federal income tax

501(c)(7)

  • Used by social and recreation clubs
  • Primarily funded by membership fees and dues
  • May receive up to 35% of funding from nonmembers
  • Exempt from paying federal income tax

Others

There are dozens of other types of 501(c) designations, including 501(c)(5) for labor unions and 501(k) for childcare-related organizations. If your plan is to create your own nonprofit, you may want to consult the IRS’s complete list of tax-exempt groups to make sure you pick the right designation for your organization.Recommended: Nonprofit vs Foundation: Similarities and Differences 

11 Steps to Starting a Nonprofit

If you’re committed to starting a nonprofit, it’s time to roll up your sleeves. Here are 10 steps that help you get from concept to creation.

1. Research Need

Before you start a nonprofit, you’ll want to make sure one doesn’t already exist near your area that is doing what you want to do. If there is, consider joining or donating to it. Or, you might consider creating a new chapter. This allows you to receive some financial help from the existing nonprofit, which means you won’t have to start from scratch. You’ll also likely be able to access professional guidance and advice when needed. 

2. Choose a Name

To come up with a great name for your nonprofit, think of descriptive words that represent your purpose, mission, and/or values. Ideally, you’ll want something that is easy to remember. There are a lot of nonprofits in the U.S. — a catchy name will help your organization stands out in the field.Once you’ve chosen a name, check to make sure it’s not already taken. It’s illegal to use a name that’s been trademarked or it already being used by another nonprofit in your state. Many state government sites offer a free online search tool to make sure there isn’t another nonprofit with the same name in your state. You’ll also want to make sure the name isn’t trademarked, and find out if it’s available as a website URL (domain name).    

3. Create a Detailed Business Plan

Like a for-profit business, you’ll need to create a well-thought-out business plan for your nonprofit. Before you start, you may want to do some additional market research to fully understand the need your organization will service and to gather as much relevant data as possible. The purpose of a nonprofit business plan is to clearly lay out your organization's objectives and provide details about how you will go about achieving them. Consider including these sections:
  • Executive Summary This succinctly explains the change you hope to make.
  • Products, Programs, and Services This section sets out the need you are addressing and all of the different ways you will address it.
  • Operations This is where you detail what tpye of nonprofit you are, who will be on your team, and where you will operate.
  • Marketing This explains how you’ll get the word out about your organization and its work.
  • Finances This outlines exactly where your funding will come from, as well as how your organization will spend those funds.

4. Recruit Your Board of Directors

Your board will be responsible for regulatory compliance, strategic decision-making, supporting everyday operations, and making hires. So who you choose is key. Ideally, you’ll want to choose board members who not only have business management experience, but also share your passion for the mission. It can also be smart to choose people who bring a mix of skills and knowledge to the table, including financial, marketing, and legal expertise. Once you have a short list, you can reach out to each candidate to discuss potential involvement with your nonprofit. Keep in mind that board members typically aren’t paid.

5. Secure Startup Funding

The most common way to secure startup funding for a nonprofit is by applying for grants, which are typically awarded to a nonprofit organization for a distinct program or purpose. Competition for grants can be stiff, however, so you’ll need to invest time and resources into writing a great grant proposal. Other common sources of nonprofit funding include: membership dues, event fees, fundraising, sales of merchandise, and donation-based crowdfunding campaigns. You may also be able to qualify for different types of small business loans, even as a nonprofit business.Recommended: What to Know About Nonprofit Business Loans  

6. Incorporate Your Nonprofit

To make things official, you’ll need to determine your nonprofit’s legal structure (you can choose between an association, corporation, or trust). Next, you’ll need to file articles of incorporation, which is essentially a request for business recognition by your state. The process varies depending on the state, so check with the National Association of State Charity Officials (NASCO) for your state. Also, like starting any type of small business, your nonprofit will need to get an Employer Identification Number (EIN). An EIN functions like a Social Security Number for your nonprofit. You will need it to perform a number of different tasks, including hiring staff, opening a business bank account, applying for permits, and filing tax forms. You can apply for an EIN online by visiting the IRS website.

7. File for Tax-Exempt Status

To apply for tax-exempt status, you will need to fill out IRS Form 1023. This form is complex and can be time-consuming to complete. If your nonprofit earns less than  $50,000 annually and has under $250,000 in total assets, you may be able to fill out a shorter version of the form called Form 1023-EZ.

8. Hire Employees

Nonprofits need a variety of skilled employees to run smoothly. You may want to include the following positions on your staff.
  • Events manager If you plan on having frequent events or large scale conferences to further your cause, then you may need to have a dedicated events manager.
  • Membership manager This is someone who will keep track of membership information and actively recruit and maintain current membership numbers. 
  • Fundraising manager Organizing fundraising activities and applying for government grants can be a full-time job. If your nonprofit is going to receive income through fundraising activities, then a fundraising manager is a must. 
  • Communications manager Whether you plan to communicate through social media, newsletters, or speaking events, a communications specialist can ensure the tone and message is appropriate for your nonprofit’s mission. 

9. Automate with Software

Not long ago, someone had to manually enter a supporter’s information whenever a nonprofit received a donation. These days software can do most of the work for you. Whether it’s taking payments online, updating email lists, or registering members for events, the right software can do it all automatically.Depending on your budget, you might want to pick and choose different programs for different needs. Or, you might want to go with an all-in-one nonprofit fundraising platform that offers all the features your nonprofit needs (and possibly more). 

10. Get the Word Out

You built it. Now, you want people to come. But before you broadcast your launch, you’ll want to set up a website and a social media presence. Often, these are the first places people will go to learn more about you. Next, you can start promoting your organization and its mission. Some strategies to consider:
  • Emailing all of your contacts (and asking them to spread the word with their contacts) 
  • Hosting an open house event
  • Connecting with similar organizations in other cities
  • Posting industry-related blog posts
  • Joining online and offline communities where your target market is

11. Maintain Your Tax-exempt Status

Once you get your tax-exempt status, you’ll need to put some time and effort into maintaining it. That means operating your nonprofit within the parameters you stated in your application, and following the rules of your 501(c) designation (such as not supporting any political parties, etc). It also means maintaining careful financial records that show you are following all of the rules. In addition, you’ll need to file a Form 990 or 990-N (which one will depend on your gross receipts) electronically each year. This is an informational return that asks for details about your revenue and expensess, along with other information about your nonprofit. Generally, you need to file this form within five months and 15 days after the end of your fiscal year. Recommended: Guide to Nonprofit Financial Statements 

How Long Does It Take to Create a Nonprofit?

Creating a nonprofit can take several months to a year. Where you’ll fall on that timeline will depend on how quickly you can get organized, assemble a board, and prepare all of your paperwork. Depending on the state that you’re in, having articles of Incorporation approved by your state government may take up to a few weeks. Once that’s done, you can apply for tax-exempt status by submitting Form 1023 to the IRS. It can take the IRS three to 12 months to get back to you with their decision. If you think your nonprofit will make less than $50,000 in annual revenue, however, you can file the expedited version called Form 1023-EZ, which will take two to four weeks to process. 

Starting Nonprofits vs Small Businesses

Starting and running a nonprofit is similar to starting and running a for-profit business. However, there are some notable differences. Here’s a side-by-side comparison.
Small BusinessNonprofit
Profits can go to the shareholdersX
All profits must go back into the organization X
Can sell equity in return for capitalX
Can ask for donationsX
Should have a clear mission and purposeX
Uses volunteersX
Exempt from income taxesX
Requires a board of directorsX
One person can own and run the organizationX

The Takeaway

Launching a nonprofit doesn't happen overnight. It takes research, planning, and plenty of legwork. But the rewards – being able to attract donors and use those donations to make a positive impact on your community (or the world at large) — can be well worth the time and effort you invest.Whether you choose to start a not-for-profit or for-profit business, keep in mind that you may be able access funding by applying for a small business loan. While banks and credit unions often have strict qualification requirements regarding time in business and annual revenue, online lenders tend to be more flexible and faster to fund (though rates can be higher).

3 Small Business Loan Tips

  1. Generally, it can be easier for entrepreneurs starting out to qualify for a loan from an online lender than from a traditional lender. Lantern by SoFi’s single application makes it easy to find and compare small business loan offers from multiple lenders.
  2. If you’re launching a new business or your business is young, lenders will consider your personal credit score. Eventually, though, you’ll want to establish your business credit.
  3. SBA loans are guaranteed by the U.S. Small Business Administration and typically offer favorable terms. They can also have more complicated applications and requirements than non-SBA business loans.

Frequently Asked Questions

How do you start a nonprofit with no money?
How do nonprofit owners make money?
Can you run a nonprofit by yourself?
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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About the Author

Lauren Ward

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
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