How to start a charity: 6 steps to success
Deciding to take the leap and launch your own charity is exciting, but it also takes careful planning, research, and execution. Beyond the legal paperwork and red tape, you’ve got to hammer out a business plan, assemble a team, and come up with a smart strategy to raise funds year-round.
We’re here to help! Learn how to start a charity in six steps with our handy introductory guide.
What is a charity?
Before we dive into how to start a charity, let’s talk about what a charity is and isn’t.
A charity is an organization with philanthropic goals that aims to improve the community.
Charities are committed to a cause that’s charitable, religious, educational, scientific, or literary. “Charitable” is a pretty broad term, but the IRS breaks it down into understandable goals and missions on its website.
For instance, a charity may help underprivileged people, erect public monuments, defend civil rights, advance science, or reduce community tensions. A charity may also conduct testing for public safety, hold amateur sports competitions, or further the prevention of cruelty to children or animals.
You may have heard “charity” and “nonprofit organization” used interchangeably. The fact is that there are many types of nonprofit corporations — including everything from soup kitchens and veterans groups to sororities and credit unions — and a charity is just one type of nonprofit.
In other words, all charities are nonprofits, but not all nonprofits are charities.
Thanks to Section 501(c)(3) of the Internal Revenue Code, charities are tax-exempt organizations. This is why charities are often called 501(c)(3)s.
Your charity doesn’t have to pay federal income taxes, freeing up crucial funds for your mission. There’s more good news. Depending on the nonprofit type you ultimately choose, charitable donations could be tax-deductible for your awesome supporters.
There are two main types of charities you can choose from:
Public charity 👪
These are the organizations people usually think of when they hear “charity.” Public charities include hospitals, private schools, universities, and churches. They’re “public” because they mostly rely on contributions from the general public, government agencies, corporations, and other charities for funding.
Private foundation 👋
Private foundations are like public charities, except they’re usually controlled and funded by a relatively small group, like a wealthy individual, family, small business, or corporation. They also come with additional taxes and restrictions. Often, people start private foundations in order to make grants or gifts to other nonprofit organizations and benefit the general public. One of the best-known examples is the Bill and Melinda Gates Foundation.
How to start a charity in 6 steps
Starting a charity from scratch may seem intimidating, but you can boil this process down to six basic steps. Here’s what you need to do.
1. Define your mission
What is your charity going to do? What service will it provide to your community? Are there organizations already tackling the same challenge in your area? What will set your charity apart? A great way to answer these questions — and establish a clear, concrete vision — is to perform a nonprofit needs assessment.
Let’s say you want to launch a fund to provide winter clothes to low-income students. At a minimum, you need to know how many similar charities exist, their budget and revenue, and their size and scope.
Once you’ve done some research, express your core values and goals in a mission statement.
A powerful mission statement quickly communicates to others what you do, why you do it, and why they should join you.
For example, here’s the Make-A-Wish Foundation’s mission statement: “Together, we create life-changing wishes for children with critical illnesses.”
2. Make a business plan
Although your charity will have different goals than a typical business, you still need a clear-cut business plan for a successful rollout. This is your roadmap to a healthy budget, consistent funding, and effective marketing. Here are the major components of a solid business plan:
- Executive summary: A brief overview of your complete business plan, mission, and vision.
- Programs, services, impact: Explains the challenge or opportunity and how your charity’s services will make a difference.
- Industry analysis: Identifies who your nonprofit serves, your target donors and volunteers, and your competitors.
- Marketing plan: Breaks down your awareness and outreach strategy to raise money and gain support.
- Operations plan: Outlines the things you need to operate your charity, like your office, equipment, and materials, and actions you’ll take to secure them.
- Management team: Highlights the skills and experience of your charity board members or leadership team.
- Financial plan: Describes your fundraising strategies — how you’ll earn donations, make sales, and cover all your operating costs. This section usually includes standard financial projections.
You can use these free nonprofit sample business plan templates to get started.
3. Choose your board of directors
As the leadership team for your charity, your board members will fulfill a variety of different roles as you’re starting up. Initially, your members may do a little bit of everything — setting up fundraising events, scheduling volunteers, creating social media posts, and so on. Later, as you hire staff members, your board may switch to big-picture goals like organizational growth and corporate partnerships.
Of course, you want excited, skilled, and passionate people in your corner, especially in the critical early months.
Take your time selecting individuals for your board.
This guide with tips on finding and cultivating nonprofit board members will help you make the right picks.
4. Make a fundraising plan
While we’re talking about how to start a charity, we have to talk about how to sustain a charity. Fundraising is the bread and butter of any nonprofit, especially public charities, so don’t wait to start strategizing. Even if you opt to launch a private foundation — receiving one or two large gifts or grants each year — you still need a strategy for how you’ll nurture your donor relationships and keep the funds rolling in.
A few bake sales or mass email campaigns won’t cut it. In order to stay afloat and avoid financial headaches, charities need a variety of donation sources. This includes one-time givers, recurring donors, planned givers, event attendees, and strong business partnerships.
- 📅 Make a yearly fundraising plan: Your fundraising plan should be part to-do list, part calendar. It will include a major goal, fundraising budget, timeline, and the specific fundraisers, activities, and resources you’ll use to reach your goals.
- 💸 Use fundraising software: Ditch the donation jars! Raise money and stay organized with a free fundraising platform like Givebutter. Create stunning fundraising pages, sell tickets, take donations, and manage contacts without breaking a sweat.
- 👍 Try proven campaign ideas and tools: Successful fundraising campaigns don’t have to be complicated! Search for inspiration, like these 15 virtual event ideas or these nine easy ideas for small nonprofits, on a regular basis.
It pays to be money-minded! With a plan in hand, you’ll be prepared to cover common charity startup costs, like incorporation fees and IRS filing fees (which we cover next), plus any unexpected expenses.
5. Register your new charity
Not every charity has to register at the state level, but it offers extra legal protections and makes it easier to file for your 501(c)(3) tax exemption later. Incorporating your charity also adds credibility to your organization — this is a big deal when only 19% of people say they highly trust charities. Follow these steps to register your charity and apply for other important documents:
- Write your charity’s bylaws: Bylaws explain how your charity will conduct its operations, including each member’s roles, how funds will be used, and more. You can use free templates to write and agree on bylaws with your board of directors.
- Choose a business name: Select a name that’s memorable and reflects your mission, then see if it’s available using your state’s business name directory.
- Create your articles of incorporation: First, search for a lawyer-reviewed template for your state and nonprofit type. Add your business name, address, purpose, board member details, and how long you expect your charity to operate. We recommend having a legal consultant review these documents.
- File the articles with your state office: The Secretary of State office typically processes these applications. You’ll likely pay a $20 to $100 filing fee. If you plan to operate your charity in multiple states, you may need to register there too.
- Get an Employer Identification Number (EIN): Apply for a free EIN on the IRS website. You’ll use it to complete tax forms, hire staff, open a business bank account, and more.
This guide to registering your business offers a deeper dive into the incorporation process. Another option is to let an online legal service like LegalZoom or BizFilings handle your paperwork from start to finish.
6. File for your tax-exempt status
You’re in the home stretch! The final step is to apply for your tax-exempt status with the Internal Revenue Service, one of the perks of being a 501(c)(3) charitable organization. It can take anywhere from six weeks to several months to get approved, so get going as early as you can.
There are two ways to apply for the 501(c)(3) tax exemption:
- Complete IRS Form 1023, a roughly 18-page form, and pay the $600 filing fee.
- Complete IRS Form 1023-EZ, the easy (“EZ”) version of the 1023 created to simplify applications for small nonprofits. To use this form, you must have gross revenue under $50,000 and total assets under $250,000. There’s a $275 filing fee for the 1023-EZ.
No matter which form you use, it’s a good idea to hire a legal or financial consultant to help you. Also, keep in mind that this tax exemption is at the federal level.
You’ll need to double-check whether your state or municipality recognizes your tax-exempt nonprofit status.
You may have to pay a state charitable registration fee (typically under $50) as well. Once you’re approved, your charity is ready to start raising money.
The final word 💬
We’ve covered everything you need to know to turn your charitable purpose into concrete change. As you can see, starting a charity is a time-intensive process, but the payoff is immense. Remember, you don’t have to shoulder the registration process alone. You can always get guidance from a legal or financial expert, or use an online legal service, to ensure you’re handling your paperwork correctly.