How to start a nonprofit: 8 can’t-miss steps
Forming a nonprofit is a meaningful way to rally individuals to urgent social causes and effect widespread change. In addition, generous tax breaks let founders and volunteers do the most good with each contribution.
But before you can roll up your sleeves, you’ve got to lay the foundation. Organizing a new nonprofit is an undeniably complex process. With our guide to how to start a nonprofit, you’ll learn to make a sound business plan, register your organization, apply for tax exemption, and set up fundraising channels.
How to start a nonprofit organization in 8 steps
Forming a nonprofit can take anywhere from a few months to a couple years. The key to successfully doing so — and avoiding paperwork purgatory — is to take this process step by step.
Most tasks are interdependent, meaning you can’t proceed to the next step until the previous one is 100% completed. So, there’s a domino effect to any mistakes or delays. We highly recommend letting legal experts review your nonprofit plans and documents before you submit them.
Here’s how to start a nonprofit in 8 steps.
1. Assess your area’s needs
There are 1.56 million nonprofits in the United States already competing for funding dollars and volunteers, according to the National Council of Nonprofits. Before you start defining your mission and planning your marketing strategy, you need to answer one key question: Is a new organization needed? One way to figure this out is to perform a nonprofit needs assessment.
Let’s say you want to open an animal shelter. You need to find out how many shelters already exist, the staff and budget sizes, and each nonprofit’s reach. If there are 20 underfunded shelters in your city, is your nonprofit really serving an unmet need? How will your nonprofit mobilize members and attract donations?
Another way to approach this is to do a SWOT analysis, which is a list of your nonprofit’s potential strengths, weaknesses, opportunities, and threats. Weighing these factors while you’re in the planning phase will help you course-correct sooner.
It can be challenging to be objective when you’re passionate about a new idea. We recommend pulling in trusted individuals or leaders of existing organizations (that don’t compete with your group) to fill out your SWOT analysis. You’ll hear different perspectives and have more insights to draw from overall.
2. Turn your research into a business plan
A business plan is a living document that walks through your current (or prospective) nonprofit. In practice, it’s a snapshot of your organization for prospective lenders, donors, banks, and investors. Here are seven essential sections you should include:
- Executive summary: A short, general overview of your business plan, mission, and vision. It’s helpful to craft your mission statement and vision statement first.
- Programs, services, impact: Describes the opportunity at hand and how your programs, services, and initiatives will make a positive change.
- Industry analysis: Identifies who your nonprofit serves, along with target donors and competitors. Draw on your needs analysis or create a SWOT analysis.
- Marketing plan: Outlines your strategy for advertising, promotion, and outreach.
- Operations plan: Covers the short-term and long-term actions (people, materials, activities) that will help you meet your nonprofit’s goals.
- Management team: Describes the experience and qualifications of your leadership team. Later, add an “Organizational structure” section with a detailed organizational chart.
- Financial plan: Includes useful financial projections. Describe how you’ll distribute money, handle market changes, raise funds, and cover costs.
Check out these free nonprofit sample business plans organized by sector.
3. Assemble your nonprofit team
Nonprofit corporations aren’t like other business types. As a charitable organization, a nonprofit can’t be owned by a single person or group. There aren’t any owners or shareholders. That means you’ll need to establish a board of directors to get up and running. You can also recruit an executive director and other volunteer members.
You want a group that can effectively pool their knowledge and draw on different skills to build a long-lasting organization. Before you build out a full team, your board will develop and execute strategies themselves. This is what’s known as a “working board.” Later on, it may transition to a “governing board,” in which board members handle higher-level responsibilities and your staff handles day-to-day tasks.
Ideally, each board member will have a personal passion for your project. This enthusiasm is vital to sustaining your nonprofit through early months of long hours and unpaid work. Check out this guide for tips on finding and cultivating nonprofit board members.
No nonprofit can succeed without a dedicated base of volunteers and donors. Get together with your leadership and come up with volunteer recruitment strategies for long-term success.
4. Register with your state
Similar to for-profit businesses, many types of nonprofit organizations are required to register at the state level. Even if you aren’t required, there’s a wide range of benefits to doing so. Incorporation legitimizes your operation, provides legal protections, and makes it easier to get approved for federal tax-exempt status.
The application process is straightforward, and it’s best to start early. It can take weeks or months for your state approval. Use this guide to registering your business for an in-depth look. Here’s a quick breakdown of the process:
- Choose a business name that’s available in your state. You can search through your state agency’s business name directory to find open options. Also, double-check that you can get a web domain name to match your business name.
- Prepare your articles of incorporation. Add your business name, address, purpose, expected duration of the nonprofit, and board member information. We recommend having a legal consultant review these documents.
- File the articles with your state office and pay fees. The Secretary of State office typically processes applications. You’ll likely pay a $20 to $100 filing fee. If you plan to serve multiple states, you may need to register there too.
For tips and guidance, reach out your state’s nonprofit association. You can also outsource this entire process to an online service like LegalZoom or BizFilings.
5. Write and adopt bylaws
Bylaws are the main governing document for your organization. They’re a set of internal rules and procedures for how your nonprofit will conduct its operations. And in times of conflict, confusion, or change, bylaws are a guiding light for your nonprofit. Bylaws are typically required for 501(c)(3) corporations, but you don’t have to submit them to the state for review.
Gather your board and draft the first version of your bylaws. You can do this during or after your business is registered. Bylaws cover aspects of your nonprofit like:
- Mission and legal powers
- Member elections, roles, and compensation
- Policies on conflicts of interest
- Fund distribution
- Financial reporting
- Amendment of bylaws
Avoid using bylaw templates from unfamiliar websites. Search for lawyer-reviewed templates or submit yours directly to a lawyer familiar with nonprofit law.
Many nonprofits adopt their bylaws at their first official board meeting, and you can update bylaws as your organization evolves. If you do, you may need to report changes to the Internal Revenue Service and your state.
6. Get an Employer Identification Number
An Employer Identification Number (EIN) is basically a Social Security number for your nonprofit business. You’ll use it to complete tax forms and hire staff later on (that’s what the “Employer” part refers to). Applying for an EIN is free, fast, and can be done online through the IRS website.
Having an EIN also lets you:
- Open a business bank account
- Get a business credit card
- Apply for federal and state tax exemptions
- Apply for any small business licenses and permits
- Establish your business credit score
When you’ve completed steps one through six of how to start a nonprofit, you’re ready to claim your tax-exempt status.
7. Apply for the right tax exemption
Your nonprofit can become exempt from federal income tax thanks to section 501(c) of the Internal Revenue Code. That frees up important funds for your educational, religious, scientific, or charitable work. It also makes contributions tax-deductible for your generous donors, depending on the type of nonprofit you choose.
There are two main ways to apply for the 501(c)(3) tax exemption:
- IRS Form 1023: You’ll have to answer detailed questions about your nonprofit in this roughly 18-page form. You may need to ask a legal or financial consultant to help you. There’s a $600 fee to submit the 1023.
- IRS Form 1023-EZ: This is the easy (“EZ”) version of the 1023 created to streamline applications for small nonprofits. Generally, you need gross revenue under $50,000 and total assets under $250,000 to qualify for the 1023-EZ. It’s three pages of fairly simple questions and checkboxes. You’ll include a $275 fee with your application.
It can take anywhere from six weeks to six months to get approved. In the meantime, if you’re accepting donations and promoting your cause, make sure you’re complying with federal and state laws, especially rules about solicitation. Most states recognize your federal tax-exempt status, but you’ll need to double-check. See if you have to apply at the state level or pay a state charitable registration fee (usually under $50) to operate.
Preserving your exempt nonprofit status
After all this time and effort, you don’t want to lose your tax-exempt status to a simple mistake.
Protect your status by keeping detailed records of your business activities, especially your finances. It’s a good idea to create a corporate binder with copies of your official documents, reports, licenses, and meeting minutes.
Here are some other quick tips:
- Watch videos and find guidance on Stay Exempt, the IRS.gov site created specifically for tax-exempt organizations.
- Review Nolo’s guide to protecting your tax-exempt status.
- Read the IRS Compliance Guide for 501(c)(3) public charities.
8. Create a fundraising plan and launch
In order to get off the ground, you’ll need to cover nonprofit startup costs like incorporation fees, 501(c)(3) fees, office space, employees wages, and marketing.
Most nonprofits rely on a combination of small business loans, nonprofit grants, fiscal sponsorships, fundraisers, and donations to get the job done. You should’ve already identified funding sources back when you created your business plan in step one. Now, you need to create (and execute) a more detailed fundraising plan.
Study other organizations in your specific nonprofit sector (youth programs, homelessness, voter education, cancer patient support) to see how they approach fundraising. You’ll be able to make a more accurate startup budget and better predict costs.
New nonprofit founders should take advantage of the community connections and resources they already have. Build good relationships with local businesses, schools, other nonprofits, and municipal offices and agencies.
Finally, you need a way to collect donations, create fundraising events, and engage with your amazing supporters. Look no further! Givebutter is a free fundraising platform for nonprofits that makes it easy to manage every part of your strategy. Tap into over 70 unique and powerful fundraising features from one convenient dashboard. And unlike other platforms, Givebutter lets donors cover your payment processing fees, so you keep 100% of every donation. It’s free to sign up and see for yourself.
Any other questions? We suggest reviewing the fundraising information and tips provided by the National Council of Nonprofits. Also, see if your state has a nonprofit association. They provide helpful workshops, meet-ups, and tools.
From passion to progress
Now that you've learned the basics of how to start a nonprofit, the process may seem overwhelming or time-consuming. Don't worry, no one expects you to be a legal expert overnight.
You can always request legal advice or outsource some of the hard work — like your state registration or 501(c)(3) application — to an online service like LegalZoom or BizFilings. It may be helpful to consult with a tax professional or certified public accountant, too.
With the logistics taken care of, you can focus on connecting with individuals and building support for your amazing cause.