Running A Business

How to Start a Nonprofit Organization

Jun 27, 2020 • 10+ min read
Volunteers working for a non profit small business
Table of Contents

      So you want to start a nonprofit. While this is a noble pursuit, it’s hardly an easy one. You’ll need to approach it with the same focus and determination as any other entrepreneur.

      “Starting any new business is difficult,” says a nonprofit startup report from Forbes. “You need to find investors, drum up interest, get your name out there, and have a strong vision of what your business will be and aim to achieve. In some ways, starting a nonprofit is the same as starting any other business, and in other ways, it is a lot different.”

      This guide will walk you through many of the crucial steps required to getting a nonprofit organization up and running. If you already have small business experience, you’ll find plenty of overlap that will help you move through the steps faster.

      Identify a Need and a Solution

      First off, what will your nonprofit offer to the community? You must identify an unmet need and then formulate how you could uniquely provide a solution. If this sounds familiar, it’s because of the similarity to a few of the key questions that entrepreneurs ask before they start a small business:

      • Is there market demand for my services?
      • Do I offer a distinct benefit to customers?

      In some cases, your market analysis will reveal multiple nonprofits in your city doing the same thing you intended to pursue. At that point, you need to either consider joining up with an existing organization or refining your approach so that you can provide a distinct service.

      To begin branding your nonprofit as you progress through subsequent steps, you should choose a name for your organization. You’ll find it’s much easier to attract volunteers and secure funding when there’s an official name attached to your organization.

      Once you’ve selected a few great name options, search online to ensure they aren’t already in use. You can also visit industry directories and check with the US Patent and Trademark Office (USPTO) to make sure your choices are available.

      Check in with your most trusted friends or family members to get their thoughts on the name. Getting an outside perspective is essential because they might notice quirks or issues with the name that never would occur to you.

      Craft Your Plan

      All successful nonprofits are founded on solid business plans. Without this inherent structure, your ideas will flounder, and your progress will stall. Start by writing an executive summary, which is essentially your elevator pitch. In just a few sentences, articulate what you’re doing and how it will meet a critical need.

      Build upon the executive summary by adding supporting details about the services you’ll offer. You should also include financial projections, market analysis, organization and management, marketing strategies, and funding plans.

      As part of your research, you’ll need to identify how much money your organization will require in the first year, as well as in the following years. Typical costs include:

      • Office space
      • Utilities
      • Internet
      • Office furniture
      • Computers
      • Copiers
      • Incorporation fees
      • 501(c)(3) fees
      • Website
      • Employees
      • Insurance
      • Signage
      • Licenses
      • Permits
      • Professional fees

      Knowing how much money you need is only half the battle. You must then figure out how you will cover these costs and fund your nonprofit. There are grants available from sources such as grants.gov, but the competition is fierce, and approvals can be hard to come by. For this reason, you should never assume you’ll be able to cover expenses with grants.

      Your ultimate goal will be to attract supporters from your community and beyond who will donate to your cause. But in the early days, you’ll need to get funding from more concrete sources.

      “To the degree possible, a new nonprofit should have a secure source of funding for operations for a minimum of 3 to 5 years, or until you can build a strong donor base,” says nonprofit expert Rachel Zelon. “When creating your business/nonprofit plan, this is an absolutely critical factor. You can have the best board and the best programs, but without secure funding, it will be extremely challenging to grow the organization.”

      Start by putting as much of your own money into the organization as possible. This necessary step shows lenders that you’re invested in your nonprofit and have skin in the game. You can also consider asking family members and friends for loans, though this can be a delicate situation. Rather than ambush relatives at Thanksgiving dinner, find ways to have respectful conversations with individuals who might be financially able to provide support.

      “The reality is nobody likes being asked to part with their money,” says a borrowing guide from US News. “And when you make an arrangement to borrow cash from a friend or family member, you put yourself at risk of creating a strain in your relationship if expectations aren’t met, your repayment plan is vague, or you fail to make a payment on time. But as challenging as it can be to ask someone like a parent or pal for money, it can be an even greater struggle to pay him or her back, depending on your financial situation.”

      To avoid these types of familial disasters, never attempt to borrow money unless you can offer a repayment plan. It’s not enough to simply nod and say, “Don’t worry, I’ll get this back to you.” Lay out a timeline and then stick to it.

      Next, look at alternate sources of funding. Loans can be tricky for nonprofits because lenders may have doubts about your ability to repay any money they might provide you. This uncertainty isn’t a personal indictment against you but rather an assessment of the tenuous nature of most nonprofit organizations.

      There still could be some good financing products available to you. The best approach is to research the options and then find a lender that is willing to partner with you. While your funding options will depend on your unique circumstances, possible options include:

      1. Business term loans
      2. Short term loans
      3. Commercial mortgages
      4. Business lines of credit
      5. Business credit cards

      Locking down your funding will be essential to progressing and getting your nonprofit off the ground. Always include milestones in your plan so the goals are trackable. You want it to be clear and actionable so that you can measure your progress against it at any point.

      You might have heard at one time or another that business plans can be treated informally. Some entrepreneurs just scrawl out some general notes on a piece of paper and call it a day. The problem with this approach is that it won’t be detailed and organized enough to follow with precision. Also, you’ll be up a creek without a paddle when lenders and other outside parties request to see your plan as part of a formal review.

      Build Your Network

      You’ll never hear the words “sole proprietor” and “nonprofit” in the same breath. The main reason for this is that it takes a team to get anything of value done in the nonprofit space. The earlier you start reaching out to your contacts and finding like-minded people who are willing to help, the better shape you’ll be in. You will probably need board members to exist as a nonprofit. And from a practical standpoint, you simply won’t have enough time and energy to single-handedly carry out all the functions of your organization. Volunteers, corporate supporters, and nonprofit partners are a must.

      “Growing your professional network doesn’t just mean quantity—quality can be just as important (if not more),” says Forbes. “Instead of focusing only on doubling your number of contacts, also consider how you can deepen the connections you already have. Don’t wait until you need something to reach out to an important connection you’ve recently made. Instead, intentionally reach out to a colleague or new connection when you don’t need anything.”

      By proactively reaching out to grow your network, you’ll be in a prime position once you begin your branding and marketing efforts. People will be more receptive, and you’ll be able to connect with those who share your vision.

      Adding the Structure to Your Plan

      With funding and your team in place, you’re ready to get your organization officially organized. This process starts with incorporating your nonprofit. The exact regulations will depend on what state you’re based in, so reach out to your state’s association of nonprofits to get the details.

      Here are some of the steps you will likely be required to complete in the incorporation process. Remember, this is only a general outline and the specifics vary based on your location.

      • Select your organization’s name
      • Assemble a board of directors
      • Structure your organization as either a trust, association, or corporation
      • File all necessary paperwork
      • Apply for your tax-exempt status
      • Finish by applying for any licenses or permits needed

      There are ample resources available to help you navigate the incorporation and tax-exempt filing. Start with these helpful tutorials from the IRS. You should also want to read Publication 557, which covers all the details you’ll need to know before filing with the IRS.

      You will also need to obtain an Employee Identification Number (EIN) for your organization. To learn how this is done, simply check out the application page created by the IRS.

      Finally, your organization will need a bank account. The simplest approach is to open a business account with the same bank where your private accounts are held. Because they’ll already have all your information, the application should be a breeze.

      Another option is to research different banks and find one that offers a sign-up incentive for new accounts. This bonus can be a great way to score extra cash for doing something that you needed to do anyway.

      Establish Your Presence

      Think about where you’ll base your organization’s operations. There are times when you might be able to use a home office, which is obviously the most cost-effective way to go. If you opt for this route, be sure to do your research beforehand. Every area has zoning ordinances that will impact how you set everything up.

      Many nonprofits eschew the home-based route because they require the space and infrastructure of a separate office. This is definitely a more involved process. After scouting out a proper location, you will need to handle lots of details and paperwork.

      Beyond the physical location of your nonprofit, you should also think about positioning your business online. You’ll need to buy a domain associated with your name. Best practices are to choose a domain name that is concise, easy to type, easy to pronounce, memorable, and doesn’t have hyphens or other symbols.

      After purchasing the domain, sign up for autopayments to eliminate the risk of missing payments. You want this to be your sole domain for the life of your nonprofit.

      To complement your web presence, open social accounts for your organization. You may not have plans right now to use Facebook, Twitter, Instagram, LinkedIn, and YouTube, but you should still create the accounts now. This way, you’ll control the name and can sit on the accounts until you decide to activate them at a later date.

      Automate, Automate, Automate

      The life of a small business owner is always busy, but the situation can be even more intense for those running nonprofits. Plan on having more daily duties than you could ever handle, which is why it’s so important to pass some on to digital tools.

      “There are so many free tools available for you,” says nonprofit expert Philip Manzano. “And depending on where your organization is in their growth—there are some great paid options as well. Time literally is money in this sector, so anything that helps you save time is a wise investment. Efficiency tools and nonprofit management software can make your job much easier.”

      Here are some recommended tools that can take tasks off your plate, reduce errors, and consolidate your efforts into one handy place.

      • RescueTime: Use this app to track your time online, set goals, and manage your efforts throughout the day. If you struggle to stay focused, this could be just the ticket.
      • TripIt: If your organization will require frequent travel, consider a tool like TripIt. You’ll find it’s easy to manage travel arrangements and keep in touch while traveling.
      • Quip: This workflow solution helps you set goals and hit milestones. Most importantly, it brings your team together in a way that improves collaboration.
      • 17hats: Data security is a major issue in today’s world, so the protection you get from project management app 17hats provides peace of mind. It works as a hub for everything from invoices to contracts.
      • Marketo: There are so many different marketing channels to keep track of, which is why tools like Marketo are so helpful. Your life becomes easier when your digital, email, social, and mobile marketing are all housed in a single place.
      • Deluxe: If you have employees, you’ll need to handle a set of regular duties related to payroll. This tool automates these tasks so you have more time to focus on other priorities. Best of all, the software saves you money by helping reduce errors.
      • QuickBooks: Let this tool take care of your expense reports so you don’t need to stress about them. QuickBooks will also help you track mileage and keep your organization’s information more secure.
      • Mailchimp: Gone are the days where you need to sit at a desk, endlessly clicking “send” on your emails. Mailchimp launches your communications automatically and offers a suite of tracking tools to make sure you’re getting the most from your efforts.
      • Hootsuite: Don’t let social media consume your day. Hootsuite is a one-stop-shop for all your channels, allowing you to automate posts and keep track of their performance.
      • Slack: Keeping in touch with your team is essential if you want to reach your goals and grow as an organization. This popular app makes it easier than ever while also adding project management tools.
      • Square: For sales and donations, it’s important to have a good point of sale solution in place. Square is one of the most user-friendly. Just plug the card reader into your tablet or phone and you’re ready for action, with the software sending a receipt straight to the customer after the transaction.

      Putting It All Into Place

      As this guide illustrates, there are many steps to setting up your organization. The thing to remember is that you don’t need to shoulder the full burden. Delegate tasks to your team and give them the opportunity to contribute in meaningful ways. You can also count on your digital tools to save time and money.

      Collaboration is key in the nonprofit world. Working together with your team, you can build the kind of momentum that will help your organization thrive in its first year and beyond.

      About the author
      Grant Olsen

      Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.

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