Nonprofit

How to Start a Nonprofit Organization: Complete Step-by-Step Guide

smiling woman holding clipboard because she knows how to start a nonprofit organization with no money

Nonprofit organizations provide a range of services to communities and individuals. Whether it’s raising money to provide much-needed medicine to those less fortunate or providing tutoring to students who require additional resources, nonprofits fill funding gaps overlooked by governments and businesses. And if you’re passionate about filling a particular gap in your community, you may be wondering how to start a nonprofit.

While forming a nonprofit is undoubtedly a difficult task, it may also turn into one of your life’s most rewarding experiences. To make it easier for our readers interested in starting a nonprofit, we’ve developed a step-by-step guide for getting started. Read on if you want to learn how to start a charity!

What is a Nonprofit Organization?

Before detailing how to start a nonprofit, we’ll first define exactly what a nonprofit is. A nonprofit is an organization that reinvests its income into its cause. In most cases, a nonprofit serves a charitable or community-based mission.

Unlike traditional businesses, which distribute profits to owners, shareholders, and/or investors, nonprofits use their funding and profits to help their cause. For this reason, nonprofits benefit from a range of tax advantages that ensure their money can be redirected into their mission efficiently.

How to Start a Nonprofit Organization

While the approach to starting a nonprofit will vary depending on your cause, resources, location, and a host of other factors, we’ve developed a nine-step guide outlining the core elements to consider when starting a nonprofit. Let’s get started!

Step 1: Define Your Goals

If you want your nonprofit to be a rewarding experience, you need to set realistic expectations for your goals and desired outcomes. It’s best to ask yourself the tough questions listed below before starting a nonprofit.

Is a nonprofit right for you?

Starting a nonprofit is no easy task. Many nonprofits fail, so having the resolve required to take your nonprofit to the next level is essential. And as nonprofits do not distribute profits to investors or shareholders, they’re not a good option if your goal is to make money. Additionally, nonprofits are organizations committed to causes, which means you should have a firm commitment to helping communities or individuals.

Why are you starting a nonprofit organization?

As nonprofits are not vehicles for generating personal wealth, it’s essential to have the correct intentions when starting a nonprofit. One of the best ways to determine if you have a valid reason for starting a nonprofit is to decide what issue you’re attempting to alleviate or resolve. If you’re passionate about a particular cause or community, you likely have the necessary foundation for starting a nonprofit.

What do you need to start a nonprofit?

Next, it’s time to decide what you need to start a nonprofit. Depending on your cause and goals, you will likely have funding requirements. Determining how many resources you need to make your nonprofit a success is critical. Money, volunteers, paid staff, physical space, and a host of other factors are all worth considering.

Step 2: Market Research

Once you’re certain you’re starting a nonprofit for the right reasons, it’s time to conduct market research. This helps you avoid early mistakes when you’re forming your nonprofit. Below are questions to ask when performing market research for a nonprofit organization.

Is there an unmet need in the community?

If you want to start a local nonprofit, you must determine if there are any unmet needs. While governments, businesses, and other charities ensure community needs are met, there are often shortcomings. That’s where your new nonprofit can help! For example, are there elders in your community who struggle to use computers? You can start a nonprofit that teaches people how to use computers, send emails, create documents, and more.

Who is your target audience?

Your target audience will be the individuals or groups requiring your help. If you’re starting a nonprofit that helps elderly individuals learn to use computers, the elderly in your community will be your target audience.

Understanding your target audience can help you provide the best possible services, as well as advertise these services to the correct people.

Who are your competitors?

Nonprofits don’t have the same shareholder benefits as traditional companies, so many people view the space as non-competitive. This couldn’t be further from the truth.

If you plan to start a nonprofit addressing a specific issue, it’s best to assess which competitors already operate in this space. If there are several local competitors offering their services, this niche might not be the best for you. However, if there aren’t competitors, or if the current competitors leave a massive gap in funding or services, your nonprofit can help.

Keep in mind that if there are only large, national nonprofits offering services for your niche in your area, building a local nonprofit might better serve your community’s needs.

How will you fund your organization during its start-up phase?

One of the most challenging parts of starting a nonprofit is gaining the initial funding to provide benefits to your community. Fundraising without having a history as a nonprofit can be difficult, as donors want proof that their money is going to good use. Check out our guide on how to start a fundraiser for more tips to get you started.

If you’re planning on starting a small, local nonprofit, requesting the help of volunteers to provide the initial services is the best way to keep costs low. For example, if you want to provide tutoring, ask friends or family to volunteer as tutors.

Starting small can help you prove your ability as a nonprofit leader. Once you have a reputation for successfully providing benefits to your community, it will be easier to raise money from donors and other funding channels.

Step 3: Create a Plan for a Strong Foundation

Once you perform market research and decide on a niche, it’s time to start building your nonprofit’s foundations. Below details some steps you can take to start your nonprofit on the right foot.

Write a business plan

While a nonprofit is not a standard business, a business plan is still a necessary tool when starting a nonprofit. Business plans can vary, but they should generally include information about your business’s goals, niche, funding requirements, and services. This can help you gain a clearer understanding of how much money you will need to start your charity.

Additionally, if you want to apply for funding, the lender will likely want to see a business plan as part of the application process.

Below, let’s take a look at some of the key factors you should incorporate into your business plan:

  • Initial Pitch (Executive Summary): This concise executive summary outlines your goals, resources, and other core details. This should be easy to read and understand. Avoid fluff at all costs.
  • Services, Benefits, and Solutions: Provide an outline of the types of services or products you’ll offer to your nonprofit’s beneficiaries. Explain how this will benefit individuals or groups in your community, as well as what your end-goal solution is.
  • Marketing Strategy: Explain your marketing approach. Signify that you understand the importance of a comprehensive and targeted marketing strategy.
  • Current Market Information: Describe the other competitors in your niche, as well as the competitive advantage of your nonprofit.
  • Operational Logistics: Outline how you will conduct your nonprofit services. Will you have an office or rented space for activities, events, or other services? Will you have paid staff or volunteers?
  • Finances: Lastly, it’s time to explain your financial requirements. Make sure that you have a firm understanding of how much money you will need to operate your nonprofit in the near and long term.

Create a mission statement

A mission statement is a critical element for any successful nonprofit. This statement should guide your actions and help your charity meet the needs of its beneficiaries. For example, if your nonprofit’s goal is to provide reading lessons to students who are falling behind in school, your mission statement might be: “We strive for all the children in our community to benefit from the gift of literacy.”

A mission statement is important for your nonprofit and its target audience. The statement allows your target audience to quickly deduce the purpose of your nonprofit. It also reminds you and your nonprofit’s fellow staff members to stay grounded to your primary purpose.

Name your nonprofit

Choosing a catchy and informative name for your nonprofit can help you achieve better recognition throughout your community. You want your nonprofit’s name to be memorable, easy to identify, and indicative of your mission statement.

Things to consider when naming your nonprofit

There are many factors to consider when choosing your nonprofit’s name. Consider the following:

  • Who are the members of your nonprofit?
  • Who is your nonprofit is helping?
  • Where is your nonprofit is operating?

Below, let’s take a look at some excellent nonprofit names:

  • Doctors Without Borders
  • Feed the Children
  • Step Up for Students
  • American Heart Association

Also, as the internet continues to be a critical factor in the growth of nonprofits, it’s essential to consider search engine optimization (SEO) when naming your charity. For this reason, you may want to include keywords and geographic words that will help make your nonprofit name a top search engine result in your area.

How will you create a community people want to join?

It’s important to build a community that people will want to be part of. And that can be more difficult than it sounds.

As nonprofits are built to serve communities of like-minded individuals, building a base of members can help you promote involvement. Consider developing membership benefits, such as events, talks, newsletters, and other activities. You can also request corporate sponsors to offer discounts or promotions to your members.

Not only will membership help you gain access to volunteers, donors, and a wider community, it can also help you generate revenue through membership fees. Charging a small annual membership fee can help you gain the initial funding you need to start a nonprofit.

hands holding up multicolored balloons spelling out volunteer because they want to know how to start a charity

Step 4: Develop a Financial Plan

While the purpose of a nonprofit is to benefit others, there’s no avoiding the financial aspects of running a charity. If you want to help the largest number of people possible, your nonprofit must have a solid financial foundation.

Keeping your nonprofit afloat can be difficult, especially during the initial stages. In order to ease this difficulty, let’s review some of the core financial aspects of running a nonprofit.

How much does it cost to start a nonprofit?

Unfortunately, there’s no one-size-fits-all answer to this question. The answer will depend on your initial ambitions, the number of volunteers, and capital requirements. For example, if you plan to initially run your nonprofit from home only using volunteers, your initial costs might be reasonable. However, if you need to rent office space, hire staff, or purchase products, costs will be higher.

All nonprofits have varying upfront capital requirements. Being realistic about your nonprofit’s needs is the best way to avoid costly surprises.

Determine your startup and operation costs

While the exact figure to operate your nonprofit is impossible to predict, you can create a ballpark estimate by adding up a few core startup and operational costs. Let’s explore some of the primary costs you need to consider when forming your nonprofit:

  • Incorporation Fees: To avoid liability, you need to incorporate your nonprofit. The price of this will vary. In some states, it’s less than $20. Other states charge more than $200.
  • 501c3 Status Fees: The cost of this varies depending on which application form you use. The price ranges from $275 to $600.
  • Website and Hosting Costs: Using professional developers to design and host your website can cost thousands of dollars, but you can pay a much smaller fee if you use a web builder. Some web builders are even free.
  • Physical Space: Whether you need to rent an office to host your staff members or an event space to host fundraising events, you need to consider the rental or purchase cost of physical spaces.
  • Staff Members: Staff will be a large operational cost. If you don’t have the benefit of a volunteer network, you need to estimate the cost of salaries for new staff members. This includes yourself if you’re planning on being an employee of your nonprofit.
  • Initial Marketing Efforts: Lastly, consider your initial market efforts. If you’re planning on renting physical advertising space or running awareness campaigns online, you’ll need to set aside a budget.

Other costs may arise as you launch your nonprofit. That’s why it’s a good idea to leave some space in your budget for unexpected goods and services.

What are your revenue streams?

No matter what type of nonprofit you’re operating, you need revenue streams to ensure you can meet your financial obligations. Whether it’s generating money through a small membership fee or raising millions of dollars through large-scale fundraising campaigns, it’s essential to have a strategy. Let’s overview some standard nonprofit revenue streams below.

Regular and private donors

Donors make up the bulk of many nonprofit revenue streams. If you’re representing a worthwhile cause, there’s a good chance people will want to help. Providing a value proposition to potential donors is essential, as you need to make them confident that their money is going to good use.

Also, donors can receive tax deductions for donating to nonprofit causes.[1] This can be a major selling point if you’re trying to encourage donations from members of your community.

Fundraising activities

Making a concerted effort to raise funds is essential if you want to continue your nonprofit. Whether it’s small-scale fundraising events (holding a bake sale) or larger events (hosting a silent auction), it will help you raise money for your nonprofit.

Some organizations choose to be in a continuous state of fundraising. They may hire people to go door-to-door soliciting donations or set up fundraising stations outside of malls, grocery stores, or events. Other nonprofits choose to generate fundraising campaigns with specific goals and timeframes.

Also, fundraising can include more traditional money-raising routes, such as seeking loans from banks and grants from charitable organizations. Make sure to explore the wide range of fundraising ideas before you develop a strategy.

Membership dues

If you want to generate recurring revenue from individuals interested in your nonprofit, charging membership dues might be a suitable option. Not only does charging membership dues help you generate revenue, but it can also help encourage engagement from members.

While most people associate nonprofits with traditional charities, nonprofits can also serve general social causes. For example, your nonprofit might be a community soccer club. If this is the case, it would make sense to charge members an annual or monthly fee, which can cover field rental, uniforms, referees, and other costs.

Step 5: Registration, Incorporation, and State Forms

One of the most tedious parts of starting a nonprofit is the initial registration. If you want to benefit from tax-exempt status and a host of other advantages, it’s critical to take the initial registration seriously.

Incorporation

Incorporation helps you limit your personal liability. If you don’t incorporate before you begin conducting your nonprofit activities, you might end up with a liability issue that can personally bankrupt you.

The incorporation process varies by state. But generally, you will likely need to declare the following details:

  • Your name and address (if you’re the founder)
  • Names and addresses of the current board members
  • Address for the nonprofit
  • The nonprofit’s name
  • A statement regarding the purpose of your nonprofit

This should be a relatively straightforward process if you have all the correct details.

Setting up a 501c3 to file for tax-exempt status

One of the primary advantages accessible to nonprofits is a tax-exempt status, which means your organization will not need to pay taxes on its income. This helps you drive all of your income into your cause.

There are many types of nonprofits in the 501(c) section of the Internal Revenue Code. You only need to fit into one of these categories to gain this status.[2]

To gain tax-exempt status, you must register as the correct type of 501(c) organization using the IRS’s Form 1023. This form is lengthy. There is an expedited form titled 1023-EZ, but only some nonprofits are eligible for this form.

Unfortunately, this application process can sometimes take up to 12 months, so it’s best to get started as soon as possible. Not doing so can cost your nonprofit significant money in taxes.

It’s essential to remember that if you’re granted tax-exempt status, there will be various reporting requirements. For example, you will need to fill out a 990 form annually.[3] This is required to ensure nonprofits are adhering to tax-exempt standards.

Register with your state

Lastly, it’s time to register with your state. Each state has its own registration processes and reporting requirements.[4]

Step 6: Establish Your Board

Your nonprofit’s board is an essential component of its structure. It’s responsible for guiding your organization throughout its lifespan. In some cases, your state may require you to have a board in place before you can incorporate. Even if this isn’t a requirement for your state, it’s a good idea to get ahead of the curve and begin recruiting your board as soon as possible.

How to recruit for your board

A board is an opportunity for you to bring together a team of experienced leaders and administrators that can help your nonprofit achieve success. It’s also an opportunity for professionals to give back to their community, which is why many people choose to sit on nonprofit boards, even if it doesn’t offer financial rewards.

Make sure that your board member candidates have some of the following traits:

  • Dependable: They should understand the importance of taking board commitment seriously.
  • Work Ethic: They should have a track record of being committed to working hard for organizations.
  • Positive: If your board members have a positive attitude, it translates to your nonprofit’s mission.
  • Strong Communication: Board members must be able to communicate goals and expectations clearly.

Create a job description

It’s essential to outline the core responsibilities of the roles you need to fill on your board. Applicants must understand what expectations will be if they join the board. They also need to know if they have the relevant qualifications for the position. Make sure to outline the following details in your job description:

  • Board member term length
  • Desired qualifications and skills
  • Amount of time that will need to be committed to the board
  • A list of duties

Where to find the best candidates

While you might be able to draw from your local network to find board members, this isn’t always possible. Fortunately, there are various online platforms that allow you to search for potential board members, like BoardProspects and Board Match.

While the above platforms are excellent resources, you should also connect with your local network to see if any successful business people or nonprofit figures might be interested.

Screen your board members

Make sure to conduct in-depth interviews with all your board members. You want to ensure they’re motivated by the correct incentives. Asking a few questions can help you determine if a board member is a good match for your nonprofit. Let’s explore some key questions below:

  • Do you have any previous experience or interest in our cause?
  • What is your primary motivation for joining a nonprofit board?
  • How much time will you be able to commit to ensuring the mission of the nonprofit is achieved?
  • Is your schedule flexible? Will you be able to attend board meetings and other events?
  • What makes you a great board member?

Step 7: Hire Staff and Build Your Team

While your board will be the guiding light for your new nonprofit, you may also need staff members.

If you’re running a local community organization, hiring staff can be another way that you give back to your community. Hiring nearby residents is a sign that you’re community-focused in your nonprofit operations.

If your nonprofit is small enough to operate exclusively off of volunteers, this can be financially beneficial, especially during the early stages. As nonprofits grow, they tend to require some full-time staff to ensure that day-to-day operations are professionally conducted. A healthy mix of volunteers and paid staff can take your nonprofit a long way.

Step 8: Get a Nonprofit Payment Management Solution

someone starting a nonprofit holding marker with donation written against yellow background

Managing donations, payments, and membership dues are no longer difficult for nonprofits. There are now payment management solutions that make it easy to process payments, track funds, and analyze your income streams. Gone are the days of manually processing payments for your charity!

You can use payment management solutions like paysley to accept payments in-person and online, which makes it much easier to scale your fundraising efforts as your nonprofit grows.

Ways to receive donations for your organization

Making it easy for individuals and groups to donate money to your nonprofit is essential. Below, we look at some various ways you can generate revenue for your nonprofit.

Individual recurring donations

Nonprofits utilize many donation strategies when attempting to raise revenue. While most people view donations as a one-time occurrence, signing up individuals for recurring donations is an excellent way to generate future cash flow.

You can access recurring donations by signing people up for subscriptions or prompting them to do so themselves in a donation request letter. Many of your donors may be excited to provide monthly or annual support to your nonprofit, as it’s a way they can give back to their community.

Crowdfunding

Crowdfunding is a strategy gaining popularity with charities, startups, and individual causes. This type of funding allows a large number of people to donate towards a common cause.

With traditional businesses, crowdfunding might involve selling equity in a company or paying investors interest on money that is lent. With nonprofits, crowdfunding is typically a donation. However, you can encourage donations by offering prizes, merchandise, or access to your nonprofit in exchange for money. For example, if you’re fundraising for an event, you can offer free access to the event for people who donate.

Crowdfunding can be an excellent tool for raising money for specific events or campaigns. If you’re nonprofit has a specific project it wants to undertake, but you’re suffering from a lack of resources, consider developing a crowdfunding campaign to solicit donations from your community.

Corporate sponsorships

Corporate sponsorship agreements can be mutually beneficial relationships. On one hand, your nonprofit will receive funding from a local business. On the other hand, a local business will help its community and gain positive exposure for its charity. In many cases, nonprofits offer advertising and other benefits to businesses willing to sponsor events, facilities, and more.

To access corporate sponsorships, you’ll likely need to leave a footprint in your community first. Businesses want to know they’re working with a nonprofit capable of delivering on its mission statement.

Grants

If you’re wondering how to start a nonprofit organization with no money, you may consider a grant. There are many government and charitable organizations offering grants to nonprofits. This can be an excellent source of initial funding if you’re struggling to raise money.

Grants can be a major source of funding for nonprofits, but they can also be difficult to obtain if you don’t approach the process correctly. It can be worth consulting a professional grant writer to help you develop your grant application.

In-kind donations

While most of the funding options in this guide refer to money-oriented funding channels, in-kind donations are an excellent resource for many nonprofits. So, what is an in-kind donation?

This is a donation that doesn’t involve money. Instead, donors offer goods or services to your nonprofit. There are many examples of in-kind donations that can help your nonprofit:

  • A local accountant may offer to help with incorporation or other financial services.
  • A local family may offer to donate spare clothing or toys to your nonprofit.
  • A professional sports team may offer to donate sports equipment to your sports league.
  • A local business may offer to donate old computers to your technology education nonprofit.
  • A nearby business may offer to donate old office equipment for your nonprofit’s office.

It’s essential to advertise that you’re willing to accept non-monetary donations. If donors are unaware they’re able to offer their expertise or valuables as a donation, they might overlook their ability to help your nonprofit.

Step 9: Market Your Nonprofit

Now that you understand the ins and outs of starting a nonprofit, it’s time to begin your marketing efforts. Your charity can have the best intentions in the world, but if it’s not able to reach individuals, communities, donors, or other necessary groups, it won’t be successful.

Let’s explore some core elements to consider when building your nonprofit’s marketing strategy.

Build a website

A website is a necessity for any business, organization, or nonprofit. Building a sleek, welcoming website conveys professionalism and helps you connect with potential members, donors, and others.

Depending on your nonprofit’s goals, building a new website can be an expensive task. Fortunately, there is now a range of web-building platforms that make the process much easier. Squarespace, GoDaddy, WordPress, and a host of other platforms make it affordable to build sleek, modern websites. Many of these platforms also have free trials, which means you can use their tools before you make any financial commitments.

Use social media

social media flowchart is an element of how to start a nonprofit organization

Social media allows you to instantly connect with like-minded people within your community and across the globe. You can build profiles on popular social media platforms, such as Facebook, LinkedIn, Twitter, Instagram, and Snapchat, to help you connect with potential donors, members, and others.

Unfortunately, some social media platforms are moving away from organic traffic, which means it’s harder to gain exposure by building a community without paid advertising. Still, social media is a powerful tool if you’re willing to pay for marketing. You can generate ads to market to volunteers, those in need, and various other groups.

Consider physical advertising

As advertising shifts toward social media, pay-per-click ads, and other forms of digital marketing, many business owners and nonprofit managers have started to overlook physical advertising.

This traditional advertising channel still has a major role to play in the nonprofit space. Whether it’s billboards, local community boards, renting ad space at a nearby little league, or any other form of physical advertising, it can help.

This type of advertising is still useful for nonprofits because of the local nature of charities. If you’re trying to help your community, physical advertising can catch the attention of nearby residents. Physical advertising is one of the best ways to recruit individuals in your area.

Flyers

Flyers can play a major role in your advertising efforts. Handing out flyers at events or placing them in local mailboxes can help nearby residents connect with your nonprofit.

Fortunately, paysley allows you to take your flyers to the next level. You can use paysley’s QR codes on your flyers, which will allow members of your community to make direct donations to your nonprofit. These QR codes are a modern way to simplify the donation process.

Make business cards

Networking is just as important in the nonprofit world as it is in the traditional business world. While business cards might seem like an antiquated tool, they’re still very useful if you want to connect with like-minded individuals.

Handing out a business card at a meeting or social event can help people remember your cause. This is a great way to prevent any lost connections from occurring when you’re trying to market your nonprofit to donors.

Personal connections

Word-of-mouth remains a powerful tool for marketing any type of organization. Speak to friends, family, coworkers, neighbors, and any other connections you have. Your personal network can serve as a starting place for securing funding and exposure. Your connections may also know of people who can benefit from your nonprofit’s services.

How to Start a Charity Foundation: Final Thoughts

Now that you have all the tools you need to start a nonprofit, it’s time to begin your charitable journey. While no nonprofit journey goes exactly as planned, utilizing the resources in this guide will help you get started on the right foot. In no time, you’ll be collecting donations via online fundraising platforms and coordinating your team of impassioned volunteers to better your community.

Sources:

  1. USAGov. “Donating to Charity“. Accessed March 4, 2022.
  2. Internal Revenue Service. “Exempt Organization Types“. Accessed March 4, 2022.
  3. Internal Revenue Service. “Annual Filing and Forms“. Accessed March 4, 2022.
  4. Internal Revenue Service. “State Links for Exempt Organizations“. Accessed March 4, 2022.