Skip to main content
Non-Profit Organizations

What You Need to Know Before Starting a Nonprofit

By July 18, 2016No Comments

Every day, individuals like you are inspired to start a nonprofit to help serve your community. However, forming a nonprofit organization might be the most complicated way to act on your passion to give back to your community and help those in need.  Estimates vary, but most experts agree that less than half of nonprofit startups survive beyond five years.  Before you take the leap into starting your own organization, you should consider the following issues…

The first step in starting a nonprofit organization is to understand what exactly a nonprofit organization is and how it differs from a for-profit organization.

  • The purpose of a nonprofit is to serve the public good or provide some public benefit.
  • The purpose of a for-profit is to maximize revenues and value to the shareholders, who own the entity.

There are many types of nonprofit organizations but the most well-known form is a public charity.  A public charity is an organization which receives its contributions from the general public and which serves a charitable purpose as defined by the IRS, which includes relief for the poor, advancing education or science, public monuments or works, lessening the burdens of government, eliminating prejudice and discrimination, the arts, and defending human and civil rights.

Charitable organizations in particular can struggle with finding sufficient revenue to support their activities.  Crafting a detailed plan for your start up nonprofit is as critical to your success as a good business plan is to a for-profit.  Focus initially on what public need you are trying to serve, what a successful outcome would look like, and whether others would be willing to support your cause.  Research the issue and gather sufficient data that can be evaluated along with other qualitative sources of information. Determine how you will achieve your vision.  What will it take to get to a successful outcome?  What do you need in terms of resources to accomplish your goals?

Once you determine what your vision and business plan are, you should stop and ask yourself if this is something that fits into the legal definition of a charitable purpose.

If your purpose fits the definition, is your project time-limited or very specific?  Often with a time-limited project, partnering with an existing organization makes more sense than setting up a new organization.  For example, putting together an event or raising funds for a building project are purposes which are likely better served in collaboration with another organization.

You should research if any organizations (nonprofit, for-profit, or government) are doing the same or similar work in your community.  If they are, consider working together with that organization.  Resources are scarce and grant funds are often not as abundant as you might think, so consolidating efforts can lead to better results than duplicating similar services.  If you decide to move forward with starting a new organization, you will have to convince donors why they should support your new organization instead of an existing organization doing the same work.  Ask yourself if there is a compelling reason for them to do that.

What if you don’t like how other organizations are doing the work?  You can still look for opportunities to have a voice in that organization by getting involved.  As a volunteer or donor, you could help shape the direction of that organization going forward.  If you go to an existing organization with a project idea and supporters willing to fund it financially, you may get a warm welcome.  While you will have to work within that organization’s structure, it will save the time, energy and expense of establishing a new organization.

If you are interested in exploring the decision making process further, please contact your L&B professional.  We will continue next month with an overview of how to set up a public charity organization.

Leave a Reply

SafeSend - a safe and easy solution for your tax engagements! Learn More >>