A guide to starting a nonprofit, including tax filing, market research and more
Starting a nonprofit organization is a commendable mission to pursue. Before getting started, it’s important to grasp the work that goes into launching and maintaining a nonprofit. Additionally, it's valuable to know what other ways you can provide support to the causes you care about without necessarily being the leader of a nonprofit organization.
Before starting a nonprofit yourself, conduct research to determine if there is already an established organization doing similar work you’d like to do.
"There is a lot of competition for funding, whether you're talking about from foundations, for government contracts or for individual donors. And when you have five organizations doing very similar work in the same county, it makes it difficult for any of them to do the work very efficiently because they're competing for very limited dollars," Rick Cohen, chief communications officer at the National Council of Nonprofits told Fox Business in a phone call.
"The easiest thing sometimes is finding an organization that does the work already or does similar work and seeing if you can work with them, either joining their board or helping to expand a program that they already do to a wider geographic area."
There are 1.4 million nonprofit organizations in the country, Cohen said. Donating money or conducting fundraising efforts for an established nonprofit is a way you can get involved.
"Oftentimes, if what you want to do is really fundraise, especially if it's in honor and memory of a loved one because you've had a personal experience, you can do all of those things and give the money to an organization that already has the infrastructure and is already doing good work," Liz Scott, co-executive director of Alex’s Lemonade Stand Foundation, told Fox Business by phone.
Scott’s daughter, Alex, started Alex’s Lemonade Stand when she was just 4 years old. As a child battling cancer, Alex spent month after month asking her parents if she could start a lemonade stand.
When Scott finally asked her young daughter what she wanted to buy with the money from her stand, she told her mom the money wasn’t for her. She was going to give it to her doctors to help other kids as they helped her.
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When 8-year-old Alex died in 2004, ten days after her last lemonade stand, her parents continued with their young daughter's mission, making what began as a simple lemonade stand into a nonprofit organization.
Alex's Lemonade Stand turned out to organically become a nonprofit organization. Similar paths have been taken by other groups who want to give back to a specific cause.
"There is nothing wrong with a group of people in a community getting together and wanting to help others and doing it in an informal way. It just means that when somebody donates to that cause, they're not going to be able to take a tax deduction for it," Cohen explained.
"There are plenty of mutual aid groups. There are plenty of just informal neighborhood groups or people with common interests who do a GoFundMe, and there's zero wrong with any of that. Any way that somebody wants to reach out and help others in the community is good. I mean, it's encouraged."
Eventually, that group of people that got together to help a cause could become the board of directors when the nonprofit is officially established.
"You don't have to have big corporate leaders selected to be on your founding board of directors. You just need to start somewhere," Cohen told Fox Business.
If you decide you want to create a nonprofit, there are many steps that need to be taken before work commences.
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The first step Cohen recommends is a "landscape study to define the need." This is important to ensure there is demand for this organization and there will be enough revenue to do the work you want to do.
"Then you want to secure an attorney to help you through the filing processes, because you need to incorporate. You need to establish a board of directors. You need to write bylaws, articles of incorporation. You need to put together the basic policies that will govern the organization, from conflict of interest policies and financial controls and all of these things to make sure the organization is operating the way it needs to," Cohen told Fox Business.
"An attorney can guide you through not just the requirements from the IRS, but requirements at the state level and sometimes the local level as well."
There are several forms nonprofits need to file with the IRS, including Form 1023-EZ for a tax exemption and a Form 990, which Cohen said needs to be filled out every year.
When Scott and her husband were working to turn Alex’s Lemonade Stand into a foundation, she said speaking with experts around her and accepting help was crucial in the early days of the organization.
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"We needed to establish our own nonprofit. So we needed a board of directors. We needed to do the filings to become a tax-exempt public charity, and that's a big step to take … because you're committing then to a lot of other administrative things, but we took help. We talked to the right people who were able to guide us through," Scott shared with Fox Business.
"I would say a lot of it's about not being afraid," Scott added of launching a nonprofit. "Fear shouldn't be the thing that stops you from doing something. It's a matter of talking to people who can advise you, who are willing to advise you, talking to people who are willing to help you because you can't do it alone. Whether you're doing it volunteer or paying staff, you cannot run an organization by yourself, even a small one. So, understanding your goals would be really important."