Each year, thousands of nonprofits are established in the United States. This third sector of our economy fills the underserved gap between business and government and is critical to the economic and social fabric of our country. Nonprofit founders often see a need and seek to address that need through a new nonprofit, but are sometimes unprepared for all of the intricacies of running an organization. Starting and maintaining a nonprofit can take a lot of time and resources. Once you create your new nonprofit, you will have certain obligations to fulfill in order to keep your organization alive and well. Before establishing a new nonprofit organization, here are five things to check off your to-do list to help you increase your likelihood of success.
- Establish a purpose. The purpose of the organization will need to comply with IRS requirements, which – for organizations seeking exemption under section 501(c)(3) – must be “charitable, religious, educational, [or] scientific.” You will be required to provide a statement of purpose in the organization’s articles of incorporation, so it should be a relatively concise statement of the organization’s purpose, but broad enough to encompass all of the intended activities of the organization.
- Conduct market research. This is a step that is often overlooked by those wishing to start a nonprofit. However, it is important to take a good assessment of whether there are existing organizations that have a similar purpose, mission, or program that is intended for the new organization or whether there is a gap in the market for the type of activities your nonprofit will conduct. What is the level of need in the community for this organization? Is it possible to work as part of an existing organization or, if a new organization is started, an opportunity to partner with an existing organization? How will the new organization be different from existing organization(s)? Will the new organization be able to generate support (financial, programmatic, or otherwise) in light of these other organizations?
- Recruit a board of directors. State law determines the minimum number of directors a nonprofit should have. In certain states, the minimum is one director for purposes of incorporating. Even if the number of board members to create a nonprofit is one, more may be required for ongoing purposes and, in any event, the job of building and maintaining a nonprofit is more than a one-person job. The board of directors holds the responsibility of properly maintaining the nonprofit as a legal entity in and of itself, separate and apart from founders of the nonprofit, board members, and any other interested stakeholders. The board has fiduciary duties and is legally responsible for ensuring that the organization’s governance, finances, and legal compliance are in order.
- Develop a written program plan and budget. What will the nonprofit be called? What will the nonprofit do? What will the nonprofit’s regular programs include? A written program plan should be developed, setting forth how the organization will use funds raised to fulfill its stated “charitable, religious, educational, or scientific” exempt purpose. The program plan should also align with a budget forecast for three years, which should include expected forms of income (e.g., grants, donations, etc.) and expenses necessary to operate the organization and the planned programs. Don’t forget to include overhead expenses such as office space, equipment and software, professional services, web hosting and development costs, insurance, and any other operating expenses.
- Develop a written fundraising plan. A fundraising plan should identify the sources of income that the organization will likely draw from. This can include grants from government sources or other nonprofits. The plan should also include methods by which the organization plans to raise money, which can range from in-person solicitation, online fundraising (including social media, website), fundraisers (e.g., dinners, galas, other events) to direct mail. You should also determine where fundraising will occur: will it be conducted mostly in one concentrated local area, state-wide, or nation-wide? Consider how the organization will sustain itself in the long run.
While there are many things to do and consider when beginning your nonprofit, these are just five of the bigger bucket items to start with. For additional information, you may want to contact your state association of nonprofits.
Tammy Hui Law + Strategy, PLLC, provides advice and assistance to clients on a variety of legal issues faced by nonprofits and small businesses, including formation and start up. If you wish to speak to a lawyer about your idea for a nonprofit, click here to schedule a free 30-minute consultation.
 For example, if a nonprofit fails to file an annual return with the IRS for three consecutive years, the IRS will revoke its tax-exempt status.