How to Start a Nonprofit Organization

Starting a nonprofit organization is an inspiring, selfless way to support and give back to your community and other people in need. It is not an easy task, but you will likely find it a rewarding and fulfilling experience.

Building and supporting charities and other "do-good" organizations can be particularly difficult in light of today's economic climate, as well as distractions like the internet and the rise of big data, which large for-profit corporations and other businesses use to customize user experiences and meet the needs of customers. Still, charities and other nonprofits do have a place in today's world and are often able to fill niches that for-profit organizations may not be able to support.

Here are four important steps detailing how to start your charity or other nonprofit organization.

With more than one million charitable and not-for-profit organizations in the United States alone, it can be difficult to attract funding from outside businesses and other supporters. In order for your nonprofit to survive and thrive, you need to make sure it's meeting a need that isn't already being addressed.

Research the needs of the demographic or demographics you are looking to support. Look into other businesses that support similar causes or have similar missions. You don't want to have exactly the same idea as something that already exists, because the need is already being met. Try to come up with a different angle or approach if there is already a similar organization out there.

Identify the problem you're hoping to address, and develop a business plan outlining how your organization will work to resolve it.

You'll also need to research potential supporters of your cause. In order to find support—financial and otherwise—you'll need to create a business plan that demonstrates that the cause you're advocating is not receiving sufficient support from elsewhere—by a for-profit corporation, charitable organization, or something else—and that you are best equipped to champion the mission.

In order to create a successful nonprofit organization, your business plan will need to address how you plan to cover the costs of operations. You'll also need to explore how you'll attract revenue both to start your business and attract donations to fund your activities in the future.

Identify your main sources of revenue. For most nonprofit these sources will include:
• Fees for services or goods (e.g. memberships dues, tickets for events, sales)
• Private contributions from donors
• Fundraising efforts
• Contributions and sponsorships from for-profit corporations
• Government grants

The National Council of Nonprofits recommends using excerpts of your business plan in your federal Form 1023 application for tax-exempt status and in fundraising efforts.

Submitting grants is a project in and of itself. You'll need to draft a proposal, which includes your mission, a specific outline of how and what you're contributing or intend to contribute to the community, and details about your project, such as the budget, personel involved, and other facts.

Many people hire writers to draft grants for their charities and nonprofits. If this is outside of your budget, it's a good idea to read a book or attend a course on how to create a grant proposal that's likely to get accepted and get several sets of eyes on your drafts for feedback.

You'll also need to draft a mission statement that outlines the needs of the community and how your nonprofit intends to address it. You should be explicit when stating why your charity exists and why it's necessary.

Since similar organizations probably exist, identify what makes yours stand out. How and why are you different? What approach do you use?

A mission statement isn't just about goals—it's also about your reason for existing at all. Of course, you should incorporate your purpose and endgame as well.

You will also need to create a board of directors, a necessary feature of all nonprofits and charitable organizations. This will enable you to support and grow your organization. A board of directors shows other members of your community that you have broad support from respected authorities.

These individuals provide oversight and, when necessary, act as decision-makers. Since a nonprofit is not "owned" by anyone—including you, the founder—there needs to be an established group of stakeholders who act as the governing authority. 

Look for individuals who are knowledgeable about the cause and have the ability and knowledge to support it. They should have strong ties to their community and be willing to actually do the work—not just sit back and sign paper.

Incorporation is important because it allows your charity to have a formal structure, limits the liability of your officers, and legitimizes your organization.

You'll need to incorporate at the state level, and then file for tax-exempt status with the IRS. After the IRS determines your eligibility, you should file for tax-exempt recognition at state and local levels.

If you're having trouble with the IRS forms and other paperwork, it's a good idea to seek the help of a lawyer who has experience working with nonprofits. Your state association of nonprofits may be able to lend support as well.

When you prepare to register your organization with your state and local governments, be sure you are meeting all requirements. You may need to secure licenses and permits for issues like providing goods and services. There may also be specific regulations regarding clientele, types of employees, and location. Charitable organizations may also need to register before engaging in any fundraising or lobbying efforts.

Keep in mind that you will be required to file Form 990 with IRS every year. In order to complete it properly, it's a good idea to keep careful track of your finances, activities, key staff, directors, and other important information, as well as receipts showing your gross income. States will require you to report and renew your status as well.

There are several different types of nonprofits recognized by the government. While the government classifies 30 different types of non-profit statuses, including 4947(a)(1), which represents charitable trusts that are not tax exempt, according to what activities in which they are permitted to engage and whether or not their donations are tax-deductible, they generally fall under one of four different larger groups:

Public charities represent most of the nonprofit organizations in the United States. A public charity is an organization that generally provides free or low-cost services to their target community members. Examples of public charities include soup kitchens, churches and other religious institutions, universities, and nonprofit hospitals.

Private foundations, in contrast to the public charity, are generally established with funds from a single donor or small group of donors, such as a family or corporation. There are two types of private foundations: private operating foundations and private nonoperating foundations. Private nonoperating foundations do not perform charitable activities themselves but fund the activities of other nonprofits that do perform specific activities, usually through grants. Private operating foundations perform charitable activities themselves. Both of these types are tax-exempt organizations.

Examples of private operating foundations include camps, museums, zoos, research facilities, and libraries, as well as well-known foundations like the Make a Wish Foundation, World Wildlife Fund, and the American Cancer Society.

Examples of private nonoperating foundations include The Bill and Melinda Gates Foundation and The Rockefeller Foundation.

Generally, membership-based organizations that represent a specific cause or seek to advance certain beliefs and achieve goals, social advocacy organizations use donations to spread awareness and advocate social change.

You may support one or more social advocacy groups such as the National Organization for Women, the American Library Association, Planned Parenthood, and the American Civil Liberties Union.

Professional and trade organizations offer groups and work-related services to people of the same or similar profession. Members often pay dues to fund the activities and receive benefits such as courses.

Well-known tax-exempt organizations that serve professionals include the American Psychological Association and the National Writers Union.