How to Start a Nonprofit Part 2: Make It Official

Write a Business Plan

Yes, nonprofits need business plans. The name “nonprofit” is deceptive because you still need to be a profitable operation. In this scenario I’m defining “profitable” as your organization having strong cash reserves and consistently ending in the black at the end of each fiscal year. That’s the bare minimum for a sustainable nonprofit and you need to have a plan to make it happen from the start.

Use your theory of change to write out the programming you intend to implement. Start mapping out expenses based on your program plan. How many staff will you need? What kind of equipment will you need? What expenses such as insurance, taxes and legal support do you anticipate? Which expenses are an upfront cost and which are ongoing costs?

After that, identify your sources of income. For most healthy nonprofits, sources of income should be a mix of grant funding, individual donors, and program income. The first two require establishing a fundraising culture and developing grant writing skills (or finding someone who has them to do it for you). The third option requires you to work with your stakeholders to develop programming that brings in income.

Your fundraising culture will likely include at least one major event, such as an annual gala or skeeball tournament (I’m tired of golf events! Let’s do something with air conditioning and a bit a grime!). You’ll need to understand the expenses of putting on an event like this to ensure it can be profitable.

Your programming is key because programs are the thing most likely to draw in funds from foundations and individual donors. That same programming can also bring in money directly in the form of tuition, memberships or entry fees. It really depends on the type of programming you offer what the income potential might be.

My strongest advice? Make sure your nonprofit isn’t just reactionary. Response to unfortunate situations is important, but consistent programming that engages in education or prevention, is going to help ensure you have consistent income and community engagement.

When it comes to your business plan, the math needs to work. You have to show that you won’t be operating in a deficit, especially after the first few years. If you need help establishing a solid business plan for your nonprofit, call me! I’ve got years of experience building out nonprofit budgets and strategy. I can help!

Create Your Bylaws & Articles of Incorporation

Starting up a nonprofit is serious business and the IRS expects you to have certain things in order. This includes bylaws and articles of incorporation. The organization’s bylaws dictate how the board will conduct business on behalf of the organization, including how they will run meetings. The articles of incorporation state how the organization is structured, the purpose, and what happens in the event that the organization is dissolved.

These two sets of documents aren’t exactly sexy, but they are absolutely necessary if you want to start a nonprofit. Not only does the IRS require that you submit these documents with your application, your organization is responsible by law for following what the documents say.

I’ve helped several organizations draft their bylaws and articles of incorporation. I've got lots to examples ready to customize for your organization's distinct needs. Give me a call and let’s talk about how I can help you get yours ready for the IRS.

Register with Your State & the IRS

You can’t have a nonprofit unless you make it official with the government or have a fiscal sponsor who has already made it official. A nonprofit isn’t just a feel good business, it’s a tax classification and you can find yourself in some serious trouble if you fail to properly register.

I live in Colorado. Here, we register our new nonprofits with the Secretary of State’s office. It might be different where you live so you’ll need to do some research to figure that part out. The IRS will require you to be registered with your state before you can register with them.

When it’s time to register your nonprofit with the IRS, get ready to do some serious paperwork. You’ll need to have your bylaws and articles of incorporation ready to go and you’ll need to complete what’s called a Form 1023. This is the application to create your nonprofit and it is long and detailed.

Completing a Form 1023 is a lot, but the good news is that it requires you to have your shit together. Sometimes, you’ll realize you’re not quite ready…which is okay! Starting a nonprofit is a big deal and you need to be ready.

Starting a Nonprofit Isn’t Sexy

When we start a new nonprofit, it’s because we feel passionate about an issue or idea that’s important to us. Nobody starts a nonprofit because they want to do tons of paperwork and call the IRS three times because their application was rejected for some tiny issue. This work calls you to persevere. Your passion for the issues your organization will address can carry you through. As I said in Part One, you’ll need your board to support you through this process and carry some of the load. Starting a nonprofit should be a team effort.

Need help with the nonprofit startup process? Give me a call! I’ve helped found several nonprofits and I know how to get it done so you can focus on your mission.

In Part Three, we’ll discuss your launch strategy.