Are you thinking about starting a not-for-profit? The following list of questions will help you get an overview of what it takes to get started.
Starting a not-for-profit, nonprofit, or NGO includes many of the same considerations as starting a C Corp. The biggest difference is that you are not operating with the sole intent of making money for your shareholders.
You need to decide: Do you want a C Corp (purely for maximizing shareholder profit), a B Corp (includes other metrics, such as impact on the planet, impact on the people the agency serves, or anything else that is not monetary but makes a difference to your mission), or a nonprofit/not-for-profit/NGO (the majority of profits are rolled back into serving the mission).
So what is the difference between a not-for-profit, nonprofit, and NGO?
These terms tend to be used interchangeably, even by long-term professionals in the industry, because they are so similar. All can have a small net profit (generally less than 5% annually) and all tend to use net profits to further benefit the mission of the agency.
The biggest difference is which tax-exempt regulation your agency falls under. Nonprofits and not-for-profits tend to be USA-based. A nonprofit is tax-exempt under 501(c)(3) requirements if it is either a religious, charitable, or educational based organization that does not influence state and federal legislation. Not-for-profits are tax-exempt under 501(c)(7) requirements if they are an organization for pleasure, recreation, or another nonprofit purpose.
NGOs are non-governmental organizations operating nationally or internationally outside the USA. There are some websites that tell you how to start a NGO in the USA, but most people tend to choose the not-for-profit or nonprofit designation.
Here are a few questions to ask yourself when considering starting a not-for-profit:
For the following questions I use the term “not-for-profit”, but the term “nonprofit” or “NGO” can be substituted.
Q: Do you know the rules for not-for-profits in your country (and State, if applicable)?
There are plenty of resources available online. Start with the Department of State for the State you choose to incorporate in. There are advantages to incorporating in some states over others. That said, a lot of people choose to incorporate in their home state, regardless of other considerations. Do a little homework before deciding.
Q: Do you have any not-for-profit experience?
This is not a requirement but is very helpful. If you do not have a lot of experience make sure you surround yourself with advisors who can help guide you.
Also read: Nonprofit Incorporation
Q: What population will you serve?
It is helpful if it is something where you have larger, established agencies near by that you can collaborate with, especially when you are first starting out and most likely unable to obtain grant funding on your own.
Q: What problem will you solve?
This will turn into your mission statement. Be specific.
Q: Do you have at least $1,000 to get started?
There are a lot of start up costs. From fees associated with incorporating to domain names, web hosting, setting up a bank account, and filing for 501(c )(3) status, your costs could easily exceed $1,000- double that if you outsource the work.
Q: Do you have a list of potential board members?
Your board can be a fabulous support or pain in the…
If possible, you will want to have an equal mix of community influencers (the people who know everybody and how to get them to open their wallets), professionals (attorney, CPA, professionals specific to your agency’s mission), and people who can represent the population you will be serving (for example: people with disabilities, dog lovers, formerly homeless, etc).
Q: Have you created your Bylaws?
Bylaws are the rules you (and your agency) have committed to following. They can be changed in the future by the board. (More about bylaws.)
Q: I have my board and bylaws. What next?
Once you have your board in place you are ready to incorporate. Most states require your bylaws and signatures from your board members along with the Articles of Incorporation. For those incorporating outside the USA, check with the government department that oversees NGOs.
In the USA, the State will often alert the IRS about your new agency and you will receive an EIN in the mail, possibly before you receive notification of acceptance by the State. If not, you will have to ask the IRS for an EIN (employer identification number). This is essentially your agency’s social security number. You will use it when opening accounts, filing your taxes, and applying for funding so keep it safe!
You will then want to open a bank account for your not-for-profit (preferably at a bank where you have no other accounts), purchase your domain name (and the .com as well, just to be safe), and create a basic website.
Q: How often will I meet with my board?
Plan on quarterly board meetings, although it can be more often, especially when getting started. Board meeting notes should be shared and approved at the start of the next meeting. Keep them in a safe place in case you are ever asked for them.
The next step is filing for official not-for-profit (ie: 501(c)) status with the IRS. Some people will donate after you have incorporated but before receiving this, but many will want you to have this tax status before they will donate. Most grants require it, as well as most partner agencies.
Q: Can I create the website first?
You can, but make sure the name is available and allowed by your State before you put too much effort into it. And, remember, purchase the .org AND the .com. You can set up the .com to redirect to your .org to ensure people can find you regardless of which they enter.
Also read: Create a Website for Your Group or Nonprofit
Q: Is there anything I should know about web hosting or my web site?
There are multiple options for choosing how secure your website is.
Make sure you obtain your https certificate so people will feel comfortable making donations via your website.
You will want to pay a little more to ensure you have a dedicated IP address, enough email accounts for you, your employees, and key board email addresses (ie: “president@”, “vicepresident@”, “treasurer@”, and “secretary@”), unlimited email storage, unmetered bandwidth (people expect your site to load quickly), and automatic website backup. There are cheap options, but you really get what you pay for.
Q: What will your role be?
Generally, you will be the Executive Director. Who else is as passionate about this agency? As an employee of the agency, you can be compensated for your work. You report to the board and everyone else reports to you. It also means you are responsible for everything. If you do not feel up to the task, you may choose to take a smaller role and find someone else to be your Executive Director.
Q: How do I obtain funding?
You will want to start with your friends, family, and board members. Then move on to local philanthropic organizations and private foundations. State and Federal grants are the most difficult and have the most competition. Partnering with larger, established agencies can help you establish yourself as a serious contender when it comes to funding your projects and mission. (24 Ways to Prep Your Fundraising Board to Fundraise)
There are many resources available online, including this blog. Please utilize as much as you can. And, all the best with your not-for-profit, nonprofit or NGO!
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About the Author:
Jennifer A Harter is a Financial Educator on a mission to help at least 1 million people break free from living paycheck-to-paycheck by 2030 and help end generational poverty. She used her GI Bill to earn her Bachelor’s in Accounting and MBA and started working with not-for-profits, working her way up to Finance Director. When her daughter and friends grew up and moved out, she became their “money mom”, helping them cut the learning curve to financial success. Jennifer enjoys helping not-for-profits and small businesses with good cash flow, but still struggling, get on solid ground, set up the necessary systems and processes, and prepare them to thrive and grow. She also teaches about money, finances and investing in school with her How To Be A Money Master program.
Connect with Jennifer A. Harter on LinkedIn.