This question showed up on my Quora feed and below is my answer:
First you have to have an idea of what you want to do. Nonprofit work is wonderful and hard, so you have to really care about your mission. Passion for what you do is essential; if you only kinda sorta care, this will not work. Can you define concisely what it is you plan to do?
Next, clearly define what you want to see in the world and how your organization is going to make that vision happen. What is different or special about your plans and work that is different than other similar organizations? They will be your competition for donor dollars, public profile and opportunity. One of the big problems in the nonprofit world is the duplication of effort. Many funders will wonder why you are different, and what makes your approach that much better, or will produce a stronger outcome than another similar organization. If your work is the same as other established groups, it will be tougher for you to get and maintain traction for profile of your group and with donors.
What kind of company are you, before you are nonprofit? Nonprofit is only a tax status, not a business program. In many states you must be a corporation before you can apply for tax exempt status. This is a good idea, as it is important to separate the liability for the organization from its board members.
When you are an approved corporation or association, then you must apply to the IRS for nonprofit status. This requires a detailed application and fee, and many require the assistance of professionals ( like me) to help complete and submit the application. There is a newer shorter application planned for this summer, however the planning work will not change. You must plan for what you can raise, what you will need to spend and where the funds will be dispersed. Who is going to do this with you?
The waiting time for review from the IRS can be quite long, and it does not mean automatic approval. Many applications require additional answers from the IRS which can also delay approval. It will be helpful if you anticipate questions and include who your board members are going to be, how you will identify the clients and recipients of your work, and how you will measure your success.
However, once you do all of this, and receive your exemption, you have made your nonprofit. Be sure to keep on top of all required corporate laws and compliance filings from your state and the feds to keep you in good standing. As a nonprofit, you are not exempt from corporate laws that include filing of statements with both the Feds and your state government. You need to plan to keep good records of meetings and decisions along with complete financial records.
Nonprofit doesn’t always mean tax-free, pay attention to the small print. If you sell something to raise money that is not directly associated with your work, you may owe taxes on those sales. You will have to pay for insurance, payroll taxes for your employees and other inevitable expenses that go along with doing business, nonprofit or not. It is important to take your nonprofit very seriously as a business. If you take the time with careful and considered set up and making sure your internal systems work as you start out you will be able to devote so much more of your time and effort to the things that really matter: the reason you set on this course in the first place.
We’d love to offer some help, call 310 828 6979, ask questions, and Good luck!
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