How to Form a Non-profit Organization?

Know the rules and step-by-step guide to form a non-profit corporation.

It’s easy enough to assume that for most people, selfishness and apathy is natural. That’s it’s all about I, me, mine.

But that’s not really true, as plenty of us want to help when we notice a problem in our world. It may even be hardwired into our brains, as studies using special MRI technology has demonstrated that the act of giving stimulates the same parts of the brain that are also activated by sex and food.

Does it matter why we want to help? For those who receive the help we offer, it doesn’t really matter all that much. And for those of us who do help, the fact that it’s satisfying is a good enough reason.

There are many ways of helping out people, and one of them is by starting a nonprofit organization.

Other Ways of Helping

Obviously, that’s not the only way you can help others. You can always donate to charity, or volunteer your services for local charity organizations.

When you work with charitable and other support organizations, you may even propose your own ideas for them. If the people in charge of these organizations like your ideas, then they may implement some of these ideas. They may ask you to help out, or even lead the implementation of your ideas.

But if you’re interested in forming a serious group to help solve a problem in society, then you may want to formally establish a nonprofit organization.

What’s a Nonprofit Organization?

A nonprofit organization is very similar to a corporation. You have officers and employees. People get paid salaries, although you may have volunteers who don’t ask for remuneration. There are tax benefits as well, which is why they’re also called 501(c)(3) exempt organizations.

The main difference is in the name nonprofit organization. It’s about generating revenues, but it’s not profit. No one in the organization get to be super-rick like Bill Gates, Jeff Bezos, or Mark Zuckerberg. The money the group makes goes into helping to solve a problem in society.

Foundations are different, even though in many ways they’re also similar to nonprofit organizations. Yes, they both use money to fund potential solutions to societal problems. It’s just that with foundations, the money generated comes from a rich family or a corporate organization.

A nonprofit organization, on the other hand, generates revenues in other ways:

  • They can receive donations from the general public.
  • Certain government agencies, private foundations, and even corporations can give grants to the nonprofit organization.
  • The NPO can charge membership fees.
  • The NPO can also sell branded products or offer special services for pay, just like regular corporations.

Essentially, nonprofit organizations are businesses that prioritize their social missions. This is why certain steps in forming and running an NPO are virtually the same as with a corporation.

Confirming the Need for Your Nonprofit Organization

You’re hardly alone in thinking about starting and running a nonprofit organization. It’s estimated that just in the US, there are more than 1.5 million of these NPOs. That’s actually heartwarming and encouraging, as it’s great to realize that the need to help people and society in general isn’t just limited to you and your group.

On the other hand, it’s very likely that you’re planning on solving a problem that other current NPOs are already working on. That can be problematic.

Sure, it’s not really a bad thing. It’s not as if starting your nonprofit organization will make the problem that you’re trying to solve any worse. But NPOs are still competing for funds, and there may not be a lot of money left for your organization once the more established NPOs get their funding first.

This is why you need to make sure that you’re offering something new. Your organization should be distinct enough when you’re offering a new solution to a current problem. That’s a more effective way of generating donations and revenues.

Think about it; if you’re just mimicking the very same solution that the NPO in your area is already doing, then you just might be better off by joining that organization in the first place. There would be no need for your own NPO.

It’ll be easier for you as well, since you’re able to avoid all the hassle of starting a brand-new nonprofit organization.

However, if you’re sure that you have a unique approach and solution to a problem that no other group is offering, then you may have a chance with your new NPO. But you have to have the determination to succeed.

The Steps You Need to Take

Okay, at this point, you’re sure you want to start an NPO, or at least you’re seriously considering it. You’ve checked out all the other options on how you can help, and you’re convinced that a new NPO is the way to go. You’re not just starting up an informal group—you want a serious nonprofit organization.

In that case, let’s start with how you need to go about starting this NPO.

Laying the Groundwork

Now that you’re convinced that you need to form the NPO, the next step is to convince others. We’re not just talking about potential members of your group, who may become decision-makers, paid workers, and volunteers.

We are also talking about the people who will fund your NPO, such as folks who will offer donations and businessmen and other leaders who will provide grants. You’ll notice that this will be an ongoing mission through the lifespan of your NPO.

So, how do you do this?

  • Start by defining the problem you wish to solve, and the people you want to help out. What exactly is the problem?
  • How are the current solutions not enough in solving this problem? This means you should identify the other NPOs and see what they’re doing to solve the problem. Do you see any inadequacies or issues with their solutions? You can go on with your NPO if you answer “yes” to the previous question. Because if they’re solution is working fine, then your NPO isn’t really needed, is it? You can just go and work for that NPO instead.
  • Then consider what solution you’re proposing. Does this solution actually help out? Does it cover issues that the other solutions aren’t addressing? If you think so, then you need supporting evidence to convince others of this belief.

As you may have noticed, this first step involves a lot of questions, for which you need to have definitive answers. Think of it as market research, if you were planning on starting your own business. You need to think about your competitors, their products and services, and your target customer profile.

Since you’re already thinking of your NPO as a business, you may as well perform what’s called a SWOT analysis in the business world. This is about identifying strengths, weaknesses, opportunities, and threats.

Think about what your NPO will be good at, and what will need improvement. These are the internal factors.

The external factors are the conditions in the real world that will affect your efforts. You need to identify particular opportunities to generate money or to establish your brand, while you also need to discover threats such as potential changes in the community that may derail your efforts.

With all the data you gather, are you still determined to start the NPO? Are you convinced you have a viable solution that no one else is offering? Do you think you can do better? If you answer yes to these questions, then continue.

Set Everything On Paper

This next step is about making all these ideas more real and a lot clearer, so that everyone—from your NPO members to the people you will rely on for incoming money—will be on the same page.

That’s why you’ll want your problem and solution written down, on a piece of paper that you’ll include as parr of your legal documents. It won’t be something hazy and vague. The problem you’re trying to help with, and the solutions that your offering, should be put down into words.

What’s Your Name?

Then you have the name of your NPO. It’s easy enough to understand the importance of using the right name, because it becomes part of your brand identity. You want the name to be memorable, and it should help people realize what your efforts are all about.

First off, that means complying with legal requirements:

Unique

Your NPO name has to be unique. You can’t use a brand name that’s already in use, whether by an NPO or by a regular corporation or LLC. That means you can’t just call your NPO the Salvation Army or the American Red Cross. Obviously, you can’t call it Microsoft or Facebook, either. You’re not allowed to use any name that might be too similar to corporation and NPO names that are already in use.

You will then need to look over your state database to check whether the names your considering is new or already in use. You’d best check out national or even worldwide databases as well. The Google search engine is a good way to check as well.

Required Terms

Various states may require you to add a specific term at the end of your chosen brand name. This can be words like Corporation, Incorporated, or Limited Liability Company. In most cases, you’re allowed to use abbreviations like Corp., Inc., or Ltd., or just LLC.

No Misleading Terms

As with corporations, you’re not allowed to use words or phrases that may imply that your organization is part of the government. That means you shouldn’t use words that are too similar to government agencies, such as the FBI and CIA.

Additional Tips

  • Discuss the potential names with other members, and maybe with potential donors as well.
  • Try out various options that are easy to spell and pronounce. Avoid using technical jargon or foreign words that people may not be able to pronounce right away (like many French words, for example).
  • Go with names that are memorable, or even inspiring.
  • Make sure that your NPO name helps people understand what your goals are.
  • Check that if you’re using abbreviations, the resulting abbreviation is also good. An example of what not to follow is Hermione Granger’s Society for the Promotion of Elvish Welfare, which comes out as SPEW.

What’s Your Mission Statement?

The mission statement is like a motto. It’s usually a single sentence or a short phrase that encapsulates what you’re trying to do. Like your brand name, you’ll want it unique, memorable, and inspiring.

Examples

Here are examples used by some of the most famous NPOs:

  • AARP: To enhance quality of life for all as we age.
  • The Alzheimer’s Association leads the way to end Alzheimer’s and all other dementia
  • American Diabetes Association: To prevent and cure diabetes and to improve the lives of all people affected by diabetes.
  • American Heart Association: To be a relentless force for a world of longer, healthier lives.
  • American Museum of Natural History: To discover, interpret, and disseminate—through scientific research and education—knowledge about human cultures, the natural world, and the universe.
  • American Red Cross prevents and alleviates human suffering in the face of emergencies by mobilizing the power of volunteers and the generosity of donors.
  • Amnesty International: To undertake research and action focused on preventing and ending grave abuses of these rights.
  • ASPCA: To provide effective means for the prevention of cruelty to animals throughout the United States.
  • Audubon: To conserve and restore natural ecosystems, focusing on birds, other wildlife, and their habitats for the benefit of humanity and the earth’s biological diversity.
  • Best Friends Animal Society: to bring about a time when there are no more homeless pets.
  • Boy Scouts of America: To prepare young people to make ethical and moral choices over their lifetimes by instilling in them the values of the Scout Oath and Law.
  • Candid (Guidestar + Foundation Center): Candid gets you the information you need to do good.
  • CARE: To serve individuals and families in the poorest communities in the world.
  • charity: water: Bringing clean, safe drinking water to people in developing countries.
  • Cleveland Clinic: To provide better care of the sick, investigation into their problems, and further education of those who serve.
  • Creative Commons helps overcome legal obstacles to the sharing of knowledge and creativity to address the world’s pressing challenges.
  • Defenders of Wildlife is dedicated to the protection of all native animals and plants in their natural communities.
  • Doctors without Borders (Médecins Sans Frontières) to provide lifesaving medical care to those most in need.
  • Ducks Unlimited conserves, restores, and manages wetlands and associated habitats for North America’s waterfowl. These habitats also benefit other wildlife and people.
  • Environmental Defense Fund: To preserve the natural systems on which all life depends.
  • Feeding America: To feed America’s hungry through a nationwide network of member food banks and engage our country in the fight to end hunger.
  • Girls Scouts: Girl Scouting builds girls of courage, confidence, and character, who make the world a better place.
  • Habitat for Humanity International: Seeking to put God’s love into action, Habitat for Humanity brings people together to build homes, communities and hope.
  • Heifer International: To work with communities to end hunger and poverty and care for the Earth.
  • Human Rights Campaign: Working to achieve lesbian, gay, bisexual and transgender equality.
  • Human Rights Watch defends the rights of people worldwide
  • The Humane Society: We fight the big fights to end suffering for all animals.
  • In Touch Ministries: To lead people worldwide into a growing relationship with Jesus Christ and to strengthen the local church.
  • Invisible Children: To end the violence and exploitation facing our world’s most isolated and vulnerable communities (
  • JDRF: To find a cure for diabetes and its complications through the support of research.
  • Kiva: To expand financial access to help underserved communities thrive
  • Leukemia & Lymphoma Society: Cure leukemia, lymphoma, Hodgkin’s disease and myeloma, and improve the quality of life of patients and their families.
  • Make-A-Wish: We grant the wishes of children with life-threatening medical conditions to enrich the human experience with hope, strength and joy.
  • March of Dimes leads the fight for the health of all moms and babies
  • Mayo Clinic: Inspiring hope and promoting health through integrated clinical practice, education and research.
  • Metropolitan Museum of Art collects, studies, conserves, and presents significant works of art across all times and cultures in order to connect people to creativity, knowledge, and ideas.
  • MoMA: To share great modern and contemporary art with the public (
  • Monterey Bay Aquarium: To inspire conservation of the oceans.
  • National Parks Conservation Association: To protect and enhance America’s National Park System for present and future generations.
  • National Wildlife Federation: Uniting all Americans to ensure wildlife thrive in a rapidly changing world
  • The Nature Conservancy: To conserve the lands and waters on which all life depends.
  • New York Public Library: To inspire lifelong learning, advance knowledge, and strengthen our communities.
  • NPR: To work in partnership with member stations to create a more informed public – one challenged and invigorated by a deeper understanding and appreciation of events, ideas and cultures.
  • NRDC: To safeguard the earth—its people, its plants and animals, and the natural systems on which all life depends.
  • Oxfam: To create lasting solutions to poverty, hunger, and social injustice.
  • The Rotary Foundation: To enable Rotarians to advance world understanding, goodwill, and peace through the improvement of health, the support of education, and the alleviation of poverty.
  • San Diego Zoo is a conservation organization committed to saving species around the world. (
  • Save the Children: To inspire breakthroughs in the way the world treats children and to achieve immediate and lasting change in their lives.
  • Smithsonian: The increase and diffusion of knowledge.
  • Jude Research Hospital: To advance cures, and means of prevention, for pediatric catastrophic diseases through research and treatment
  • Susan G Komen for the Cure save lives by meeting the most critical needs in our communities and investing in breakthrough research to prevent and cure breast cancer.
  • Teach for America: Growing the movement of leaders who work to ensure that kids growing up in poverty get an excellent education.
  • TED: Spread Ideas.
  • The U.S. Fund for UNICEF fights for the survival and development of the world’s most vulnerable children and protects their basic human rights.
  • USO lifts the spirits of America’s troops and their families.
  • World Wildlife Fund: to conserve nature and reduce the most pressing threats to the diversity of life on Earth
  • Wounded Warrior Project: To honor and empower wounded warriors.

As you may have noticed, none of them are too longwinded. In addition, most of the words used are rather simple, so that you can communicate with a larger percentage of the donating public. You don’t want to use words that will seem elitist, but you don’t want it too simplistic, either.

Building a Business Plan

Since you’re running an NPO with the goal of raising money, it’s as if you’re running a business. And if you’re serious about the business, you need a business plan. That means setting words to paper, although these days you normally set it on an electronic document on your PC.

With the business plan, you have the needed structure and information you need to help you with operational and strategic issues. It will help you estimate operational expenses and expected revenues. You’ll know what kind of equipment to buy, and talent to hire to achieve your goals. Some of the information will also be needed once you file the paperwork so you can get your tax-exempt status.

The plan should include the following sections:

  • Executive Summary. This should describe your mission and values. It also includes the summary of your market analysis, proving that there’s a real need for your NPO. It also explains how your NPO will meet that particular need.
  • PPS. This is where you describe your programs, products, and services to gain the money you need to help with the problem you’re trying to solve. Describe who your intended beneficiaries are. Specify your goals, and how you intend to achieve those goals. Explain how your services and programs provide a positive change.
  • Marketing Plan. Explain the need for your services. Describe how you can spread the word about what your NPO has to offer. Basically, this is an outline for how you will advertise your NPO.
  • Operational Plan. This is about your day-to-day operations. Describe the organizational structure and specify the role played by each role in the organization. You should include where you plan to set up your main office.
  • Impact Plan. Here, it’s about your specific objectives. What are the changes you’re planning on creating in society? How do you measure those changes? Also, you need to figure out what you can do with what you learn along the way, and how you will share the information with others in society.
  • Financial Plan. This concerns your budget, along with expected revenue sources and expenses.

Assembling Your Team

You’re building an organization, and that means you’re building a team. This team will include:

The Board

Board members have important responsibilities, which is why it’s absolutely important that you get the right board members. They will be responsible for many crucial tasks, including making strategic decisions and hiring people to run the day-to-day operations. They will make sure of compliance with NPO regulations (such as the paperwork), along with supporting daily operations.

The Staff

Like any company, you’ll need officers and paid workers to get things done. For NPOs, the positions may include Events Manager, Fundraising Manager, Communications Manager, and Membership Managers.

You will need to think about salaries and benefits. The main issue is that you won’t be able to match what regular for-profit companies may offer, but you do get more motivated workers.

Volunteers

These are your unpaid workers. But you’ll have to think about their special skills, or what training they may need. You also need to find out how many hours you can get from each volunteer.

Proper Branding

This is about defining your NPO brand identity. It’s as if you’re a person, but you want to come across as a good person. You want an identity that people can trust with their money, and that they can rely on your NPO to get things done.

Yes, it starts with your brand name and mission statement. Then you might also want to use a logo. You’ll also want to use unique graphic design elements for your website and official documents.

But branding is more than that. You need to tailor your message to optimize the impact with the demographics you’re targeting. The very language you use must be considered carefully. You’ll need to think about the words you employ and the tone of your advertising, website, office, and official documents.

Formal Incorporation

This is the step that requires you to file with the state and with the federal government. Formally starting an NPO gives you the exclusive rights to your name, plus you also get the tax-exempt status you need.

This can be very detailed, with steps including:

  • Filing the articles of incorporation
  • Obtaining an EIN for the NPO, as the EIN is basically the Social Security number for the NPO
  • Creating the bylaws
  • Filing the required initial state reports
  • Registering for charitable fundraising

While you can do all these steps yourself, you’re strongly advised to get a professional service to help you out. States can have very different required steps, and some of the requirements may be somewhat complicated. A good online formation service with experience in incorporating NPOs will be a godsend for your group.

The good news is that these online formation services aren’t all that hard to find online, and most packages they offer are quite reasonable. You’ll get fill value for your money, as they will make sure that all the details are attended to.

Securing the Funding

At first, you may need to spend money out of your own pocket. But once you’ve incorporated, you may then be able to legally solicit funds for your NPO.

Grants

In most cases, you can start with grants.

That means you approach various foundations and convince them that your NPO is worthy of the grants they can provide. This may be quite a challenge, as you may not be the only NPO that will approach foundations for these grants.

In addition, the grant application process can take a long while, and you may need to furnish a lot of detailed information about your NPO. It can truly help if you have the right people to help you out, such as those with personal connections with the decision-makers of these foundations.

Networking

This means you should connect with other organizations in your community. Introduce your NPO to the various businesses and other organizations in your area. Meet people from other NPOs as well.

It’s a bit like being a new resident in the village you moved into. If you want to make sure you thrive there, you should foster a friendly and trustworthy impression. After all, you’re not just there to make friends—you’re asking for money!

Partner with as many community groups as you can, especially with the particular type of people you see as your major donors. You may even help out with the charitable events and efforts of other NPOs at first, so that they may then end up helping with your own efforts.

First Operational Steps

Generally, this part is very similar to what you need to do to get your business going. This starts with holding regular board meetings. After the first meeting where the board members discuss the bylaws, you then also need to pick the officers in the day-to-day operations.

After that, it’s all about hiring the workers you need. You’ll need a CEO (also known as the Executive Director) that handles the operational part, who will report the board. Once that’s done, the board can just remain on oversight duty while they also help with the fundraising efforts.

You need to make sure you have a viable hiring process in place. You’ll want clear job descriptions to get the paid talent you need, and also attract the motivated volunteers.

Finding an Office

With the CEO in place, the NPO should then start on finding an office where all the staff people will work. You’ll need the office for credibility and for operational efficiency. It’s a bit hard to run an NPO strictly online from your home.

Starting a Website

Most people these days don’t really trust any business that doesn’t have its own website. That same rule applies to NPOs as well. You need the website for credibility.

Besides, the website is an invaluable tool for advertising. Here, you can explain in great detail what you’re trying to do with your NPO. You can put a spotlight on the problem you’re trying to solve, and describe how your NPO will help with that problem.

With the website, you can post articles, pictures, and even informational videos to help you gain traction with potential donors and volunteers. You can secure more members while you send out newsletters regarding the issues that you’re involved in. It can even function as a selling platform for whatever branded products you’re selling to gain revenues.

Keep in mind that your website is part of your brand identity, and you should make sure it’s designed and operated properly. It should be updated regularly, and it’s best if it can post new information each day. It ought to be secure as well.

Your NPO won’t succeed all that well if you have a very amateurish website, as that might make people think that you’re running a scam. Everything has to look professional, web pages should load quickly, and it should offer accurate information.

If possible, set up your website so you can accept online donations. Make it easy for potential donors, by creating a very prominent DONATE NOW button. This is very similar to the “Buy Now” button in commercial websites.

The point is that you minimize the hassle that potential donors will have to go through for them to donate. If the whole donating process is too complicated or time-consuming, the more likely some potential donors will just give up on the process.

In fact, you may want to think about allowing for recurring donations. That means they’re given the option to donate weekly, monthly, quarterly, or even yearly. That way, your NPO can enjoy their donations for years to come.

Use social media as well. Tools such as Twitter, Instagram, Facebook, and LinkedIn can help spread word about your NPO.

Volunteers and Donors

Volunteers can be a valuable asset for NPOs, as these motivated individuals can be quite passionate. They can not only work for your organization, but spread word about all your efforts.

You should create a proper volunteer plan, with specifics regarding how to recruit them. You may also need to train them as well. These volunteers may rise up in your organization, and they may become donors, paid workers, or even board members in the future.

When you have donors, you need to make sure you keep them on as well. Regular donors are the lifeblood of every successful NPO, and you’ll want to give them special attention. They’re like the VIPs that you want to keep happy, and you may want to send them special gifts in return for all their contributions.

Final Words

Once your nonprofit is up and running, the real challenge begins. It won’t be a stroll in the park, as you will certainly meet formidable challenges along the way. In fact, some experts believe that it’s even harder to run an NPO than it is to run a regular business. It’s so easy to give up, especially when you don’t have profits to motivate people.

Keep in mind that a nonprofit organization is like a business in many ways, and that includes dealing with expenses. Even after you’ve paid for the state filing fees at the start, you may find that you have to pay yearly fees to the state to maintain your organization in good standing. That also usually means paying the yearly fees for the registered agent.

You will have to bear in mind all your compliance obligations, and the paperwork and red tape can be annoying. These generally include regularly filing your annual report, keeping and organizing your records, changing certain sections of your operating agreement or bylaws depending on the circumstances, and also filing documents to let the state know about crucial changes to your organization.

Running the nonprofit organization means complying with all the pertinent laws, especially about how the organization will be managed. Depending on the state, the rules may specify the need for a board of directors, regular board meetings, proper records for meetings, and other obligations.

Your political activities, including your lobbying efforts, may also be limited as a result of formally starting a nonprofit organization. That can be a problem for some groups, especially those who may wish to get the support of politicians to their cause.

With all these hurdles, you still can’t be sure that you can gain enough money to support your chosen cause adequately. Again, it’s like a business, and businesses can surely fail.

The stats regarding nonprofit organizations do not show an optimistic future. Most experts in the industry admit that less than 50% of all non-profit startups don’t last for more than 5 years. Among those that manage to survive past the 5-year mark, about 33% of them are in financial difficulties.

But the other side of the coin is that businesses can also succeed, and may even succeed spectacularly. It is this cautious optimism that keeps many good-hearted people going, even with times get rough. In the end, you’re trying to do good with your nonprofit organization. The real profit is being able to help.

 

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