10 Tips for Starting a Nonprofit Business

10 Tips for Starting a Nonprofit Business

by Belle Wong, J.D., September 2015

If you've decided the best way to serve your community is by starting a nonprofit business, you've chosen a very fulfilling journey but also one which can be fraught with complications and complexities.

If you've investigated the ins and outs of starting a nonprofit organization, you've probably realized by now that, unlike starting a for-profit corporation, there's a lot more involved when you decide to start a nonprofit business than simply registering your business with your state, obtaining all the necessary licenses and permits and opening up for business. 
Fortunately, there's a lot of guidance available on how to start a nonprofit business. But sometimes you need more than guidelines. The following tips will, hopefully, make the nonprofit organization start-up process somewhat easier:

1. The Importance of Market Research

Just like a for-profit organization, it's important to put a lot of thought into finding your nonprofit's niche. However, while a for-profit business may, depending on market need, still be able to operate in an area even if there are a few rival businesses present, a nonprofit business may find it difficult to obtain the support of donors if there is already another organization, whether for-profit, nonprofit or even government, doing the same kind of work or similar work to what you're envisioning.

2. Assessing Your Alternatives

As mentioned above, running your own nonprofit organization can be fulfilling, but it is also not the easiest road a business person or entrepreneur can take. It may be worthwhile to fully consider and assess the alternatives to running your own nonprofit.

For example, if your market research indicates there's already a nonprofit organization working to serve the same needs your proposed nonprofit would serve, is there an opportunity to join that organization, either as a volunteer or a staff member, or maybe as a board member? Or if a national-level nonprofit organization exists which covers the needs of your niche, you could explore the possibility of opening a local chapter of the organization.

3. Know Your Charitable Purpose

What needs do you want your charitable organization to fulfill within the community? It's important to know your charitable purpose, and even if you're working within a specialized or unique niche, to draft that charitable purpose as broadly as possible. Having a broad purpose will help you to more easily find people within your community who have a diverse range of abilities and who are willing to support your purpose.

4. The Need for a Mission Statement

A mission statement isn't just for large corporations. Nonprofits can benefit immensely from a well-thought-out mission statement. Essentially, a mission statement takes your broad charitable purpose and refines it in order to provide a set of goals and objectives which can help your nonprofit make the decisions necessary in the years to come in order to stay on the course you've set out.

5. The Business Plan

A business plan is an essential document for the nonprofit organization—all businesses need a business plan, and this is particularly true for the nonprofit, which can use a well-crafted business plan to attract funding from potential donors as well as from government agencies. Armed with your mission statement, your business planning process should explore how your nonprofit can meet the goals and objectives underlying your mission.

6. The Incorporation Decision

One of the main benefits of incorporating your nonprofit business is that it enables your nonprofit, once it's a nonprofit corporation, to apply for tax exempt status with the IRS. Note, however, that the incorporation process doesn't give you tax-exempt status under section 501(c)(3); once incorporated, you will still have to formally submit a 501(c)(3) application to the IRS.

7. Help With Tax Exempt Forms

Applying to the IRS for tax-exempt status adds another ripple of complication (or perhaps wave might be the better term) to things. Despite the additional complexity, however, it's still a process which you can do yourself, if you're willing to apply yourself diligently to completely filling out all the forms required and submitting a complete 501(c)(3) application package. And the IRS isn't leaving those who wish to tackle the application process by themselves high and dry; there is a helpline specifically for tax exempt entities and tax exempt questions, as well as numerous publications and other resources, all of which are detailed on the IRS site here.

8. Stay Compliant

Life for a nonprofit corporation is filled with regulations, and it's important to stay on top of all the compliance issues that may affect your nonprofit. For example, you should make sure to register with the appropriate state office regulating charitable organizations and charitable solicitations within your state. Other compliance matters include the annual reporting form, Form 990 (instructions for filling the form are here), which you'll be required to file with the IRS each year.

9. Develop a Fundraising Plan

Especially during the startup phase, a fundraising plan might seem like overkill—much less a fundraising plan for each of your fundraising goals. But having a fundraising plan can be invaluable in helping you clarify what you need to meet a specific goal, identify potential funding sources, and set out how you plan to achieve your goal.

10. Take Advantage of Nonprofit Standard Mailing Rates

And finally, one very practical tip: if your nonprofit will be sending out a lot of mailings, make sure to apply for authorization to mail your organization's materials at the nonprofit standard mailing rates, by filling out and submitting the USPS's Form 3624. The USPS has more information about the application here.

Starting a nonprofit business is a challenge, but with planning and determination you can make the most of this rewarding path. Check with state and local business authorities to make sure you’re taking advantage of your state’s non-profit benefits.

When you want to form a nonprofit, LegalZoom is here to help. Answer some questions about your business in our online questionnaire and we’ll use your answers to assemble a complete set of paperwork and file it with the correct agencies on your behalf.