10 tips for starting a nonprofit business

Starting a charity can be incredibly rewarding, but it takes research, planning, and hard work. The following tips will help you test your nonprofit idea and learn how to start a nonprofit on a solid foundation.

1. Decide whether to start a nonprofit or a for-profit business

What makes a business nonprofit? Basically, a nonprofit's purpose is to fill a need in society or the community. Although you may earn a salary from your nonprofit, you'll never bring home company profits.

In contrast, a for-profit company may give back to the community, but its main purpose is to make a profit for its owners. Nonprofits can get tax-exempt status and are in a better position to attract grants, donations, and volunteers.

2. Be clear about your purpose and commitment

Write down the need that your nonprofit will target and your initial thoughts about how you will fill that need. Setting up a nonprofit takes commitment—you'll have to raise money and work with a board of directors and volunteers to achieve your purpose. Be sure you're ready to put in the time and energy needed.

3. Do your research

Your nonprofit will compete with other charities for donor funding, grants, and volunteer support. To succeed, you must fulfill a significant need that isn't already being met by other organizations. Research the number of people who would benefit from your nonprofit.

Find out whether other organizations are already doing something similar to what you propose. If so, you'll need to adjust your idea or consider getting involved with an existing nonprofit rather than starting a new one.

4. Get feedback on your idea

Reach out to the people your nonprofit business will serve, as well as other nonprofits that do similar work. Find out more about what's needed and how specifically you can meet that need. Ask about potential hurdles you might not have thought of, and make a plan for overcoming these obstacles.

5. Write a business plan

Once you've fine-tuned your idea, you're ready to write a nonprofit business plan. Your business plan should include:

• The need you will fill and how you will be different from other nonprofits with a similar mission
• The cost of starting and running your nonprofit
• How you will fundraise (i.e. where you'll get the money to meet your costs)
• Who will serve on your board of directors, and what you'll need in terms of employees and volunteers
• How you will market your nonprofit and how you will solicit donations, follow up with donors, recruit volunteers, and get the word out to the people you serve

The business plan is one of the most important steps to starting a nonprofit because it helps you see weaknesses in your idea, provides you with a roadmap for next steps, and gives you information you can use when applying for nonprofit status.

6. Form a corporation

Before you can apply for nonprofit tax status, you must form a nonprofit corporation. Creating a nonprofit involves filing paperwork with your state and paying a filing fee. You should also create a set of nonprofit bylaws.

7. Get help applying for nonprofit status

The rules for getting and maintaining nonprofit tax status can be complicated, so it's best to get advice from a lawyer or accountant who has experience with nonprofits.

Having someone answer your questions and prepare or review your application can help you gain Internal Revenue Service approval and avoid problems down the road.

8. Apply for state tax exemption

After your nonprofit status is approved by the IRS, you can also qualify for a state tax exemption. Some states require you to apply separately.

9. Make a detailed fundraising plan

You can raise money for a nonprofit in many different ways, but you'll find a lot of competition for limited resources. Focus on the most realistic ways to bring in dollars and make a concrete plan for making that happen.

10. Measure your organization's impact

One of the best ways to keep support flowing into your organization is to demonstrate its impact in terms of how many people you reached or served and how your money was spent. Set up a system for measuring your nonprofit's impact starting on day one. Then you'll have compelling data when you apply for grants or launch a fundraising initiative.

A nonprofit business can be extremely rewarding and make a major difference in your community. But setting one up involves more than just filing paperwork with your state and the IRS. Invest some time in research and planning, and you'll be on the road to achieving your goals.