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Questions nonprofit startups should ask before getting started
Looking for U.K.-specific guidance? Read about starting a new charity in the U.K.
So you've got a great idea, and you're ready to change the world by founding a new nonprofit. Time to start filling out the paperwork, right?
Not so fast.
Starting a new nonprofit is a huge undertaking that demands extensive thought and advance planning. As this may be one of the most challenging projects you'll ever take on, the decision to move ahead with creating your own 501(c)(3) merits some serious soul-searching.
Clarify your vision
With more than 1.5 million nonprofits already registered in the United States alone, defining what makes your idea unique is key. While you may be tempted to jump into action, spend time first considering the fundamentals:
- Vision and purpose. Deeply consider the people and the purpose you want to serve. How specifically will you add value to your community, and what groups will you help? Being able to articulate your underlying goals succinctly and emphatically will be crucial as you approach partners, funders and volunteers later on.
- Experience and motivation. How does your past work or volunteer experience relate to the work you'll do as a nonprofit founder? Does your desire to start a nonprofit stem from curiosity and passion about the topic itself, or are you simply excited about starting something new? Take time to examine your skills and motivations and how they connect to this new venture.
Do your homework
Just as a for-profit business must demonstrate how it fulfills a demand, so too must a nonprofit. And while it's true that there can be power in numbers, nonprofits must compete for limited resources and funding. To make sure your niche isn't already filled by another organization:
- Get the demographics. You'll need to be highly educated about the groups you serve. Use resources such as the United States Census Bureau, the Bureau of Labor Statistics and the State Data Center Program to arm yourself with current statistics and trends in your community.
- Study existing resources. Research local groups already working on the issue you plan to address. Take note of how many such organizations already exist, what services they provide, and who they benefit.
- Connect with leaders. Consider scheduling brief informational interviews with staff at similar organizations to learn more about how they work and what challenges they face. These conversations will allow you to identify gaps in existing services, make face-to-face connections with professionals in the field, and get on-the-ground information about the issues specific to your specialty and region.
When you've done your research, you may find it makes more sense to work or volunteer for an existing organization than to start your own venture.
Make sure nonprofit status is right for you
Creating a new nonprofit is just one of many options for giving life to your idea. Many, if not most, new ideas are better served by taking another route.
Let's say you're interested in starting a nonprofit that promotes a healthy lifestyle by encouraging kids to run. If you're thorough in your research, you'll learn that there's already a well-established national organization, Marathon Kids, that does exactly that through a network of chapters. It might well make more sense to start a local chapter rather than an independent nonprofit that duplicates the same mission. That way, you can take advantage of the built-in resources, support, financial help and expertise that come with joining a strong national network.
Are you sure that being a nonprofit is right for you? Both for-profit and nonprofit models come with their own advantages and disadvantages. For example, nonprofits enjoy tax-exempt status and deductions, the right to solicit donations, and limited liability. On the other hand, nonprofit founders relinquish much of the personal control that for-profit founders enjoy — and nonprofits face stricter public scrutiny over how they handle their finances.
The distinction between for-profit and nonprofit isn't as stark as it once was. Increasingly, socially minded entrepreneurs are blending both mission-driven programs and business activities. Regulations hold these companies to a higher standard of accountability and transparency than what's required for a traditional corporation.
Specific business models to support a middle-of-the-road approach include:
- Low-profit limited liability company (L3C). With this variation of a traditional limited liability company (LLC), profit generation is secondary to a social goal.
- Benefit corporation. A benefit corporation is a for-profit organization designed to have a positive impact on society. In California, Florida and Washington, benefit corporations are known as social purpose corporations.
- Certified B Corporation. This globally available certification is awarded by a nonprofit called B Lab. Becoming a certified B Corporation is analogous to a farmer earning a Fair Trade or USDA Organic certification.
- Leveraged nonprofit. In this model, private donations and government and foundation grants are used to provide goods or services in markets not effectively reached by other methods. Profits are rarely possible, with clients in the poorest socioeconomic groups worldwide.
- Social venture. A social venture or social enterprise is a business venture that prioritizes a social good along with business success. A common type of social venture is a hybrid nonprofit fee-for-service organization, which strives to both make money and serve a specific mission.
This middle ground may be especially relevant If you come from a business background or your project has the clear potential to generate sustainable income.
Fiscal sponsorship is a formal arrangement between an existing nonprofit and an individual or group that wants to carry out a new charitable project but hasn't yet received 501(c)(3) status. This alternative allows you to be taken under the wing of an existing nonprofit, benefiting from its tax-exempt status and administrative support, while still pursuing your project.
Assess your support system
Starting a nonprofit is challenging — and you shouldn't go it alone. Before diving in, take time to identify whether you have the necessary support. For example:
- Finances. Do you have known sources of start-up funding? How much will you need, and what will your budget look like? Success requires a robust fundraising plan.
- People. Behind any great nonprofit is a great crew of staff, volunteers, board members, donors and advisers. Is your social and professional network strong enough to support this kind of ecosystem? Do you have access to expert advice and assistance, such as a trusted legal adviser, accountant and professionals in your service area?
- Time. Are you ready to work long hours and throw your work-life balance out of whack? While founding a new nonprofit can be hugely rewarding, it also demands a sacrifice of personal time and energy. Ask yourself if you're willing to give your all to this experience, being sure to discuss the challenges ahead with family members and friends.
This article draws on the expertise of Grace Davies, a Minneapolis-based attorney with special interest in product liability, medical malpractice and employment discrimination.
Nonprofit Law Blog: 10 keys to starting a nonprofit — public charity by Gene Takagi (2011)
Nonprofit & Fundraising Resources: 10 nonprofit start-up mistakes
GrantSpace: How do I start a nonprofit organization?
National Council of Nonprofits: How to start a nonprofit
Society for Nonprofits: Starting a nonprofit organization