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How to Start a Nonprofit Business
Kody Wirth | Oct 25, 2023
Starting a nonprofit is one of the most rewarding ways to spend your time.
However, establishing a charitable organization that lasts and truly makes a difference requires thorough planning and solid dedication.
In this guide to starting a nonprofit; we’ll outline the steps to get you up and running.
Check out our startup hub for more in-depth guidance on starting a business.
1. Conduct a needs analysis
First, do some legwork. There are more than 1.5 million nonprofits in the U.S. alone, so you should verify that some other organization isn’t already serving your identified needs.
Confirming that there’s demand for your organization’s mission is called a needs analysis.
You’re looking to answer the following questions:
- Is any other nonprofit organization already serving your target audience?
- How many people need the service you plan to provide?
- Who is your target demographic—who needs what you’re offering? What do they need or want?
- Is a 501(c)3 the best way to meet the need?
For this market research, you need to identify your target population (the people you think need what you’re offering) and potential donors.
Until you’ve spoken with (or surveyed) those audiences, you haven’t validated that there’s truly a need for what you’re offering.
You may find that the need in your target population is different or exists within a different demographic. The point here isn’t to simply prove your assumptions—it’s okay if you need to adjust your idea.
Lastly, become familiar with the IRS nonprofit compliance guide. This information is worth reviewing early on so you know what’s required of a 501(c)3.
Mistakes to avoid as a nonprofit
Starting a nonprofit is challenging enough without making critical but common mistakes like hiring the wrong people and not dedicating enough time to fundraising.
2. Decide on a name
Deciding on your charitable startup’s name is an essential step. You’ll need it finalized before incorporating your nonprofit or filing official paperwork.
Do research to ensure no other nonprofit organizations or for-profit businesses are using the name you’d like to use. At the very least, it will be a hassle if you’re constantly competing with another organization for brand visibility—or answering messages from confused donors or clients.
Check out our branding guide for further guidance on choosing a winning business name.
3. Write your mission statement
While for-profit entities aim to generate profits for shareholders—nonprofits emerge to address specific societal, environmental, or community challenges. This fundamental difference increases the importance of your mission statement.
A well-crafted mission statement articulates the core reason for the organization’s existence. Your mission is a guiding beacon, ensuring that every action and initiative aligns with the organization’s overarching goals.
Donors, volunteers, beneficiaries, and the broader community often engage with a nonprofit based on its mission. Your mission can help generate support, foster trust, and ensure transparency.
Since your mission impacts so many individuals, it’s worth taking a collaborative approach when developing it. Involve diverse stakeholders who will be part of your organization—from volunteers to your first donors.
When finalizing your mission, remember to keep your message concise. Focus on your unique impact and how you differ from similar nonprofits. Once you have a first draft, seek feedback to ensure it resonates with your staff, donors, and those you support.
What is a social enterprise and how to create one
You don’t have to be a nonprofit to make a difference. Learn how you can still carry out a worthwhile mission as a for-profit organization.
4. Build your board of trustees
Every U.S. state requires a nonprofit to form a board of directors, who assume governing responsibilities and liability for the organization. For most states, a single person is considered the minimum requirement for a board, but in some states, as many as three people are necessary.
The National Council of Nonprofits has a great guide on reasonable responsibilities and expectations you might have of your board members. They also make solid recommendations on creating an orientation for new board members to set the stage for their role with your organization.
Annie Rogaski, founder of the Silicon Valley nonprofit The Club, offers this tip:
“Form a strong board that works well together but brings different perspectives and creates an environment that encourages discussion of those different viewpoints to arrive at the best decision.”
5. Write your nonprofit business plan
Nonprofits need a good business plan just as much as for-profit companies—maybe even more.
Lorrie Lynn King, founder of international women’s health nonprofit 50 Cents Period, says, “Nonprofit administration and programming require business acumen, financial planning, strategic planning, and people management skills—sometimes all at once.”
Writing your plan helps you think through every aspect of your organization. Plus, every bank will expect to see a business plan if you seek a business loan for larger capital expenses, like building or remodeling.
But it’s not just about getting a bank loan. Business planning helps you know where your organization is going and how you’ll get there.
“It is crucial to have three-year plans for both the program and administrative sides of your organization, with measurable outcomes,” King says. “Know where you want to go, then create the map for getting there and make adjustments along the way.”
Nonprofit business plan outline
Treat this section as a brief overview of your vision for the organization. Make sure your executive summary includes your mission statement and how your nonprofit will execute it.
Products and services
Are you making a life-changing product at little to no cost for a population in need? Are you providing an essential service to your community? Your products and services are what you’re delivering to meet a demand.
Doing a market analysis will help you better understand the population you intend to serve and your donor base.
Who will be on your management or leadership team and board of directors? What are their duties, and what do they bring to the table?
Your nonprofit’s financial plan is essential. Just because you’re not focusing on generating a profit doesn’t mean it isn’t critical to put together a plan for how you’ll sustain your organization, deal with cash flow, and grow in the future.
Why your nonprofit needs a better budget
Just because you are not pursuing profits doesn’t mean you should skimp on creating a useful budget and financial forecast.
6. Register for 501(c)3 status and file articles of incorporation
In the United States, nonprofits have to meet regulations and requirements at both the state and federal levels.
While there are 29 different categories of 501(c) organizations, the most commonly created is a 501(c)(3) organization—defined by the IRS as a “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, or preventing cruelty to children or animals.”
Most nonprofit organizations in the U.S. will fall under this classification, making them exempt from federal income taxes. (It is important to note that employees of these organizations are still required to pay income taxes.)
Tip: Approval can take up to a year, so get a jump on filing for tax exemption early.
In addition to filing for tax exemption, you will need to register or reserve the intended name of your organization and file articles of incorporation as a nonprofit.
The specifics of this process will vary from state to state. Every state has a State Charitable Official from the National Association that you can contact for more detailed information about what you must prepare.
It’s always a good idea to retain the services of a lawyer familiar with the nonprofit creation process, too. Knowledgeable advisors will be invaluable as you prepare your filings at both the state and federal levels.
Reasons to incorporate your nonprofit
If you plan to apply for grants, solicit tax-deductible contributions, or want protection from personal liability—you should incorporate your nonprofit.
7. Create a fundraising plan and get to know your donor base
Your organization will require a minimum amount of money to maintain regular operations. Then, there are special projects, unforeseen expenses, and growth to account for.
King advises: “Start a funding and a savings reserve for your organization the minute donations start rolling in. Create a system of paper trails and transparency.”
Beyond setting an initial plan for bringing in funds, you’ll want to set up and monitor your financials. You can start with an Excel spreadsheet, but consider long-term accounting solutions like QuickBooks or Xero.
Plus, if you connect it to a business dashboard solution like LivePlan, assembling financial reports for your board meetings becomes much less time-consuming.
Connect with your donors
Nonprofits rely mainly on donations for this money, and having a committed donor base will be essential.
To start building a support network, revisit your research from earlier. Who have you identified as prospective donors? Talk to them, if you can, and understand what drives them.
Use this direct feedback to craft your branding and marketing efforts. Your goal is to choose communication channels that your prospective donors frequent and package your mission in a way that will resonate with them.
You may also want to look into grants. Keep in mind that grant applications take time to write. They usually come with reporting requirements, and there’s no guarantee that you’ll get the same grant next year.
Tip: Many donors will want assurance that you have been granted your 501(c)3 status so they can write off their donation on their taxes.
How to find the right partners
Fundraising doesn’t have to be a one-way relationship. Some of the most fruitful and consistent opportunities come from partnering with like-minded organizations.
8. Hire your first staff or find volunteers
Your board of trustees are really your first volunteers. From there, you need to identify skill gaps within your organization that a volunteer or employee can fill.
Start by briefly describing the role you need to fill and how much time per week you think it might take. Then, get the word out. Depending on the volunteer work you’re offering, you might use a service like Volunteermatch.org to list your opportunity. Or you might put it on Craigslist or advertise in a high school or college newspaper.
A word of caution: It’s perfectly reasonable to ask a potential volunteer to do an initial project if your need is somewhat involved or requires a specific skill set.
Volunteers can be beneficial, and many nonprofits are primarily volunteer-driven. But now or at some point in the future (when your finances allow), it might be appropriate to consider bringing on full or part-time paid staff.
Check out our hiring guide for more on successfully interviewing, choosing, and managing a new employee.
How to successfully run nonprofit meetings
As you bring on more employees and volunteers, you’ll inevitably have more meetings. To ensure they are productive and help you run your nonprofit—follow these six simple rules.
Keep your eyes on your mission
As your charitable organization takes shape—make time to review both your mission statement and your business plan.
Keep your mission at the forefront of every conversation around services, finances, and hiring. “Does your next move support our mission?” is a great question to ask frequently. Review your business plan, especially the financials, regularly.
Set milestones so you know you’re on track and can recalibrate if you ever find that you’re not meeting your goals. Use that plan to set you in the right direction and ensure your nonprofit is sustainable well into the future.
Nonprofit tools and resources
Business plan template
Make writing a business plan easy and improve your chances of success with this fill-in-the-blank template.