How to Start a Grassroots Charity

Nonprofits help communities by bridging the gap between business and government.

Grassroots groups strive to provide social benefit at the community level. Those with a charitable focus may qualify for tax-exempt status with the Internal Revenue Service (IRS), which recognized more than 1 million public charities in 2010. While launching yet another nonprofit group can be rewarding to the founders and worthwhile for the community, the process also can be complex and challenging. To get started, invest in doing some research and planning ahead for who the group will be, what it will do and how it will fulfill its mission.

Instructions

1. 

   A steering committee helps volunteers put their heads together to start a charity.

   Form a steering committee of dedicated volunteers to oversee the start-up process. The group will eventually need a formal board of directors that is accountable to the public, since charities cannot legally be owned by individuals. Although it is not mandatory to have attorneys or accountants handle your organization's formation, it may be helpful to enlist assistance from professionals with nonprofit experience for your steering committee.

2. 

   Strategic planning provides a solid foundation for any new organization.

   Carry out preliminary strategic planning sessions, beginning with a community needs-assessment and brainstorming how the proposed charity can meet those needs better than or different from existing organizations. This phase of planning also includes developing vision, values and mission statements (the "why, what, where and for whom" of the group); setting goals and objectives (the "when and how" the group will achieve its mission); and conducting a S.W.O.T. analysis of the group's strengths, weaknesses, opportunities and threats.

3. 

   Basic legal and financial knowledge helps founders navigate the nonprofit sector.

   Familiarize yourself with the limitations on charitable organizations and laws regulating them, such as restrictions on lobbying. State and federal agencies, including the IRS, require compliance with many other rules as well, such as public disclosure of certain public records. Government agencies also may require nonprofits, even those exempt from federal income tax, to obtain certain licenses and permits or pay other types of taxes.

4. 

   Business plans are essential for starting for-profit and charitable groups alike.

   Create an organizational plan to guide the group's development. Start-up nonprofits benefit from deciding in advance how the organization will operate, what it will try to accomplish, how much it will cost, what facilities and personnel will be needed to carry out programs and services, and how the group intends to generate the funds to fulfill its goals. Helpful sections of the plan include operations, finance (i.e., budget and projections), governance, personnel (both paid and volunteer), public relations, marketing, fundraising and technology.

5. 

   Launching a formal community charity includes incorporating in your state.

   File articles of incorporation -- sometimes called a corporate charter -- with your state, which may offer some personal liability protections. It can be helpful at this time to also prepare organizational bylaws outlining the internal operating rules for your group. States charge small fees for the incorporation process (generally less than $50), and approval can take up to 2 months.

6. 

   Obtaining income-tax exemption is one of the last steps in forming a nonprofit.

   Apply for tax-exempt status with the IRS. Although so-called 501(c)(3) nonprofit organizations do not pay federal income tax, the IRS still mandates annual filings and has other requirements. The IRS charges an application fee of up to $800 to consider whether your group qualifies for tax-exempt status, and approval can take up to 6 months.

Tips & Warnings

• Review the IRS Form 1023, Application for Tax-Exemption, and the grant applications from potential foundations to get ideas of what information to include in your organizational plan.

• Once approved for tax-exempt status, keep copies of your IRS determination letter handy, as you will need them for grant applications and other purposes.

• Starting a charity requires significant amounts of research, planning and reporting to be successful and comply with legal requirements and ethical considerations. A common pitfall when forming a new nonprofit is jumping into the program work without doing an adequate amount of preparation and record-keeping.

• The public expects nonprofit leaders to have basic knowledge of nonprofit law, budgeting, accrual-based fund accounting procedures and functional expense reporting to fulfill their "duty of care" responsibilities. Attending workshops in person or via the Internet on these topics may be advisable.

References

• Society for Nonprofit Organizations: Starting a Nonprofit Organization
• Internal Revenue Service: Tax Information for Charitable Organizations
• Financial Accounting Standards Board: Financial Statements of Not-for-Profit Organizations
• Better Business Bureau Wise Giving Alliance: Standards for Charity Accountability
• BoardSource: Starting a Nonprofit Organization
• Minnesota Council of Nonprofits: Start a Nonprofit

Resources

• Grassroots.org Toolbox: Free Tools for Nonprofit Organizations
• Grassroots Institute for Fundraising Training: Home Page
• CompassPoint Nonprofit Services: Home Page
• GuideStar: Home Page
• Association of Fundraising Professionals: Code of Ethical Principles and Standards
• TechSoup: Home Page