How to Start a Not-for-Profit Business

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Neither the resources of city, county and state agencies nor existing laws and regulations can meet a community's every need. The adage "Necessity is the mother of invention" holds particularly true when a handful of individuals come together under the umbrella of a not-for-profit entity and--through fundraising, volunteerism and activities focused on increasing public awareness--bring about change. Here's what you need to know to start a not-for-profit business.

Things You'll Need

  • Computer
  • Internet access
  • Mission statement
  • Filing fees
  • Checking account
  • Website

Identify a community need or problem that you're really passionate about resolving. Perhaps you have young children and are concerned that the local playgrounds aren't as safe an environment as they should be. Maybe you have elderly relatives whose lack of transportation makes self-sufficient living a challenge. Perhaps you want to help your neighborhood "go green" by participating in more aggressive recycling programs.

Do some research. Find out if some companies or organizations have tried to resolve some of these issues and failed, or if some exist that you just haven't heard of before. If you find a group that has failed, learn why. The most common reason for failure is diminished funding. If you can find a group that embraces concepts you can relate to, consider bringing your concerns to their attention first before you take steps to organize something new. If your concerns aren't something they can address currently because of money or personnel, you may still be able to forge a complementary relationship and network with one another once you start your own not-for-profit business.

Write a mission statement for your not-for-profit business. This is essentially a proposal that explains why your new group should exist, what constituency it will serve, what it plans to accomplish and what resources it needs to meet its core objectives over an estimated timeframe.

Determine if your new not-for-profit business entity qualifies for 501(c)(3) tax-exempt status. The website of the Internal Revenue Service (see "Resources") provides downloadable forms and guidelines about the minimum requirements for consideration. A 501(c)(3) is defined as a public charity (versus a private enterprise) that derives its operating funds from foundations, grants, government assistance and contributions from donors. Instead of profits disbursed to shareholders (as in a for-profit enterprise), everything a non-profit brings in goes back into the operation of the organization to benefit the recipients of its services. The scope of services provided by your not-for-profit business can be anything from outreach services for the homeless and after-school programs for kids to animal shelters, medical clinics, research labs, return-to-work placement services and even performing arts organizations such as theater companies and symphonies.

Consult with an accountant to determine a realistic budget for your company. While volunteerism is the heart and soul of many not-for-profit entities (including heavy hitters like the American Red Cross, the American Cancer Society and SPCA International), you'll still need to consider the leasing of a facility, office equipment, supplies, phones and advertising expenses. Your accountant can assist you in identifying short-term expenses versus long-term maintenance.

Choose board members who share your vision of the company. At a minimum, you should have a president, vice president, treasurer and secretary. You may also include representatives from the business community who can bring their own views and networking abilities to the table and expand your not-for-profit's sphere of influence. Once your board is in place, draft the bylaws that will govern your operations, and identify the responsibilities of each board member and their respective terms of office.

Visit the websites of your state's secretary of state or attorney general. These agencies will walk you through the procedures to incorporate and advise you of the applicable fees. At this time, you will also give your not-for-profit business an official name under which all future business will be conducted. You'll use the name you select on your website, business cards, advertising materials and business checking account.

Apply for exemptions from income and property taxes through your state and county revenue departments. Like that of the IRS, the websites are fairly self-explanatory regarding the forms and filing fees; many also supply online and telephone support.

Apply for a not-for-profit bulk-mailing license through the U.S. Postal Service.

Develop a professional website that's easy for prospective donors to navigate. This should include a calendar of upcoming events, a wish list of immediate needs, and short biographies about each of your board members.

Tips & Warnings

  • If in doubt about any of the paperwork you're filling out to establish your not-for-profit business, always consult an attorney. Keep excellent records (including backup copies) of your income and expenses. Even not-for-profits get audited by the IRS to ensure that they are abiding by the rules of their 501(c)(3) status. At the time you file your fees for 501(c)(3) status with the IRS, you also will need to obtain a federal employer tax ID number. Always maintain a positive relationship with members of the media. See "Resources" for additional tips.
  • Choose your board members carefully. Lots of people agree to be on committees but are really interested only in the prestige of having another title on their resumes. If they are on your board but don't attend meetings and vote on crucial issues, they're just tying up a chair that could be filled by someone with the enthusiasm to follow through and make a difference.

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