How to Become a Not for Profit Business

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Modern non-profits have come a long way since the grassroots days of the late 1960s to 1980s. Most non-profits are created when an individual or group recognizes a particular need in their community. A successful non-profit organization must strive to present a businesslike, positive reputation in the community to compete for funding and donations.

Things You'll Need

  • A strong mission
  • A volunteer Board of Directors
  • IRS Form 1023
  • Application for Articles of Incorporation for your state
  • Community mentors and advisors

Creating a Non-Profit Organization

  • Developing a fundable non-profit is the first order of business. "Fundable" means creating programs that have a good shot at funding via grants. Get a copy of your state's Common Grant Form (CGF), available through your local community foundation. The CGF outlines all of the components needed to successfully plan and manage your program.

  • Develop a volunteer board of directors. Identify individuals who are passionate about your cause and who are willing to give their time, money and commitment. It is important to bring together a well-rounded board of directors. Plan to have the legal, money-management and business sectors represented. Also ask a recipient of your services to serve on your board. These folks will prove invaluable as you develop and manage your non-profit.

    Non-profit agencies are required to have a volunteer board of directors. A volunteer board means that no member of the board is paid by the agency. A mistake many non-profits have made is appointing the executive director of an agency as the board president. This is a conflict of interest, and is strictly prohibited. The board of directors serves as the final governing body of a non-profit organization, and acts as a monitor for the executive director position.

    Each agency must also have a conflict of interest clause drafted in their official policies and procedures. The conflict of interest clause must state that no member of the board of directors will benefit financially by sitting on the organization's board. For instance, if an individual sitting on your board owns a roofing company, that individual's company cannot bid to replace the roof of your organization's building. If they did, they would then financially benefit from sitting on the board of directors.

  • Consider hiring an attorney or contract someone with experience to complete the state and federal paperwork required to set up the non-profit business. File Articles of Incorporation in your state, and in some cases, file for an Assumed Name or DBA (Doing Business As) in your county. The fees to file these necessities vary from state to state, but are usually nominal.

    Form 1023, necessary to apply for a 501(c)(3) corporation, is available at irs.gov/home. Whether or not you are contracting an individual to complete these forms for you, it is a good idea to download them for review with your board of directors. You must submit a three-year projected budget for your non-profit with your application, along with goals and priorities, the population you intend to serve, and the projected area of service (such as city or county). The time frame for completing your review can vary from three to 36 months, dependent upon the caseload of your reviewer and the complexity of your program.

    In most states, non-profit agencies must also apply for a license to solicit charitable donations with the attorney general's office each year, or every three years, depending on the state. There is usually not a charge to apply for this license.

  • Drafting a business plan is important for the development and management of a non-profit business. This includes completing a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis, financial and exit-strategy planning, and marketing strategies development. Having these components completed will help you be successful and prepare you for the unforeseen.

    Find a mentor in the nonprofit community, a director, CEO, or board president who will show you the nonprofit ropes. This person will be an asset as you develop, set up and begin managing your new nonprofit.

Tips & Warnings

  • All U.S. Department of Labor laws apply to non-profit organizations. Another mistake many non-profits have made is a belief that because they are an exempt organization, they do not have to follow the same rules as a for-profit business in regard to minimum wage and mandatory benefits such as worker's compensation. Avoid litigation and fines by applying all Department of Labor laws for your paid staff.

References

  • Internal Revenue Service
  • • Grassroots Organizations: Second Edition, Robert L. Clifton, Alan M. Dahms, 1993
  • • The Successful Business Plan: Secrets & Strategies, Fourth Edition, Rhonda Abrams, 2003
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