Do you want to start a nonprofit or are you considering nonprofit status for your business? The road to register a nonprofit can be long and tedious. You may also be wondering if you can receive a grant to start a nonprofit? While there are a few available, it really depends on your location and industry sector. Here are things to consider when starting a nonprofit.
The Advantages of Starting a Nonprofit:
- Most of the income of a nonprofit is tax-exempt.
In the majority of cases, the contributions from donors are also tax-exempt.
- Limitations on the personal liability of their members and employees.
Individual founders of the organization are kept separate from the business structure. Their personal assets are not at risk in the case of a lawsuit, fine, or debt. The only issue that pierces this shield is if the members act unethically or illegally.
- The legal status remains intact even if the founders of the nonprofit are no longer a part of the organization.
In addition, this allows nonprofits to continue their mission long after the founders are gone.
- Nonprofits often receive better rates from government entities such as USPS.
Also, many large corporations like Google, Facebook, and Amazon make special allowances for NPOs.
- Above all, nonprofit organizations can receive grants.
Grants are from foundations as well as federal, state, and local government funding sources.
The Disadvantages of Starting a Nonprofit:
- Most nonprofits are dependent on grant funding and donations to survive.
With over 2 million nonprofits in the US, obtaining a grant is extremely competitive and the application process can be complex. Nonprofit members are constantly soliciting donations and this can detract from their main mission.
- Nonprofit organizations are subject to stricter reporting requirements and they are closely scrutinized.
Nonprofits are required to report how they use their funds. In most cases, the government and donors prefer to see most funds go to services and not administrative expenses. Assets accumulated by the company, or put into the company by the founder, are not permitted to leave when they leave.
- The cost to apply for federal tax-exempt status can be prohibitive.
The application fees are determined by the budgeted annual gross income. This can add up to $1,000.00.
- Most find the application process to be complex and tedious.
Therefore, to ensure accuracy, it’s sometimes necessary to hire nonprofit attorneys to help complete the application. Legal fees may not be in the budget.
- Nonprofits run the risk of losing their tax status if they miss the deadlines for filing their annual reports.
Organizations who miss the annual reporting deadline may have their tax-exempt status. Even the statements themselves must meet specific requirements to qualify as an authorized filing.
After weighing up the pros and cons, you may decide to move forward in starting up your nonprofit. This process can take an average of eight months from start to finish. There are a few steps to registering a nonprofit, from appointing board members, obtaining an EIN number, filing articles of incorporation, applying for tax-exempt status, and setting up a DUNS number.
How to Start a Nonprofit:
- Choose your niche – It’s important to know what services are already available in your community. You do not want to duplicate a pre-existing organization. A quick google search can solve this or visiting nonprofit directories.
- Register the name of your nonprofit – The cost will vary to register depending on your State. Do a search with your Secretary of State’s office to see if the name you chose is available.
- Appoint your board of directors – You will need to list their personal information when you file for incorporation and tax exemption. Note: Board members cannot be paid for their services. They should have the experience and expertise to meet your operational needs.
- Creating your bylaws – The bylaws are a legal agreement between the organization and its board members. In other words, bylaws state how the business will be conducted and how decisions will be made.
- Filing your articles of incorporation – Your organization needs to be formed either as a corporation or a state-registered unincorporated association. Your articles of incorporation are filed with your state office and can vary in price.
- Get a federal employer identification number (EIN) – Your organization must have its own EIN to apply for tax-exempt status. There is no charge to have an EIN issued.
- Applying for your Tax-Exempt Status – Usually, you fill out Form 1023 (or the simplified version of Form 1023-EZ) to apply for tax-exempt status. At over 28 pages long, it takes at least a few days to fill out, and the average fee is $600.00.
- Apply for state and local tax exemptions. You can apply to be recognized by state and local authorities once the IRS has approved your organization’s tax-exempt status.
Grant Seeking as a New Nonprofit
When searching for grants, you may regularly come across certain keywords and funding terms, such as an ‘LOI’ or ‘RFP’. Above all, familiarize yourself with the nonprofit glossary of terminology, so you can accurately distinguish the fundamentals.
Unlike a loan, grants are not paid back. Rather, this funding is to help with the research, programs, activities, and resources to help your organization help the community. In other words, grant funding is not typically used for general expenses. It’s worthwhile learning how to increase your chances of being awarded a grant and developing relationships with board members.
A popular assumption is that once you have created your nonprofit, you are instantly eligible for grants. Typically, a large portion of nonprofit grants will request your last tax return. This can make grant-seeking difficult and drastically narrow down the grants you are eligible for. There are some grants available to newly formed nonprofit organizations, however, hiring a grant writer may be essential.
How To Secure Funding
As mentioned earlier, nonprofits are dependent on grant funding and donations to survive. A popular way to raise immediate funds is through crowdfunding. For instance, utilize a crowdfunding platform that best serves the needs of your nonprofit. This may take some research and time but will help to gain you the best outcome to target new donors. Assess what features are available, for example; a crowdfunding coach can help to elevate your campaign and reach your targets.
Other ways to raise money for your nonprofit include:
> Selling products or merchandise
> Hosting fundraisers, raffles, and events
> Appeal to your community for donations
Keeping your nonprofit afloat can be difficult without constant funding. However, your nonprofit’s services can be without a doubt, a lifeline to the recipients that need them the most. The admirable mission and values your organization could provide can help make a difference in your community.