What Are 7 Common Startup Costs for Nonprofits?

Are you or someone you know considering taking the plunge to start a nonprofit? It can be intimidating to build something from the ground up, especially with all the likely hidden costs involved. For this reason, GrantWatch has listed below 7 of the most common startup for nonprofits.

While forming a nonprofit can be a long and stressful process, we hope this list brings some clarity to what costs you will need to set aside to adequately fund your nonprofit venture. The work done by nonprofits is inspiring and so important! Do not be discouraged. Stay focused on your goal, but be prepared for what you’ll need to move forward.

1. Cost of Incorporation & Tax-Exempt Status

Every nonprofit startup must file a legal document known as the ‘articles of incorporation’ with their state to begin the process. The fees for this are different for every state, but are usually $50 to $400. If you are looking to expedite the filing process, you may be able to do so by paying additional fees.

“First, though there is no cost associated, you have to fill out the government form to receive an Employee Identification Number. Make sure you remember to include this step in your planning! You apply for the number after you incorporate but before you file for tax exemption.” (fundraisingIP.com 2023)

Once you’ve completed your state filing, you must then submit IRS ‘Form 1023’ to be granted tax-exempt status. Approval as a 501(c)(3) entity is necessary in order to begin your fundraising efforts. If your fundraising goal is under $50,000, you would likely be eligible to file Form 1023-EZ (short form) at an approximate cost of $275 (as of 2018). For larger campaigns, it would be necessary to file Form 1023 (long form) at a cost of around $600.

2. Legal Fees

You might also choose to hire a lawyer to help you file the official paperwork for your nonprofit startup. A lawyer can help you draft your ‘articles of incorporation,’ as well as help you with your application to the IRS. Nonprofits often use a lawyer to get a set of ‘trained professional eyes’ on their documents. Having a legal perspective helps ensure the paperwork filed has all the accurate information required. This guidance will also help to confirm everything is filed correctly to allow for a smooth and successful process.

Hiring a lawyer can also be extremely helpful when it comes to picking a name for your nonprofit. Lawyers can handle the research and background checks to make sure your choice of a name will not infringe on any copyright laws or current trademarks. Paying for a lawyer can be a small price to pay in comparison to the fees you might otherwise be responsible for if you do not handle this process properly.

3. Registration Fees

Along with paying fees to get approved for tax-exempt status, both to your state and to the federal government, you may also have to pay to register as an official charity with your state. This charitable registration fee varies by state. This fee may also vary depending on the scope of the contributions to your campaign.

4. Staffing Costs

In addition, one must consider the budgetary costs of staffing expenses when calculating startup costs for a nonprofit. This will include money for payroll, benefits, payroll taxes and contract employees.

Most nonprofits set aside a percentage of their annual budget to go toward staffing. This number can vary depending on the size of the nonprofit, but for most, this is anywhere from 60-90% of their annual budget. The Better Business Bureau promotes this range as well, suggesting that nonprofits spend at least 65% on program expenses, including salaries.

5. Marketing/Website Costs

Many nonprofits starting out might forget about the initial marketing costs associated with promoting a nonprofit startup. Marketing your nonprofit is necessary once you have selected the name for your nonprofit and have completed all of the required paperwork to begin operation. Setting up a website is crucial so you have a place people can visit to learn more about your mission – and to hopefully make a contribution to your cause!

To do this, you first need to make sure you have the money you need to purchase your own domain. You should also plan for the other expenses that go along with creating a website, such as web design and development, as well as ongoing maintenance. Effective websites can cost you anywhere from a few hundred dollars to several thousand dollars to operate and maintain.

Along with website costs, you must also take into account other marketing expenses. These may include paying for an email marketing platform like Mailchimp, buying supplies such as promotional flyers, or purchasing paid ads online.

6. Nonprofit Insurance

Many nonprofits purchase nonprofit insurance when starting their organization. Business insurance is to protect nonprofits from any claims against the nonprofit made as a result of normal operations. The price of this insurance can vary depending upon the coverage plan chosen. However, most nonprofit organizations start out with a Business Owner’s Policy (BOP). This plan includes general liability insurance, commercial property insurance and business income insurance. The cost usually runs from $200-$300 a month. Keep in mind, this price may vary depending upon the specific needs of the nonprofit.

7. Office/Building Costs

When looking to start a nonprofit, one must also consider the cost of the space in which you intend to conduct day-to-day operations. These costs include rent/mortgage, utilities, office supplies and technology, as well as any regular maintenance that you need.

Some nonprofits may choose to work remotely. Though this can save money overall, it might not be a valid option depending on how large your staff is and how much face-to-face interaction is optimal for you to function effectively as a team.

GrantNews Notes

Looking for ways to get more funding for your nonprofit? With close to 8,000 grants currently available, GrantWatch.com is the leading grant listing directory. Upgrade to a MemberPlus+ subscription to view the full grant details, including eligibility criteria and application information. For more information, you can also visit the GrantWatch FAQ page.