What this is: An average of 100,000 nonprofits are created annually in the US, but only a select few have what it takes to make it through the first year. New charitable organizations must comply with a variety of requirements to be legally designated as nonprofits and get up and running successfully.
What this means: This checklist outlines the steps nonprofit founders must take to establish a nonprofit and set it up for long-term success. We’ll pull advice from industry resources to help your new organization start off on the right foot.
Seven Things You Need to Start a Nonprofit
1. A Compelling, Unique Mission
Creating a mission statement for your new nonprofit should be the first step you take to get your organization off the ground. Your mission is a succinct way to tell the world your organization’s purpose.
Your mission should:
Highlight an Unmet Need in Your Community
Your mission should be distinct from that of other nonprofits in your area. It should address a gap in services in your community.
Use an Active Voice
Incorporate powerful verbs to demonstrate how your organization takes an active role in solving an issue. “Lead,” “protect,” “conserve,” “fight,” “empower” and “serve” are examples of compelling, active verbs that can help demonstrate your organization’s purpose.
Be Short and to the Point
The best mission statements are just one sentence. For example, The Nature Conservancy’s mission statement is simply “to conserve the lands and waters on which all life depends.” With a short mission statement, you can quickly inform people about what your organization aims to achieve and rally their support.
You’ll need to submit your mission statement when completing necessary legal forms. You can also use the statement as a rallying point to recruit new board members, staff, volunteers, and eventually, donors. Workshop your mission statement by sharing it with your partners or trusted colleagues to ensure it’s inspirational, accurate and streamlined.
2. A Board of Directors
Your nonprofit’s board will lead your organization’s strategic direction, ensure financial stability and legal compliance and act as responsible stewards of your resources.
The IRS recommends that nonprofits strategize about the size of their board so it doesn’t have too many or too few people. According to the IRS:
- Boards that are too small “run the risk of not representing a sufficiently broad public interest and of lacking the required skills and other resources required to effectively govern the organization.”
- Boards that are too large “may have a more difficult time getting down to business and making decisions.”
Take a “Goldilocks” approach to find the board size that’s right for your nonprofit. Generally, it’s necessary to have at least 3 board members, but your organization will likely need a few more members than that to have a well-rounded team. Once you’ve determined your ideal board size, start recruiting potential members.
Three Steps for Building Your Board
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- Identify potential board members. These could be business owners in your community, individuals with experience leading other nonprofits or those with a powerful passion for your mission. Seek candidates from a variety of backgrounds and areas of expertise. Also, prioritize individuals with strong personal and professional connections in your community that can benefit your nonprofit’s future fundraising efforts.
- Hold interviews. Host interviews with top candidates to better understand their experience, skills and fit for the role. Share the role expectations, such as the time commitment and fundraising duties, so potential board members can assess whether the position matches their interests and availability.
- Select board members. Reflect on the interview process and choose experienced individuals with a passion for your mission and unique skills that will drive your new nonprofit to success.
Take your time when choosing board members, as they’ll play a central role in helping your new organization get started, so it’s essential to find individuals with the drive and commitment to see major projects through.
3. Bylaws and Conflict of Interest Policies
After forming your nonprofit’s board, one of its first tasks will be to create your bylaws. Bylaws are a legally binding document detailing how you’ll govern your nonprofit. They help establish a culture of accountability and transparency in your organization.
Bylaws Include Specifications Such as:
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- Your nonprofit’s name and purpose
- The size of your board
- How your board meetings and committees will function
- The boundaries of your nonprofit’s fiscal year
- The board member removal process
- Processes for the dissolution of your nonprofit, including how you’ll distribute assets
What is a ‘Conflict of Interest Policy’?
Your bylaws should also include your conflict of interest policy. A conflict of interest is any situation where an individual’s personal or financial circumstances could impact their ability to make unbiased decisions on behalf of your organization. Your conflict of interest policy should define:
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- What constitutes a conflict of interest
- How individuals should disclose potential conflicts
- How you’ll manage policy breaches
Developing bylaws and a conflict of interest policy is crucial in establishing a powerful governance structure for your nonprofit, so we recommend consulting a legal professional. We also recommend making your bylaws publicly available (even though it’s not a legal requirement) to demonstrate your commitment to transparency to the public.
Would you like to read more about building a foundation for your mission? Start with our Nonprofit Services Resource Center.
4. Articles of Incorporation
Incorporate your nonprofit within your state to legally establish your organization as a business entity. This limits personal liability for individuals involved with your nonprofit, such as staff, executive-level leaders and board members.
When filing articles of incorporation, you may need to share information like:
- Your nonprofit’s exact, legal name
- The address of your registered office
- The names and addresses of the incorporators (the individuals signing the articles of incorporation)
- Your organization’s purpose
File articles of incorporation with your state’s secretary of state. Most states allow both online and mail-in filing. You can complete the filing process yourself or consult a legal service or lawyer to help you.
Important: For charitable organizations that will seek tax-exempt status from the IRS, there is specific language required in the articles of incorporation… make sure this language is included.
5. Tax Exemption Application and Charitable Solicitation Registration
To achieve tax-exempt status with the IRS, you must file form 1023 or 1023-EZ. Here are the differences between these forms:
- Form 1023 is a longer, more detailed form that requires more information about your nonprofit.
- Form 1023-EZ is much shorter and simpler. However, there are restrictions on which organizations can complete this form. Complete the Form 1023-EZ Eligibility Worksheet to determine if your organization qualifies for this form.
In addition, depending on your state, you may also be required to register for charitable solicitation. Thirty-six states and Washington, DC broadly require charitable solicitation registration. Review our charitable solicitation registration FAQs for a complete breakdown of the process.
6. Staff Members and Volunteers
Staff members and volunteers will support all aspects of nonprofit management. They will help:
- Run your programs
- Recruit donors at all levels, including major donors, which require a more intentional solicitation process
- Manage volunteers
- Maintain compliance with relevant regulations
- Organize donor records in your organization’s database
Three Tips for Hiring the Right Staff and Volunteers
Finding the right staff and volunteers requires a comprehensive approach similar to the board recruitment process. Follow these steps for a successful hiring process:
1. Decide How Many Staff Members You’ll Need to Hire
Consider your nonprofit’s goals to determine how many new staff members to bring on. How many full-time, paid employees will you need vs. part-time staff? What roles can unpaid volunteers take on at your organization?
2. Create Detailed Job Descriptions for Open Roles
Include information about the time commitment (full or part-time), duties and responsibilities, skills and experience you’re looking for, compensation and benefits. Post open positions on your website and job boards like Indeed and LinkedIn.
3. Send Job Descriptions Directly to Qualified Individuals
You can use LinkedIn to look for individuals seeking new jobs. Review their experience and skills to determine whether they’d be the right match for your open position.
As you interview potential candidates, keep in mind that the best person for each position may not have all of the exact qualifications you’re looking for. Balance a candidate’s experience with their enthusiasm for the position and potential to positively contribute to your organization over the long term.
7. Fundraising and Donor Management Software
Every workplace needs software solutions to help stay organized, maintain compliance with industry regulations, communicate effectively and work toward their goals. Nonprofits are no different; there are plenty of nonprofit-specific software tools designed to fulfill nonprofit fundraising, communications and accounting needs, as outlined below.
Nonprofit-Specific Software Tools
Nonprofit constituent relationship management system (CRM): Your nonprofit’s CRM will help track donor information, including names, giving histories, contact information, communication preferences, relationships with staff members or board members and other personal data. This will help you build relationships with potential donors and design personalized outreach based on data.
General fundraising software: A robust fundraising platform will help you securely process online donations, launch text-to-give campaigns, foster recurring giving and boost other fundraising efforts.
Event fundraising solutions: Event fundraising tools can assist with your event planning and management needs, including ticketing, event scheduling, RSVP tracking, communications and audience engagement.
Peer-to-peer fundraising tools: Peer-to-peer platforms empower supporters to fundraise on behalf of your organization. They offer a simple way to set up a main campaign page and allow participants to create personalized fundraising pages with information about their connections to your cause. This can be a highly effective way to engage supporters more deeply in your mission and expand your reach to new audiences of potential donors.
Accounting software: Financial solutions like QuickBooks help nonprofits track essential information such as revenue and expenses. You can also manage payroll, invoicing and financial reporting.
In Summary...
With this checklist, you’ll have completed all the tasks you need to get your new nonprofit on its feet. Keep in mind that you’ll need to establish procedures to manage ongoing compliance with state and federal regulations. Consult with your legal team as needed to stay up to date with necessary forms and reporting processes. When you have procedures and software tools in place to reduce the stress of running your nonprofit, you can focus more of your attention and energy on what truly matters: Your mission!
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What is the definition of a ‘charitable organization’?
In most state charitable solicitations acts, a “charitable organization” by definition includes organizations established for “social welfare” or “advocacy” purposes (see our chart of state definitions of “charitable organization”). This expanded state definition for a charitable organization results in the need for many 501(c)(4)s to register to solicit when fundraising nationwide. For more, read our article, 501(c)(4) organizations: Is State Solicitation Registration Required?
Are there many states that require a registered agent for charitable solicitation registration?
False. Only 3 states require a registered agent, one of which (Michigan) requires the naming of a special agency appointment as part of the charitable registration with the Charitable Trust Section, Department of Attorney General. The other 2 states (Washington, DC and North Dakota) require the naming of a registered agent as part of the corporate registration process described above. Also, other states may have different provisions or offer alternatives to using a registered agent. Therefore, it's crucial to verify the specific requirements for each state where your organization solicits. Refer to our article, Charitable Solicitation Registration: 3 Common Misconceptions, for further reading.
In what instance might a nonprofit want to apply for sales tax exemption in more than one state?
For most nonprofits, it might only make sense to apply for sales tax exemption in the state they are domiciled or in nearby states where they conduct a lot of business. Larger nonprofits that operate in multiple states and regularly make exempt purchases from the same vendor(s) may find it beneficial to obtain sales tax exemptions in multiple states. These organizations might want to take advantage of the Streamlined Sales and Use Tax Agreement Certificate of Exemption (SSUTA-COE). To learn more, read our article, When Are Nonprofits Exempt From Sales Tax? Sales and Use Tax Exemption.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
