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December 16, 2018

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10 Key Steps on Starting a Nonprofit Organization

by Dustin V Davis

Successfully starting a nonprofit is a 1 in 2 gamble. Among the 30,000 nonprofits created each year in America, 50 percent of them failed. We are not sure how they failed or why they failed, but analysts believe it could all be rooted in the correct planning before start up.

When one decides to go into business, they have to first make a decision on whether they are going into business for-profit or for advancement of a specific cause. The fundamental difference between nonprofit and for-profit organizations is that nonprofits use their profits to advance their programs, while for-profits distribute their profits to their owners or stockholders.

Starting a nonprofit that advances your cause and makes the world a better place can be done successfully if key steps are followed. Here is a brief step by step guide to successfully establish a 501(c)(3) nonprofit corporation. More detailed information on the correct forms and documents to file when and where, sample bylaws, sample articles of organization and your state requirements can be found on our site. Please check out our complete list of resources that answers the question of how to start a non profit.

  1. Draft a mission statement. This is one or two sentences drafted to explain who your organization is, what it does, for whom and where. The mission statement should be the mantra of the group and should be a drafted based on your organizations' purpose, services and values. Starting a nonprofit with a strong mission statement that conveyed effectively is a great start to any organization and its future.

  2. Form a Board of Directors. A board of directors is mandatory for a nonprofit organization and the minimum numbers required varies from state to state. Starting a nonprofit with the right board members can make or break an organization. Once you have identified your mission statement, make sure your board of directors are supportive of the mission and are willing to give their talents and time.

  3. Draft and File Articles of Incorporation. Articles of Incorporation can be defined as the official statement of creation of your organization. These not only need to be drafted but they are to be filed with the appropriate state agencies. This is the first official announcement to the world that you are starting a non profit. This document is very important as it protects both your board and staff from legal liabilities that an organization may incur. Article of organizations makes the corporation the holder of debt and liabilities, not the individuals and officers who work for the organization. Before you spend your money, please consider consulting with an attorney who is experienced in the area of nonprofit law so that you do not make one of the many major mistakes that people make when they try to incorporate by themselves.

  4. Draft Bylaws. Bylaws are simply the "rules" of how the organization operates. Bylaws are not required to file for you 501(c)(3) status, but they are very important for helping govern your organization.

  5. Develop a budget. A budget is the financial plan of your organization that helps you achieve you objectives. The success of your organization can fall heavily on proper budgeting. Starting a nonprofit and not effectively and systematically creating and developing your budget can prove to be very detrimental to your organization. As a new organization your first challenge may be looking at the process of obtaining initial income and figuring out how much to spend. Budgeting however does not stop there, so be prepared for startup and future costs. Don't be afraid to get professional help.

  6. Proper System. Systems for any organization are very import. Starting a nonprofit requires two systems, one for accounting and one for record keeping. Proper systems can help you avoid pitfalls later on. By law, for all nonprofits, all Board documents including minutes and financial statements must be recorded.

  7. File for 501(c)(3) status. To apply for recognition of tax-exempt public charity status, you must obtain, complete and file specific forms with the IRS and state and local entities. There maybe fees involved in this process as well.

  8. Apply for a federal employer identification number (EIN). Regardless of whether or not you have employees, nonprofits are required to obtain a federal Employer Identification Number (EIN) - also referred to as the federal ID number. This is a completely free process and the federal government gives you several choices.

  9. File for state and local tax exemption. In accordance with state, county, and municipal law, you may apply for exemption from income, sales, and property taxes. Contact your state Department of Revenue, your county or municipal Department of Revenue, local Departments of Revenue, and county or municipal clerk's offices for more information.

  10. Fulfill charitable solicitation law requirements. If your organization's plans include fundraising, be aware that many states and few local jurisdictions regulate organizations that solicit funds within that state, county, or city. Usually compliance involves obtaining a permit or license and then filing an annual report and financial statement.

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Hopefully you found these 10 steps on starting a nonprofit very helpful. For a more complete resource, the links to forms and documents to file when and where, sample bylaws, sample articles of organization and your state requirements, please check our complete site of resources at

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