Forming a nonprofit organization (NPO) can be extremely rewarding if you are driven by a mission to help others and address specific societal problems. Nonprofits are generally formed to benefit the public or community, and include companies formed for charitable, religious, literary, scientific, and/or educational purposes.
The nonprofit sector is on the rise. Between 2005 and 2018, the total number of NPOs increased by 10.4%, from 1.41 million to 1.56 million. By 2015, NPOs contributed an estimated $985.4 billion to the U.S. economy.
Donor support for nonprofits also remains healthy. Funding from private businesses, individuals, and various foundations totaled at $410.02 billion, three percent up from 2016.
Nonprofit Organization Business Plan Template
Use our nonprofit organization business plan template in Microsoft Word format to jumpstart the planning process for your new NPO.
While a business pursues profits, a nonprofit organization pursues a social mission with all income generated being used towards furthering that mission.
Nonprofits also benefit from being tax-exempt. NPOs are referred to as 501(c) organizations after the section in the Internal Revenue Code that gives them a special dispensation from being taxed. These tax advantages come in the form of tax deductions to donors, and exemptions from federal and state taxes.
Before you embark on your NPO journey, ask yourself if you have the right qualities or personality to work in the nonprofit sector. As the founder of a nonprofit, it is your responsibility to lay a strong foundation for the nonprofit to succeed.
5 Powerful Traits That Nonprofit Founders Possess:
A Clear Sense of Direction.
Decisive and Action-Oriented.
How to Start a Nonprofit Organization:
1. Decide on the type of nonprofit organization you would like to open.
It is important to conduct thorough research and commit to proper planning when deciding on the type of NPO that you want to open. You must identify a need or issue that affects the public and/or community that you want to contribute towards.
You need to ask yourself three important questions before deciding to start a nonprofit organization:
1. Do I have sufficient evidence that my NPO will positively contribute to this unmet issue or need? You will find it easier to get donations and receive grants if you have solid evidence that your NPO will serve a practical purpose. Your research must include statistics and numbers that back up your idea.
2. Are there existing organizations that are currently serving the same issue or need? Your NPO should serve an issue or need that has not already been identified or serviced. The National Council of Nonprofits has a handy tool that helps you identify the existing NPOs in your area. Use the tool to ensure that your nonprofit idea is unique.
3. What type of people will I attract to support my organization? It is crucial to gain the right type of support for your NPO to ensure the success of your organization. Understanding your target demographic will make it easier for you to gain supporters and members. You can use the American Fact Finder to research detailed demographic information and help you to understand your target group.
Your answers to these three questions will give you a clear idea of how to succeed with your nonprofit.
Furthermore, it is critical to develop a mission statement that clearly outlines your nonprofit's purpose, its target group, and how your organization will contribute to this issue or need. Your mission statement does not have to be lengthy or explain the details of your NPO and its work. It should be to the point and must, very succinctly, define who you are, what your goal is, and your motivation for achieving this goal.
Popular Nonprofit Mission Statements:
- "The increase and diffusion of knowledge." - Smithsonian.
- "A better world through kindness to animals." - Best Friends Animal Society.
- "To inspire and empower people affected by cancer." - Livestrong.
- "To bring a permanent end to LRA atrocities." - Invisible Children.
- "Inspiring Americans to protect wildlife for our children’s future." - National Wildlife Federation.
2. Write a business plan.
Many founders neglect to develop a proper business plan for their nonprofit as they have the misconception that business plans only apply to “for-profit” organizations. It is vital to create a detailed business plan before incorporating your NPO as this will enhance your funding opportunities with investors, donors, and board members.
The main sections of your nonprofit business plan must include the following:
Executive Summary. A synopsis of your business plan.
Company Overview and Description. Details of your organization, its foundations, and mission.
Market Analysis. Explanation of your target group, your stakeholders and SWOT analysis.
Products and Services. Details of what makes your nonprofit unique and how your organization will add value by addressing a relevant need.
Marketing Plan. Explanation of who your organization will service, how you will locate this target group, and how you will convince people to support your cause.
Operational Plan. Details of your office location, supplies, and equipment required, how you plan to deliver your service/s, and what type of staff and volunteers you require.
Organizational Structure. A list of your staff with details of their roles and how they are organized structurally.
Financial Plan. Details of cash flow analysis, projected budgets, and revenue generation. This section will help you to apply for grants and loans, and will be of most interest to potential investors.
3. Generate revenue for your nonprofit.
While most “for-profit” organizations make their revenue primarily from products and services, nonprofit organizations have many avenues through which they can generate revenue.
Sources of Revenue for Nonprofit Organizations:
Fees for services and products from the private sector.
Fees for services and products from the government.
It is wise to develop separate strategies when approaching each revenue source as each of these has dynamic characteristics.
Fees for services and products. This is revenue generated from services and products and includes money received from membership dues, event tickets, professional services and products e.g., merchandise.
Private contributions. This consists of donations received and can be solicited through individual donors, fundraising activities and sponsorships.
You must complete the Charitable Solicitation Registration via the IRS website before you can accept any donations or engage in fundraising activities.
For more information on your state’s regulations, you can select your state from this interactive map.
Government grants. This is funding provided by the government to organizations and institutions whose mission and projects benefit specific parts of the population or a whole community. The federal government offers guidance for those that wish to apply for a grant at www.usa.gov/grants. Once you have sufficient information and meet the eligibility criteria, you can apply for a government grant at www.grants.gov/web/grants/home. Only apply for a grant through official government channels.
Beware of government grant scams
The Federal Trade Commission warns of many government grant scams that attract organizations through advertisements in local newspapers, magazines, online and over the phone. You can get more information about government grant scams here.
4. Choose a name for your nonprofit organization.
When deciding on a name for your NPO, the name that you choose must be easy to remember, appealing, aligned with your service and mission statement, and have a positive tone.
How to choose the right nonprofit name.
Follow the steps below when choosing a nonprofit name:
Brainstorm. Think of the many names that you like for your organization and trim the list to the three that best fit the characteristics above.
Check Name Availability. You can check if the name that you have chosen is available through the Secretary of State’s website. You also need to check that your name has not been trademarked at the US Department of Commerce website.
Check Domain Availability. You can conduct preliminary checks to ensure that the website domain and social media accounts are available. If your domain is taken, you could add your state’s name to the domain, if you really want that name. Bear in mind that nonprofit domains end with .org.
Conduct an Independent Name Search. You can conduct some independent research to check if the proposed name or a similar name isn’t currently in use. Some names are in use even though they are not on file with the Secretary of State.
Reserve your corporate name. You can apply for the name reservation through the Secretary of State’s website.
When finalizing your nonprofit name, it is highly recommended to get feedback from potential donors, board members, staff and volunteers, and the people that you serve, as these key audiences will be representing your organization to the outside world. Find out how to name a business and how to register a domain name.
The best nonprofit names will address the following concerns:
My nonprofit will _____.
My nonprofit helps _____.
Our members are _____.
5. Recruit your board.
Most states require that you establish your board before incorporating your organization. Even if your particular state doesn’t require board members when incorporating, it is a great idea to recruit your board prior to incorporation as this will make the process easier and will be beneficial when you are faced with the initial challenges of starting a nonprofit organization.
It is vital to recruit board members who are motivated and supportive, and who possess the right blend of skills, credentials and experience to ensure the healthy growth of your NPO.
Your board should comprise of members with expertise and resources in different areas that can be split into the following categories:
- Members with access to financial resources and/or specialize in soliciting donations.
- Members with management expertise in the financial, legal, and/or marketing spheres.
- Members who are part of networks with extensive knowledge in your service offering.
Typical Board Member Roles of a Nonprofit Organization:
Essential character traits of successful board members at nonprofit organizations:
Strong work ethic.
6. Incorporate your nonprofit organization.
In order to incorporate your nonprofit, you need to follow the sequence of steps below, as per the USA.gov website:
Decide on a legal structure. You will need to decide on whether your organization will be a corporation, trust, or association. Learn more from the IRS website.
File your incorporation paperwork. You will need to formally file paperwork (articles of incorporation) and pay the relevant filing fees to your Secretary of State. Regulations for each state differ so be sure to confirm your requirements with your Secretary of State’s website or the National Association of State Charity Officials (NASCO). If you intend on soliciting donations in multiple states, you will need to register your intentions with NASCO.
Obtain licenses and permits. You will need to check if your NPO requires any licenses and/or permits. The U.S. Small Business Administration has detailed information available that you can use to guide you.
7. Register for your nonprofit organization to be tax-exempt.
Many NPOs that are incorporated benefit by enjoying a tax-exempt status, which means that your NPO does not have to pay any taxes to the IRS.
Your Nonprofit organization may be eligible for federal income tax exemption. The IRS website offers detailed instructions on how to apply for tax exemptions. The IRS also provides a comprehensive guide to tax exemptions for nonprofit organizations.
Section 501 of the Internal Revenue Code (IRC) explains which types of nonprofit organizations are tax-exempt. Under Section 501(c) of the IRC, there are many types of nonprofit organizations that can file for tax exemptions.
Nonprofit Tax-exemption Categories:
Category of Non Profit
Charitable, Religious, Scientific and Literary Organizations.
Trade Associations and Chambers of Commerce.
Social and Recreational Clubs.
You will need to register with the IRS as your appropriate 501(c) organization in order to receive tax exemptions. You can access the IRS Tax Exemption application here. The IRS charges filing fees to apply for a nonprofit tax exemption status which can be anywhere between $400 to $850. You can find more information here. The IRS tax exemption application process can take between 3 to 12 months.
Once you have received your tax-exempt status, you will need to register your nonprofit with the state that you are located in. The IRS website can direct you to your state where you can find the correct office, view filing procedures, and confirm annual reporting requirements.
The IRS requires that you fill out an IRS Form 990, which is the annual financial and informational return filed by all tax-exempt nonprofit and charitable organizations. The IRS uses this form to gather information about your NPO and ensure that you are compliant. The IRS Form 990 must be filed by the 15th day of the 5th month following the organization’s tax year end date.
8. Identify premises for your nonprofit organization’s headquarters.
If funds are really tight, you can choose to run your NPO without a physical office, as some NPOs are run from home. You will, however, need a P.O. Box to accept mail and this may cost anywhere between $50 to $1,000, depending on your location and the size that you need.
If you do want to rent office space, it is advisable to keep it as simple as possible. You may consider getting as few desks as necessary, a phone, a laptop, a printer, and a filing cabinet. You can contact The Non-profit Center or the National Council of Non-profits for inexpensive office space options.
There are a number of organizations that donate essential furniture and computer equipment to nonprofit organizations.
9. Recruit Staff.
While some nonprofit organizations are run solely by the founder, many organizations choose to recruit at least one staff member and/or volunteer until such time that they feel the need to recruit more. It is recommended to reach out to other nonprofit organizations of a similar size to get advice on the number of staff that you might need.
Common staff for nonprofit organizations:
- General Administrator.
- Membership Manager/Coordinator.
- Media & Communications Manager/Officer.
- Fundraising & Events Manager/Coordinator.
Don’t rush the recruitment process and don’t settle for applicants who do not fully meet your criteria. It is advisable to recruit multi-skilled applicants who could serve multiple roles in your nonprofit organization. Consider using a staffing agency to help you with the process.
Operating on a tight budget, NPOs will typically be required to stretch a dollar. This makes investing in useful business software a choice between productivity and cost, often involving compromises. Luckily, there are many free business software services out there that come highly recommended.
Free Tech Tools for Nonprofits:
Inventory Management Software helps you track products, sales, deliveries, and production, helping you track costs and telling when you to place new orders. We recommend Zoho Inventory for NPOs, but check out our full list of options for something that best suits your needs.
2. Free POS Systems.
Point of Sale systems facilitate the acceptance of a variety of payments and tracks sales. We recommend Square for NPOs, but check out our full list of options for something that best suits your needs.
Accounting software allows you to manage payroll, pay bills, generate reports, and more. We recommend Expensify for NPOs, but check out our full list of options for something that best suits your needs.
4. Free HR Software.
HR software helps you organize your administrative duties, including hiring, training, developing workplace policies, administering benefits, and more. We recommend Zoho People for NPOs, but check out our full list of options for something that best suits your needs.
One of the most effective marketing channels available to businesses, email marketing tools can help businesses create professional-quality emails and deliver them to a large audience, ensuring that they stay out of the spam folder. Email marketing tools tends to see a high return on investment. We recommend Hubspot for NPOs, but check out our full list of options for something that best suits your needs.
10. Set up your website and social media accounts.
A well-designed website can do wonders for your NPO. You could attract the right attention, your work could be more easily promoted, and you could build trust with your target audience, giving you a better opportunity to make a greater impact.
Your website will prove to be invaluable as it will help you raise money, coordinate events, attract volunteers, and share success stories.
Essential characteristics of your nonprofit website:
Your mission must be evident.
Attract supporters by using engaging content.
Make your website donor-friendly.
Ensure easy volunteer recruitment.
Incorporate visual storytelling.
Ensure that your website is mobile responsive.
Link your website to your social media accounts.
Your website should include the following pages:
Homepage. This is visually appealing and must encourage visitors to join your NPO or donate, and should include recent news, featured members, and upcoming events.
About Us. This page can include your mission, vision, history, staff, and general information about your organization.
Join Us. This page must give potential new members all the information they need to know before joining your organization and should have a membership form to join online.
Donate. This page must give potential donors all the information they need to know before donating to your organization, and should have a membership form to donate online.
Events. This page should display your upcoming events and should include invitations for interested people to attend and register. You should also list the benefits of joining your organization here. This page is usually structured in a calendar format.
News/Blog. This page should have the latest news about your organization and its work, and should have relevant blog posts.
Resources. This page should include resources that your organization publishes, if applicable.
Member-Only Section. This page is usually restricted to members of your organization only and can be accessed through member login credentials.
Contact Us. This page will include all contact information about your organization.
It is critical that you set up social media profiles for your organization as this might allow you to create greater awareness of your nonprofit. Search engines such as Google place great significance on social media profiles that determine what appears in their rankings after a search. Make sure that your social media accounts are linked to your website to maximize your organization's exposure.
Effective Social Media Accounts for Nonprofits:
Ways that website software can inexpensively streamline your admin and generate revenue:
Allow members to join your organization and pay online.
Register attendees for events and accept online payments.
Collect donations online and automatically route that to your bank account.
Manage your database of volunteers, donors, staff, members and sponsors.
Generate automatic notifications and reminders for events and projects.
Advice for Starting a Nonprofit:
"Examine your heart as to why you want to start your own nonprofit. Nonprofits are not the place for egos or attention seekers if you want to see powerful and authentic change in the lives of the people that you serve."
"Bring your impact audience into the development process of your organization. Encourage your funders to be as responsive and diligent as you are. And be patient with the practice of growing a company, instead of obsessed with the outcomes."
"Just keep going. Never quit. Keep operating in your passion. And keep finding ways to invite people to join you."
"Before anyone starts a nonprofit, they should spend at least one full year immersing themselves in the issue they are trying to solve. Get to know every player in the ecosystem: the clients, the funders, the colleagues and competition."
"As social innovators we’ve got to be tenacious, gritty and courageous. We deal with cynicism and rejection- especially when what we’re working on is important. So we can never give up. Ever."
Starting a nonprofit organization can be extremely rewarding as you work towards achieving a socially conscious mission that makes a positive contribution to society. By identifying and servicing critical needs, your motivation to do so will drive you to make your nonprofit organization a success, despite the tedious start-up process, the hard work, and the occasional setbacks.
To learn more about starting your own business, check out our How to Start a Business guide.
How much does it cost to start a nonprofit organization?
Filing fees for a nonprofit organization differ from state to state. They start from as little as $20 and can go upwards of $100 depending on your location. Filing fees for tax-exemptions range from $400 to $850.
How do nonprofit organization owners make money?
Nonprofit organizations do not have owners but rather founders who are driven by a mission to address critical issues and/or needs in society. The founders of a NPO are not permitted to benefit from the net earnings of the organization.
Do nonprofit organizations have to file tax returns if they are tax-exempt?
Yes, even though tax-exempt nonprofit organizations do not contribute to federal and state taxes, they are required to file an informational return with the IRS by filing in an IRS Form 990.
How do nonprofit organizations treat profits?
Any funds that are surplus after the organization has paid their bills will be put back into the organization to further achieve its mission of funding projects and events aimed at improving the identified issues and/or needs in their society.
Can nonprofit organizations sell products or services?
Yes, nonprofit organizations can sell products or services to generate revenue. The funds that are raised will support the organizations operating costs, staff, and planned projects and events.
Which nonprofit categories are recognized by the IRS?
Charitable or religious organizations.
Social welfare organizations.
Labor and agricultural organizations.