11 Things to Consider When Starting a Nonprofit

Nonprofit organizations address numerous needs that often go unmet by public institutions. There are over 2 million registered nonprofits in the U.S. alone, which employ nearly 13 million people.

For those passionate about making a difference, launching a nonprofit can be a rewarding — and uniquely challenging — process. Here's what to know before embarking on the nonprofit journey.

Will your organization be a nonprofit or not for profit?

Before you get started, you should first determine whether you are forming a nonprofit or a not-for-profit organization, two designations that sometimes get confused. A traditional nonprofit qualifies for tax-exempt status with the IRS because it provides some kind of public good. Nonprofits include national and local charities, foundations, arts organizations, hospital systems, and more. Most nonprofits incorporate under the 501(c)(3) tax designation.

“When deciding between forming a nonprofit, not-for-profit, or another type of organization, it is essential to begin by clarifying your core mission, long-term goals, and the needs of your target community,” said Thresa C. Giles, CEO of Hope and Help. “Carefully evaluate whether your primary objective is to address a social issue or to serve a specific group’s interests, as this will influence your legal structure, funding options, and regulatory obligations.”

A not-for-profit organization (NFPO), however, does not need to contribute to the public good and can focus solely on benefiting members or communities. Like nonprofits, NFPOs are set up to be tax-exempt. For example, a 501(c)(7) social club — think dinner clubs, alumni organizations, amateur sports clubs, or hobby clubs — likely will fall under this designation.

[Read more: 6 Things to Know Before Starting a Nonprofit]

What is your mission?

One of the most vital things to consider when you are starting a nonprofit is your mission. Writing a mission statement of one to two sentences can outline why it exists, what the organization does, who it serves, and where it provides services, all in one place. Despite the mission statement being short, you should spend a fair amount of time on it, because it will end up being used in published materials, on your website, and elsewhere.

For example, the Colorectal Cancer Alliance, a national nonprofit focused on ending colorectal cancer, uses the following mission statement: “To empower a nation of allies who work with us to provide support for patients and families, caregivers, and survivors; raise awareness of preventive measures; and inspire efforts to fund critical research.”

What will your nonprofit business plan look like?

After your mission is defined, it’s time to focus on execution. A detailed business plan is essential to determine your nonprofit’s structure, strategy, and path to making an impact.

Key components of a strong nonprofit business plan include your budget and financial projections, initial staffing needs and hiring goals, a detailed fundraising strategy, potential partnerships, and marketing and outreach plans. This comprehensive plan not only clarifies your operations and goals but also demonstrates to funders, board members, and stakeholders that your organization is well positioned for sustainability, growth, and impact.

[Read more: Writing a Business Plan? Here's How to Do It, Section by Section]

What will you name your nonprofit?

Naturally, one of the earliest items you need to consider when starting your nonprofit is its name. The name should be both unique and precise in its description.

It should embody your mission and use strong, impactful words. Your organization’s name should not be the same as any that currently exist, so check the IRS’ Tax Exempt Organization Search to find out.

How much will it cost to make this nonprofit work?

Before you can begin operating, it is useful to know what budget you expect to need to fulfill your stated mission. Will you need to hire a large team, and what salaries do you need to pay? What purchases will you need to make on a weekly, monthly, and yearly basis? How much income do you need to bring in? You might want to hire a certified public accountant to work with you on a detailed budget so you don’t underestimate your operating costs.

How can I fund this operation?

Most nonprofit organizations rely on donors to fund operations, so fundraising remains incredibly important. There are many ways to fundraise, including solicitation via calls, emails, social media and direct mail, charity auctions, and in-person and online events. It may also make sense to appeal to the charitable giving arms of large corporations, which can ask employees to provide donations and offer to match those donations.

Additionally, nonprofits can obtain local, state, and national government-based grants in some cases. The useful website Grants.gov provides most national grant opportunities in one place, with funding options from various federal agencies.

For Pat Brown, Co-Founder of War Horses for Veterans, a strict budget and a solid fundraising plan were crucial to her organization’s success.

“We had a very precise yearly operating budget, and we stuck to our budget,” she said. “We started with small, dedicated donors, and as we grew our reputation, we approached larger donors for specific projects. We also try to hold smaller fundraisers on the property to draw people in and heighten their awareness of our mission.”

Giles also recommends taking a long view of your revenue to ensure it will meet your nonprofit’s ongoing needs.

“Consider the sustainability of your revenue model, whether through donations, grants, or earned income, and assess which framework best aligns with your vision for governance, accountability, and growth,” she said.

Whom can I hire to build a strong team?

The nonprofit organization you set out to create will not run itself, so you’ll need to bring on an executive director and a board of directors. An executive director will likely need knowledge, skills, and sector experience to lead the organization effectively.

The executive director will also need to lead the board of directors at monthly or quarterly board meetings. Try to hire people who connect with your mission and have a passion for what you are trying to accomplish.

“We spent many hours interviewing prospective staff members and continue to review our staff on a regular basis,” said Brown. “It is absolutely essential that everyone have clear job descriptions.”

What organizations can I partner with to expand my reach?

Another consideration is finding and creating partnerships that can open up opportunities for expanded fundraising and operations. You should identify what types of organizations in your community can give you more reach and help your mission, including other nonprofits, schools, and local businesses.

[Read more: How to Incorporate Charitable Efforts Into Your Small Business]

Will you apply for tax-exempt status?

Applying for 501(c)(3) tax-exempt status is a crucial step, as it allows your organization to avoid federal income tax and makes it eligible to receive tax-deductible donations. To qualify, nonprofits must typically file IRS Form 1023 or 1023-EZ and meet specific requirements regarding their purpose and structure. Organizations must also adopt a mission aligned with one of the IRS’ exempt purposes, such as charitable or educational work.

Follow these steps to apply for 501(c)(3) status:

• File articles of incorporation with your state to legally establish your organization. This is required before applying for federal tax exemption.
• Apply for an employer identification number (EIN) from the IRS, which is necessary for tax filings and banking.
• Draft and approve bylaws outlining how your nonprofit will be governed.
• Complete IRS Form 1023 or 1023-EZ and provide details about your mission, programs, and finances.
• Register with your state for charitable solicitation and comply with local regulations.

Keep in mind that nonprofit organizations are subject to a specific set of state and local rules related to taxes, payroll, and other 501(c)(3) restrictions. Once you receive the 501(c)(3) status, make sure yyour recordkeeping and taxes comply with the IRS’ guidelines and requirements. This includes filing Form 990 during tax season, creating and complying with organizational bylaws, and documenting regular board meetings, if applicable.

What tools will help you manage your nonprofit’s operations?

There’s no shortage of available tools to streamline your operations and help you maximize impact. Key types of software include:

• Donor management tools: Track donations, donor history, and campaign performance to build stronger relationships.
• Accounting software: Manage budgets, expenses, and financial reporting to maintain transparency and compliance.
• Event management platforms: Organize fundraisers, sell tickets, and handle registration with ease, all in one place.
• Volunteer management systems: Schedule and communicate with volunteers, in addition to tracking their activities and hours.
• CRM and email marketing tools: Streamline communication with supporters and donors to build stronger relationships.
• Grant management tools: Track applications, reporting deadlines, and funding sources efficiently.

How will I raise awareness?

Like marketing for a retail business or restaurant, raising awareness and building support early is critical to getting your nonprofit started.

Raising awareness and engaging with members of the community fulfill many goals of a nonprofit. First, it helps build support toward accomplishing your mission. Whether you engage with individuals online or in person, you’re sharing insight into a cause you care about and inspiring others to do the same.

Second, it can help with fundraising. Building awareness of your nonprofit’s work can make it easier to solicit funds from individuals, organizations, and other key stakeholders as you grow.

“I would recommend focusing on relationship cultivation in tandem with raising awareness,” Giles said. “Early donors become future ambassadors.”

And, finally, raising awareness can help fulfill the requirements of many grants or donations. Some grants include a requirement to publicize what you are doing with the funding, building transparency into the donor-grantee relationship. Sharing content about your important work enables donors to continue supporting your organization with further funding.

Sean Ludwig and Emily Heaslip contributed to this article.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.