starting a nonprofit business

The Palo Alto Software team, volunteering with local nonprofit Mackenzie River Trust.

This article is part of both our Nonprofit Business Startup Guide and our Business Startup Guide—curated lists of great articles that will get you up and running in no time!

Starting a nonprofit is one of the most rewarding ways a person can spend their time— and it also requires thorough planning and solid dedication.

When you first have that great idea for a charitable organization that could really make a difference, you are likely full of enthusiasm and energy—and it’s key to channel that energy into practical action, so you can move full steam ahead to make your vision a reality.

In this guide to starting a nonprofit, we’ll give you the tools you need to learn how to get up and running.

1. Conduct a needs analysis

First, do some legwork. There are already more than 1.5 million nonprofits in the U.S. alone, so the first thing you should do is verify that some other organization isn’t already serving the need you’ve identified. The process of verifying that there’s a market or demand for your organization’s mission is called a needs analysis.

You’re looking to answer the following questions:

  • Is any other nonprofit organization already serving your target audience?
  • How many people actually need the service you plan to provide?
  • Who is your target demographic—who needs what you’re offering? What do they really need or want?
  • Is a 501(c)3 the best way to meet the need?

SWOT analysis: Strengths, weaknesses, opportunities, threats

One way to get started is to do a SWOT analysis—(Strengths Weaknesses Opportunity Threats). Here’s a free SWOT template you can download. If possible, ask other people for their input—potential board members, other people in your network who have started nonprofits.

Market research: Find out if there’s a real need for your service

In addition to doing your SWOT analysis, this is a good time to do some market research, both on your target population (the people you think need what you’re offering) and potential donors.

Until you’ve actually spoken with (or surveyed) those audiences, you haven’t validated that there’s truly a need for what you’re offering. Your goal in this process is to discover what’s really there—you may find that the need in your target population is different than what you thought it was.

Or you might discover that the need actually exists within a different demographic. The point here isn’t to simply prove your assumptions—it’s ok if you find that you need to make some adjustments to your plans.

Read up on IRS nonprofit compliance

This is also a good time to understand what it means to have nonprofit 501c)3 status in the eyes of the federal government’s internal revenue service. The IRS publishes a nonprofit compliance guide that’s worth reviewing early on, so you’re clear on what’s required of that type of organization.

2. Decide on a name and write your mission statement

Deciding on your charitable startup’s name is an important initial step. You’ll need it to be finalized prior to incorporating your nonprofit or filing any other official paperwork.

Do some research to make sure no other charitable organizations or for-profit businesses are using the name you’d like to use. At the very least it will be a hassle if you’re constantly competing with another organization for brand visibility—or answering messages from confused donors or clients.

Rogaski says developing a name and logo that you are happy with is time well spent because of the pride it instills when promoting your organization. You want to be able to hand someone your card or refer them to your website with confidence that they will like what they see.

Now that you’ve verified that your organization’s services and mission are truly needed by your target audience, and decided on a name, it’s time to write your mission statement.

Keep your mission statement short, and make sure it holds up when you ask:

  • Does it distinguish you from all other nonprofits?
  • Read your mission statement and three other examples (in your niche) to an employee, board member, or someone receiving your services. See if they can identify which one is yours. If not, go back to the drawing board.

3. Build your board of trustees

If you don’t yet have any staff or volunteers, your first board of directors or trustees will play an important role in helping you get your nonprofit off the ground. Your trustees may be able to help you take some of the initial steps toward making your status as a nonprofit organization more official.

Every U.S. state requires that a nonprofit forms a board of directors, who assume governing responsibilities and liability for the organization. For most states, a single person is considered the minimum requirement for a board, but in some states as many as three people are necessary.

The National Council of Nonprofits has a great guide on reasonable responsibilities and expectations you might have of your board members. They also make some solid recommendations on putting together an orientation for new board members to set the stage for their role with your organization.

4. Write your nonprofit business plan

Nonprofits need a good business plan just as much as for-profit companies—maybe even more. Here’s a guide to writing a business plan for a nonprofit, and a free downloadable business plan template that can help you get started. The process of writing your plan (sometimes called a strategic plan) will help you think through all the different aspects of your organization. Plus, if you’re planning to seek a business loan for larger capital expenses, like building or remodeling, every bank will expect to see your business plan.

Lorrie Lynn King, founder of the international women’s health nonprofit 50 Cents. Period., says, “In fact, you are starting a small business. Nonprofit administration and programming require business acumen, financial planning, strategic planning, and people management skills—sometimes all at once.”

But it’s not just about getting a bank loan. Business planning is about making sure you know where your organization is going and how you’ll get there. “It is absolutely crucial to have three-year plans for both the program and administrative sides to your organization, with measurable outcomes,” King says. “Know where you want to go, then create the map for getting there and make adjustments along the way.”

A nonprofit business plan outline

A nonprofit business plan will include many of the same sections of a standard business plan:

Executive summary

Make sure your executive summary includes your mission statement. You will want to have a written overview of what your vision is for your organization.

Products and services

Are you making a life-changing product at little to no cost for a population in need? Are you providing an essential service to your community? Your products and services are what you’re delivering to meet a need.

Market analysis

Doing a market analysis will help you better understand the population you intend to serve, as well as your donor base. Doing this type of research should also give you a good handle on competition, both as far as who else is offering what you’re offering, but also in terms of who you’re asking for philanthropic support.

Management team

Who is going to be on your management or leadership team and your board of directors? What are their duties, and what do they bring to the table?

Annie Rogaski, founder of the Silicon Valley nonprofit The Club offers this tip: “Form a strong board that works well together but brings different perspectives and creates an environment that encourages discussion of those different viewpoints, to arrive at the best decision.”

Financial plan

Your nonprofit’s financial plan is essential. Just because you’re not focused on generating a profit doesn’t mean it isn’t critical to put together a plan for how you’ll sustain your organization, deal with cash flow, and even grow in the future.  

King advises: “Start a funding and a savings reserve for your organization the minute donations start rolling in. Create a system of paper trails and transparency.”

Beyond setting an initial plan for bringing in funds, you’ll want to set up and monitor a few key financials on a regular basis. It might make sense to run your financials on Excel spreadsheets for a while, but think about your long-term plans for accounting. Using a cloud accounting system like QuickBooks Online or Xero can help you stay organized. Plus, if you connect it to a business dashboard solution like LivePlan, it becomes much less time consuming to put together financial reports for your board meetings.

As you get the ball rolling on your new nonprofit, it can be helpful to check out completed nonprofit business plan examples for reference while you build your own.

Your nonprofit business plan will act as your guide, allowing you to make strong decisions with measurable outcomes. Business planning is one of the foremost tools for building and growing a successful nonprofit.

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5. Complete your bylaws, file incorporation paperwork and for 501(c)3 status

In the United States, nonprofits have to meet regulations and requirements at both the state and federal levels. When it comes to how to start a nonprofit, this may be one of the more complicated steps.

While there are 29 different categories of 501(c) organizations, the most commonly created is a 501(c)(3) organization, which is defined by the IRS as “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, or preventing cruelty to children or animals.”

The majority of nonprofit organizations in the U.S. will fall into the category of a 501(c)(3) organization, which makes them exempt from federal income taxes. (It is important to note that employees of these organizations are still required to pay income taxes.)

It’s best to get a jump on filing for tax exemption early, as this process can take up to a year.

“There is a way to get expedited review if there is an urgent need that your nonprofit fills,” Rogaski says. “Don’t feel limited by the particular categories they identify—if you can communicate to the IRS the urgency for your nonprofit, you may be pleasantly surprised by the response.”

In addition to filing for tax exemption, you will need to register or reserve the intended name of your organization, and file articles of incorporation as a nonprofit. The specifics of this process will vary from state to state. Every state has a State Charitable Official from the national association that you can contact for more detailed information about what you will need to prepare.

It’s always a good idea to retain the services of a lawyer familiar with the nonprofit creation process, too. Knowledgeable advisors will be invaluable as you prepare your filings at both the state and federal levels.

6. Create a fundraising plan and get to know your donor base

Every organization has to keep the lights on, and nonprofits are no exception. Your organization will require a minimum amount of money just for operations on a regular basis, not to speak of special projects or unforeseen growth or expenses.

Typically, nonprofits rely largely on donations for this money and having a committed donor base is going to be essential to your organization. Ask yourself if you really know whether there is financial and community support for your proposed nonprofit. Who is the person that becomes a member of your organization, or that donates their money? Developing a user persona can be a helpful tool here.

If this is the first time you’ve ever done fundraising or nonprofit development work, consider doing some online courses on how to build a fundraising plan. The Association of Fundraising Professionals (AFP) is a good place to start, though there is a cost to join. Also, you might seek a board member with experience with fundraising to help guide your initial efforts.

A key factor will be branding and marketing. Part of instilling confidence in your organization will come from choosing a good name and logo. You’ll also need to consider how you’ll reach your donors and explain the importance of your message.

How will social media, websites, videos, and so help potential donors and your target population understand what makes your organization great, and worthy of their money?

Rogaski has some words of advice on branding your new venture. From her experience, it takes time to get it right. “It took us about three months of meeting regularly, brainstorming names, to decide on our name (which stands for Connect Lead Unite Build) and to have the logo designed,” she recalls.

Of course, a strong social media presence is essential to gaining media recognition. “I cannot stress the power of networking and social media enough,” King says, noting that her active Twitter feed has landed her interviews with CNN and her local NPR station. She also makes good use of her business cards: “I never leave home without a stack of my cards, even if I’m just in yoga pants and running to the store.”

But remember to start your branding and fundraising plans with some research—understand who your prospective donors are. Talk to them, if you can, and understand what drives them so you can put together a campaign that resonates with them. And keep in mind that many donors will want assurance that you have been granted your 501(c)3 status so they can write off their donation on their taxes.

You may also want to look into grants. GrantSpace has some great resources on how to find grants for your organization. Keep in mind that grant applications take time to write. They usually come with reporting requirements, and there’s no guarantee that you’ll get the same grant next year. Also, check out Foundation Center for lots of information on grants and fundraising in general.

7. Hire your first staff or find volunteers

Really, your board of trustees are your first volunteers. From there, you’ll probably find that there are still skill gaps within your organization, or that you just can’t get everything done yourself. Maybe it’s time to find a volunteer to help out.

Start with putting together a brief description of the role you need to fill and how much time per week you think it might take. Then get the word out. Depending on the type of volunteer work you’re offering, you might use a service like Volunteermatch.org to list your opportunity. Or you might put it on craigslist, or advertise in a high school or college newspaper.

A word of caution: if your need is fairly involved or requires a specific skill set, it’s perfectly reasonable to ask a potential volunteer to do an initial project before you commit them to a longer-term project, just to see how it goes.

Volunteers can be really helpful, and many nonprofits are primarily volunteer driven. But now or at some point in the future (when your finances allow) it might be appropriate to consider bringing on full or part-time paid staff. Here’s a guide to hiring your first employee.

8. Keep your eyes on your mission

As your charitable organization takes shape, make time to review both your mission statement and your business plan. Because you’ve been hard at work getting things up and running, it might seem like everyone around you should be able to recite your mission (and bring it to life) in their sleep. But it doesn’t hurt to keep your mission at the fore of every conversation you have around services, finances, and hiring. “Does your next move support our mission?” is a great question to ask frequently.

Review your business plan, especially the financials, regularly. Set milestones so you know you’re on track, and can recalibrate if you ever find that you’re not meeting your goals.

Keep in mind that your strategic plan is your roadmap to actualizing your mission out in the world. Use that plan as a tool to set you in the right direction and ensure that your nonprofit is sustainable well into the future.

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Angelique O'Rourke
Angelique O'Rourke

Artistic + intellectual pursuits. Social justice. Actress. Model. Musician. Eugene // Portland.