salaries are subject to income tax, like all other types of compensation. Tax-exempt doesn’t include payroll tax — it must be withheld, matched by the nonprofit, and deposited with the IRS on time every month (usually on the 15th day unless the 15th falls on a weekend or federal holiday).
Sharing the decision-making process with a board of directors: Even though you have the vision to form a nonprofit organization, the IRS requires it to have a board of directors. The board makes the decisions and is responsible for financial, management, legal, and operational oversight. Any decisions made by the founder or executive director must be approved by the board. (See Chapter 3 for more about the board’s role.)
Filing an annual report with the IRS: The complexity of the report increases as your nonprofit income increases. (See Chapter 6 for more information about reporting requirements.)
Competing with others for funding: Competition for grants from foundations, corporations, and government agencies is tough, and so is garnering donations from individuals. You’ll compete with more-established nonprofits that have successful track records.
Being unable to take any assets with you if you leave: If you decide to move on to other pursuits down the road, for example, you can’t take with you any assets accumulated by the organization you’ve built. Others will continue running the nonprofit, or else it will need to be dissolved and the assets given to another nonprofit. (See Chapter 20 for more about the process for closing a nonprofit.)
Doing Your Homework First
Beyond thinking about the challenges you face in starting and running a nonprofit organization, you need to apply some common sense. Nonprofits don’t operate in a vacuum, and neither should you. Personal commitment and inspiration can take your organization far, but you also need to find out how your community will receive your particular idea. Before going full steam ahead, investigate your competition, garner community support, recruit the right board members, choose how to fund your organization, determine whether you’re truly ready to run a nonprofit, and develop a game plan. Read on to find out how to get your nonprofit off to a great start.
Analyzing the competition
Just as though you were starting a for-profit business, you should analyze your competition before starting a nonprofit organization. If you want to open a grocery store, you don’t choose a location next to a successful supermarket, because the market can bear only so much trade. This principle holds true for nonprofits, too. You may have the best idea in the world, but if someone else in your community is already doing it well, don’t try to duplicate it.
On the other hand, if your area has no similar program, ask yourself why. Maybe your community lacks a sufficient number of potential clients or audience members to support the project. Or maybe funders don’t perceive the same needs in the community as you do.
Online surveys or written questionnaires to a random sample of residents in your community
Interviews with local foundation program staff and civic officials
Focus groups with people who are likely to benefit from the organization
Recent community needs assessments (from researching and reading) to look for gaps in services
For more details on assessing your community’s needs, see Chapter 8.
Identifying the right people to help you
Your chances of success increase if you begin with support from others, and the more help you have, the better. Sure, you can probably find an example of a single-minded visionary who battles alone through all sorts of adversity to establish a thriving nonprofit, but starting and running a nonprofit organization is essentially a group stakeholder activity.
When starting a nonprofit, find people, known as stakeholders, who will serve on the board of directors and support your efforts with donations of money and volunteer time. The first people you usually identify as supporters are family and friends. How can they turn you down? In the long run, however, you need to expand your group of supporters to others who believe in the organization’s mission (and not because you personally created it) and can give substantial financial contributions to a new nonprofit.
To find people to help you and support your organization, take every opportunity to speak about your idea before civic groups, religious groups, and service clubs. You can pass out fliers or set up a booth at a volunteer fair. Set up Facebook and LinkedIn profile pages and invite your contacts to spread the word. Talk to your friends and coworkers. Put on your salesperson’s cap and convince the community that it needs your program and that you need their volunteer and financial support.
Figuring out how you’ll survive financially
Funding your nonprofit organization is a big issue. Even if you begin as a volunteer-run organization and work from a home office, you still need funds for securing a website, assigning a dedicated telephone number, and purchasing technology, Internet access, supplies, postage, and insurance. You also have to pay filing fees for your state incorporation and IRS tax-exemption application. Many nonprofit start-ups are funded by the founder in the beginning. Are you able to pay all start-up expenses before revenues start flowing to your new nonprofit?
MY STORY: A CALCULATED RISK
What are you willing to do to create a financially sound nonprofit organization? I (Bev) am a baby boomer (born between 1946 and 1964 — I’ll leave it at that), and I started my own nonprofit organization knowing that surviving the start-up process and securing early-on funding would not be easy. So, I decided to live off my monthly social security income for two years and not burden the new nonprofit with
