If you’re passionate about a particular cause—whether it be environmental, educational, social, or in some other area of life—one way to channel that passion into something that makes a real impact is to build a business around it. While the goal of running a business is usually to make a profit, the goal of a nonprofit organization is not to share profits with owners and shareholders, but to reinvest that money into the programs the nonprofit runs to further its cause.
As you may have already guessed, the way you structure a nonprofit business is a bit different than a traditional, for-profit enterprise. Let's dive into the steps to starting a nonprofit organization...
Incorporation is Key
When you’re starting a small business, there are lots of options to choose from when it comes to how the business will be structured. (Take a look at a breakdown of ways to organize your business in the US.) However, if you’ve decided that the best way to further your organization’s goals is to become a nonprofit, you’re still going to need to incorporate. This sets the nonprofit up as its own financial entity, meaning you as the founder (as well as any other officers or directors) will not be personally liable for the organization’s finances.
Depending on where you’re doing business, the legal requirements for incorporation may differ, so it’s a good idea to consult with a corporate attorney before submitting any of the paperwork. (Note that, as always, the content of this post does not constitute financial or legal advice!)
Once you’ve incorporated, your organization is not yet officially considered a nonprofit. In order to get this designation, you will need to apply for tax exempt status. (The information that follows is particular to non-profits operating in the United States, so adjustments will need to be made if you’re running your organization in another country.) In the U.S., this means applying through the IRS for 501(c)(3) Status, which designates your nonprofit as a charitable, tax exempt organization. This process should be handled with care, and consulting with a legal professional maybe a good idea in this case as well.
There may be other state or federal tax exemptions your nonprofit is eligible to apply for, so make sure to do your research!
One of the main benefits of being a tax exempt organization is that you can offer tax deductions to people who donate to your non-profit.
While donations from people who support your cause are one way to bring in revenue to your nonprofit, you will likely have to apply for grant funding as well, especially when you’re getting started and need to inject a significant amount of capital to get the company up and running. It's a good idea to get a sense for what the funding scene looks like for your particular area of focus before you go all in on starting a nonprofit. Are there prominent funders? Will individuals or organizations get behind your cause? Are there other nonprofits in your space?
Starting any kind of business is a challenging and exciting endeavour. And if you’ve chosen to take the path of starting a nonprofit, you will be dedicating yourself to a cause you find worthy and which you’re passionate about. But even so, make sure you take into account the financial considerations we’ve discussed here to ensure your organization can thrive and make an impact on the world!
(Image credit: Babson College)