Wednesday, June 1, 2011 - 8:36am
posted by
Robert Duea,
Professional in Residence
ASU Lodestar Center
and
Pat Lewis,
Senior Professional
in Residence
ASU Lodestar Center

So, you're thinking about starting a nonprofit organization. You have a fantastic idea, but are you ready? Do you have everything you need before you begin? Is starting a nonprofit the right path for you?

Before you begin your nonprofit journey, you should ask yourself two very important questions. So, let's dive in, and see if you're ready!

1. "Why do I want to start a nonprofit organization rather than a for-profit organization?"

Both types of organization could be the right choice for you. After all, both are businesses, and both can help you provide the service you want to share. So, what is the difference? There are a number of similarities and differences. Here are few:

  • Nonprofit organizations are concerned primarily with social good; for-profits focus on profitability.
  • Nonprofit organizations must adhere to a rule of non-distribution whereby profits, or any excess at the end of the fiscal year, must be re-invested in the organization and its programs and may not be distributed to individuals; for-profits exist to distribute profit to owners and shareholders.
  • Nonprofit organizations comprise paid staff and volunteers; for-profits typically only have paid staff members.
  • Nonprofit organizations are governed by a board of directors; for-profits are governed by the owner(s) and, if a corporation, also a board of directors.
  • Nonprofit organizations are granted federal exemptions of certain taxes; for-profits are taxable.

These are a few of the key differences that can help you make the right choice for your organization. So, let's say you've chosen the nonprofit route. The next question you should ask yourself is:


2. "Are there other organizations in the community that do what it is I propose to do? If so: Is what I propose different from what any of them already do? Can I become a program of one of them rather than start a new business?"

The United States has approximately 1,600,000 nonprofit organizations of which about 800,000 are charities. In Arizona, there are more than 29,000 registered nonprofits of which an estimated 19,000 are currently operating. [1] That's a lot of service!

Each of these nonprofit organizations strives to serve a perceived need in the community. In some cases, they are the sole providers of a service. In others, they are among several. You'll need to determine whether your proposed program fills a specific niche or if it's a duplication. If it's the latter, your chances of developing financial support and clientele might be limited.

Your proposed program, instead of being a new organization, could possibly be part of an existing nonprofit organization. By collaborating, you could fulfill your own desires as well as help the existing nonprofit in fulfilling its mission. Should such a partnership be successful, it is entirely possible that, sometime in the future, it might serve the purposes of all involved to spin off your program into a separate nonprofit organization. It's worth a serious conversation with those nonprofits to determine the best course of action.

In considering whether or not to form a nonprofit, you should realize that forming and maintaining a nonprofit has become increasingly difficult and expensive due to new regulations governing the sector. What used to be a fairly simple process now requires a clear mission and core of support with significant support documentation.

So, now that you've answered these two questions for yourself, how do you move forward? The ASU Lodestar Center offers two great resources to get you on your way. Visit our FAQ, or register for How to Start a Nonprofit Organization, a 3-module Nonprofit Management Institute (NMI) workshop. You can take Modules 1 and 2 at any time online. The workshop will help give you a clear understanding of how to proceed in achieving your nonprofit goals.

Have questions? Ask away in the comments section!


For further reading:
^ [1] For a more in-depth discussion about these numbers, click here to read "Really, How Many Nonprofits are There?" — a Research Friday post from Dr. Mark Hager.

Comments

For example, in the USA, it's very important how you characterize your plans when filing for incorporation with your state and/or for tax-exemption and/or tax-deductibility with the IRS -- otherwise, your new organization may be deemed a for-profit or you may have to pay federal taxes (among other taxes) on your income.

Thank you for this posting! I am very interested in Non-profit Organizations and one of my future career goals is to start my own non-profit. I found this very beneficial, especially the comparison between non-profit and for-profit. I enjoyed that your post did not seem biased toward one or the other but was solely informational and helpful. I will definitely be looking into the resources you have provided!

This was a very good post! I agree with you, there are too many nonprofit organization in the United States, and many do the same things. Think about all the nonprofits dedicated to finding cures for cancer, imagine if all those organizations teamed up together and had extensions instead of a separate business. Unfortunetly, grants are also limited causing many organizations to go down. I believe that if someone has an idea that is different from any other, or if there is need for additional organizations, than, and only then should a person start a nonprofit.

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