Nonprofits: The Legal Requirements of Starting Your Own
Even in times of a weakened economy, the rate of nonprofit startups continues to grow. Currently there are over one million nonprofit organizations in the U.S.; their expansion has grown at twice the rate of for-profit organizations. Despite this rapid growth, many nonprofit organizations struggle to even open their doors.
A lack of research, understanding of legal requirements, and funding elements all play into the demise of a business before it begins. To ensure you’re prepared to open your doors, consider the following areas before you outline your business plan.
1) Know what’s out there.
Before starting any business, owners should be educated in regards to their competitors. The same is true for the nonprofit world — knowing what organizations are available and their services can be one of the easiest indicators of your success rate. As the amount of nonprofits grows exponentially, often times there are several organizations that currently fill the needs many start-up nonprofits are looking to provide. Understanding the nonprofits that currently exist in your market will help you determine how to set yourself apart from the pack and create a need for others to join in with your cause.
After performing this introductory competitor analysis, some find they would be more successful if they form a private business to help fulfill their charitable goals. New classes of businesses known as Benefit Corporations were established to serve just this purpose. They are companies whose goal is to “create a material positive impact on society and the environment.” Although time consuming, this preliminary research may be the most critical aspect to understanding the current demand for your services, and forecasting your success.
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2) Ask the necessary questions.
With the start of any major project, a number of very important questions are raised. From funding sources to employees, having the answers to these fundamental questions will serve as the foundation to your business.
Who will be required to make this venture successful?
Although there are exceptions to the rule, usually it requires a lot more than one or two people to keep an organization afloat. In the nonprofit world, often times a large team is established to help support the business operations. These individuals serve many functions, from board members to volunteers and grass-roots operators. Identify those who will be working with you and assign their titles — this will help you get a clear picture of the manpower you have behind your movement.
What am I trying to do?
Surprisingly many new nonprofits do not have a defined and unique mission statement before starting their organization. In order to ensure your mission statement is clear and will help separate your organization from what is already available create a mission statement that answers the following:
- What is our purpose?
- What services are we offering?
- What changes do we want implemented from our services?
- Who are we looking to provide assistance towards?
- Where are we going to operate? Is your organization looking to only benefit a targeted, geographical region? How will our services be provided? How will they be disseminated?
What paperwork do I need?
Taking into account the current state of the economy, often times it’s beneficial for nonprofit entrepreneurs to partner with a current agency that is providing similar services that align with their goals. In order to get a better understanding of the requirements to starting a nonprofit, a business plan should be developed including detailed budgetary obligations, fundraising efforts, an organizational model, and annual salary requirements. Investigate the legal requirements for starting a nonprofit — oftentimes any business which involves fundraising requires surety bonding and some element of licensing. The level of insurance and type of surety bond required can vary from state to state, therefore you should research the state forms necessary for operating in your region.
3) Obtain your paperwork.
As with many businesses, the amount of paperwork required just to establish a business can seem endless. Research the documents you’ll need to file before starting your organization.
4) Check with the professionals.
To help guide you through your start up, establish a list of contacts to serve as your personal business advisors. Be sure to include attorneys, accountants, and local government officials to help answer your questions as they arise. Also, educate yourself as much as you can — from everything to starting a new business to staying on top of state guidelines for operating in your region. The more you know, the more likely your organization will be able to operate efficiently and provide the charitable services you’ve dreamed of donating.
Alex Levin is a writer for clients specializing in guiding entrepreneurs and small businesses through the start up process.