Image by Geralt on Pixabay
Essential Steps to Starting and Growing Your Nonprofit Organization with our helpful Nonprofit Startup Guide.
The first step is to apply for an employer identification number. Your EIN is obtained from the Internal Revenue Service and is provided to you within 24 hours. You will need this EIN and a copy of your Incorporation Documents in order to open the bank account for your organization.
Incorporation is required at the state level. This also establishes the organization as nonprofit corporation and limits the liability of individuals involved. Incorporation can take up to 4 weeks. Once official, your organization can begin operations, including income generation and fundraising activities.
501(C)(3) TAX EXEMPT STATUS
In order to effectively fundraise and apply for grant funding, application for 501(c)3 status with the IRS is required. 501(c)(3) tax exempt status is an extremely important step, which legally entitles the organization to federal tax exemption. This also offers donors the ability to claim tax write-offs due to their charitable contributions to your organization’s efforts. Many will not donate without this exemption. Grants frequently do not fund without it and they can even be particular with the the type of 501(c)(3) category that you qualify for. Due to the length of time it can take to be approved by the IRS, this step must be done as quickly as possible. Approval can take 2-8 months. If your organization will have an operating budget of less than $50,000 for the first three years, we recommend using the 1023EZ application process. We can assist with your application if you need it.
STATE TAX EXEMPTION
Along with your IRS filing, you must also file for tax exempt status with your state of incorporation. Each state has their own filing procedure and cost. This will allow your organization to qualify for tax exemption from corporate income taxes, state sales tax, and potential savings for material goods needed for your organization.
In order to qualify for grant funding, you will need to be fundraising locally. This includes public donations. In order to obtain public donations locally, your organization will need to register at the state level as a charity. Failure to do so ca result in fines or penalties. If you are soliciting funding from multiple states, then you must register in each state.
DUNS NUMBER REGISTRATION
If you are entering into a cooperative, contribution, inter-agency, partnership agreement, a federal contract, or grant agreement with NRCS and you use an Employer Identification Number (EIN), also referred to as a Tax Identification Number (TIN), you will need a Data Universal Numbering System (DUNS) number and be registered with the System for Award Management (SAM). These entities must register with SAM to receive payments. If you enter into the contract, agreement, or grant with NRCS as an individual person and use your social security number as your TIN, you DO NOT need to obtain a DUNS number or SAM registration What Are DUNS and SAM?
DUNS is Dun & Bradstreet’s (D&B) “Data Universal Numbering System”. It is a copyrighted, proprietary means of identifying business entities on a location-specific basis.
A DUNS number is a unique nine-character identification number Dun & Bradstreet provides free of charge.
The System for Award Management (SAM) is the Official U.S. Government system that consolidates the Central Contractor Registration (CCR), Federal Contract Registry (FedReg), Online Representations and Certifications Application (ORCA), and Excluded Parties List System (EPLS).
Business entities that have obtained a DUNS number must register annually on SAM to be eligible to receive financial assistance.
There is NO charge to register or maintain your entity registration record in SAM.
Your entity may obtain a DUNS number in two ways:
By Toll-Free Telephone
Business entities may request the DUNS number by calling a toll-free telephone number: 1-(866) 705-5711. Tell the operator that you are applying to a Federal financial assistance program and need to register for a DUNS number.
Over The Web
Business entities can also obtain a DUNS number through D&B’s Web site at: http://fedgov.dnb.com/webform .
To complete the process to obtain a DUNS number, you will need to provide the following information:
- Legal name of your business entity
- Phone number
- Name of the CEO or business owner
- Legal structure or type of business (corporation, partnership, proprietorship, etc.)
- Year the entity was created
- Primary line of business
- Total number of employees (full- and part-time)
Note: Obtaining a DUNS number places your organization on D&B’s marketing list that is sold to other companies. You can request not to be added to this list during your application. D&B should not charge you a fee for requesting a DUNS number. You are also not obligated to purchase any of their products as a condition to obtain DUNS. It may take 2 -3 days for you to obtain a DUNS number.
A Frequently Asked Questions about DUNS is available at: http://fedgov.dnb.com/webform/displayFAQPage.do
Register on SAM.gov
Once you have been assigned a DUNS number, you must annually register on SAM.gov to remain eligible to receive program financial assistance. To complete the process on SAM, you will need the same kind of information used to obtain your DUNS number as well as your Tax Identification Number (TIN) and other data to complete registration and reporting requirements.
Before registering, you should review the SAM User Guide. It can be viewed online or downloaded as a PDF at this address: SAM User Help
If your organization has the necessary information ready, online registration will take about 30 minutes to complete, depending upon the size and complexity of your business entity. It may take 3 business days or up to 2 weeks before your SAM registration becomes active.
If you are updating or renewing your registration information it will take approximately 24 hours to become active.
Since the IRS can take a long time to approve 501(c)(3) status, or if your organization does not have the funds to file yet, you can opt to utilize a fiscal sponsor to help you obtain grant funding. Buyer beware. This is not something to jump into without thoroughly knowing the organization you partner with and be sure all policies are firmly in place before soliciting or accepting funding in conjunction with fiscal sponsorship. Factors to consider include: fund distribution policies, reporting requirements, etc. Remember, they are accepting funding on your behalf. They must report the way those funds are used to the granting agency. Their status can be affected by your actions. Additionally, they could also decide to create their own program like yours and keep the funding. This is not common, but not impossible. Bank accounts will be under their organization’s name and you may have access to a special account under their organization’s umbrella.
In order to qualify for grant funding, your organization must fundraise locally. Procuding private donors and soliciting corporate sponsorship can be challenging and it requires a lot of community networking and events. Fundraising events are a great way to make a public advertisement for what your organization does. Raising public awareness can also help you to receive in-kind donations of goods and services as well as procuring volunteers. You really need to be involved in your community to garner the kind of support that grant funders want to see before they extend a hand to fund your organization. Establishing community support and credibility is critical. For access to numerous resources to help you with fundraising and volunteers, please visit our grant readiness resources page.
Nonprofits are able to charge fees for some services, and this can impact the type of IRS 501(c)(3) status you obtain. Selling tickets, memberships, and other items can be used as fundraising tools if set up properly. Be sure to understand the legalities on fee based fundraising and how it impacts your tax exempt status. Multiple streams of income is a strong example of good financial stewardship and is encouraged by many foundations and grant sources. Learn as much as you can about the options available to you.
Corporate sponsorships are a significant source for funding. Working with corporations can be very different than working with foundations who offer grant funding. Corporations often want name recognition. They want the tax exemption/write-off for their contributions, but they also want advertising for their dollars. This can include website recognition, acknowledgement in publications or media outlets, and signage at sponsored events. This type of funding requires hands-on involvement and beating the streets to visit them in their offices to discuss your organization’s efforts and what the corporation/business tends to gain by their contribution. People skills are critical. Additional motivators can include sponsorship levels for them to obtain recognition. Each level can have its own pre-determined “award” package for recognition. Awards can also include free tickets to events or even gifts. Donation requests can vary depending on the nonprofit’s current functional level and financial needs. Corporations will work with organizations with proven track records more easily than they will with newer nonprofits. If your organization is new, keep your requests low to start. Requests between $250-$2,500 are a good place to start. For larger nonprofits with a long standing history in the community, entire performance events (for ballet, arts, etc. as an example) can be sponsored by a corporation. This would include all costs for the production of that event. Foundations who offer grants do like to see corporate sponsorships in your fiscal plan. Corporations can also be a great resource for in-kind donations of goods and services needed.
Small grants are all that will be available to new nonprofits. They consider it a risk. They want to see your organization’s track record, community support, other fiscal sources, and activities in progress. To start a nonprofit, one must not rush into grant writing efforts. If you cannot afford even a basic grant writing fee for a consulting service, you are not grant ready. Even if you had volunteers or interns writing grants, you are not likely to receive them if you don’t have $2,000 in your account. That’s not even a basic minimum. That’s the skeleton bare bones version of minimum. Foundations have hundreds of applications that are presented to their board on a regular basis. You will be competing with better established organizations with strong financials. Those organizations will be more likely to receive funding than a fledgling new nonprofit with no money. Having a great idea does not make one worthy of funding. Proof of ability to execute, financially manage funds received, proof of success, and accountability are critical to wooing the eyes of grant funders. Many nonprofits who rush into grant writing, don’t even have their programs written out, financial plans organized, budgets created, or a schedule of fundraisers planned.
If you wish to seek grant funding, we recommend utilizing consultation services to get your organization fully functional and receiving local funding sources before launching into grant writing. The next step is using our New Nonprofit Grants Package options to help you get your feet wet with the grant writing world. By actually experiencing the grant applications, nonprofits learn more quickly what it is they should be doing as a nonprofit to be a fully functioning nonprofit qualified to receive grant funding. You will also need a website, a financial history, evaluations and success stories to provide grant funders for their consideration.
Most importantly, they want to see sustainability. When a more robust financial reality is established, our Pro Subscription Plans are a fiscally responsible choice.
Branding is the name of all of the games today. For profits and nonprofits alike have to be sure that their name recognition is properly established within their communities to receive the critical community support and fiscal engagement. Branding includes slogans, taglines, logos, and other graphic design elements used to make a memorable impression that identifies what your organization is about. Consistent branding among all marketing materials, websites, and letterhead is essential. Branding consistency triggers name recognition and a feeling about the organization’s mission, cause, programs, and services.
SOCIAL MEDIA NETWORKING
Social media has become an essential component to community engagement, donor solicitation, marketing, and volunteer procurement. The ability to build stronger relationships with more people is one of the most attractive components of utilizing social media in a nonprofit’s networking strategy. Be sure to utilize it as a way to promote fundraising events, spreading the word about new programs or services, and a way to gather community feedback on needs that your organization could fulfill.
An essential marketing strategy which can be used for fundraising announcement, program announcement, community engagement, and a platform to establish what your organization really believes in can be more thoroughly established through an organizational blog. Additional aspects to consider are SEO and how blogging can raise your organization’s standing on search engines such as Google and Bing. The more active your blog, the higher the ratings and the more frequently people will visit your website, engage in your fundraising events, volunteer, and participate in programs. Be sure to include images, links to other organizations, and opportunity for action with each blog post.
PUBLIC SERVICE ANNOUNCEMENTS
One of the longest standing marketing strategies used by nonprofits is the use of the free public service announcement. These press releases are short narratives utilized for announcements about events, programs, or other time critical actions that can be mass submitted to news outlets, radio, television, and various online platforms that promote community events. To not use this free marketing tool is foolhardy at best. This is the most time tested and true method to guarantee largest community outreach impact. The PSA can also include sponsorship recognition that was promised to corporate sponsors and other foundations who seek public acknowledgement. Impact is far more widespread with the inclusion of social media, blogs that support such missions as yours, and any other organizations who want to help support your cause through media support.
Technology runs our lives. In most cases, the most effective means to communicate can be through email marketing newsletters. This keeps your supporters up to date on what your organization is doing and any needs your organization currently has. Updates on special events, upcoming fundraisers, and success stories can also be shared through email newsletters. Don’t forget to include volunteer opportunities and any pertinent information for volunteers (you could even create a separate volunteer newsletter to offer more specific details when organizing events with volunteers). One key factor to always remember is that permission must always be given before inclusion in any email marketing list. Failure to do so can get your email address blacklisted.
Every nonprofit organization needs a strategic plan to implement their programs, fundraising goals, and organizational goals. This document is used to plan the steps necessary to achieve the organizational mission. This framework also holds the organization constituents accountable and focused. It can be likened to a business plan, however it includes less financial data and more information regarding regulatory compliance, objectives to address, critical issues, and the like.
BUILDING A WEBSITE
As ironic as it may be, foundations that do not have websites, will still look for your organization’s website to help them verify what you’re about. Foundations without websites aren’t seeking attention, you are. If you have no website, it sends the message that you aren’t very serious about getting support from your community, let alone from a foundation or any other corporate sponsorship. Websites help newcomers learn what you are about, who are, what you have done, what you plan to do, how to get involved, how to donate, and how to contact you. A website is more important than having a physical location in today’s world. Websites help build trust, drive traffic to your events, help you raise funds, and help people know what you’re made of. Inclusion of a board of directors page is essential (including bios), staff bios page, events page, success stories, about us page (with mission statement), donation page, and contact us page are the most critical. You can have additional pages that cover your individual programs as well as a photo gallery (make sure you have signed permissions to utilize photographs of people). It is also important to recognize your corporate sponsors and donors somewhere on your website. Inclusion of your blog, signup for your email newsletter (or volunteer newsletter) should also be included. We do offer website development at an economical rate of $100 per page.
MEETING MINUTE TEMPLATES
You need to hold regular board meetings and each meeting must be documented thorough minutes. This means writing your board meeting agenda, the discussion held, votes and results, as well as any outcomes achieved. This needs to be effectively documented and stored in a corporate book after each meeting.
YEAR END COMPLIANCE
Year end reporting is required for your state and IRS compliance. At the end of your fiscal year (not necessarily calendar year), you need to produce a fiscal reporting of all activities for the year completed. Failure to do so can result in loss of your tax exempt status, penalties, or potential corporation dissolution. These reports are also submitted for grant applications.
ANNUAL REPORT TO CONSTITUENTS
A good habit to develop is doing the annual report at the same time as completion of your year end compliance reporting. Much of the same information will cross over. This report is for your board of directors, and any other constituents who need to be privy to the organization’s accomplishments over the previous fiscal year. The annual report includes stories of programs, events, and volunteer recognition. Funding allocation is a large factor in this report.
To have a functioning nonprofit (or any business), you must establish an employee handbook. This handbook establishes all organizational policies. This is the most critical document for your organization’s employees.
Organizational policies are required by local governments in order to establish yourself within a property or obtain certifications or insurance. They can also be a critical component for grant funding. These policies include safety and organization practices, as well as nondiscrimination policies and procedures for filing complaints.
Volunteers are often the heart of the organization. Without them, much of your work may go undone or you may wear out your staff in trying to do it all. Learning how to recruit and manage volunteers is another critical component to effective nonprofit functionality. Training of volunteers as well as supervision are also important aspects to implement. Volunteers can make or break your organization’s success. Your investment in your volunteers is extremely important. You can seek volunteers in your community and utilize resources that help you to find them online. Our grant readiness resources page offers some of these resources.
Most nonprofits today are run by people who just had a great idea. Some larger institutions have hired business managers (MBAs), and a few have managed to find the rare gems like Zelenz Consulting who have nonprofit management degrees and experience for several decades. It is common practice in the nonprofit world to utilize outside consultation services to bring fresh ideas, new insights, and perspective to nonprofits of any size. Often, a nonprofit will be so narrowly focused on their daily goals or immediate needs, that they do not have the opportunity or knowledge to know where to go to seek a wider perspective and alternative solutions to their current challenges. These can include program development, compliance, fundraising plans, community involvement advice, and capacity building strategies. Don’t just rely upon your board of directors to provide all of the answers. They are there to facilitate your efforts and help keep accountability. They are not necessarily the visionaries you need to implement new strategies. They may also come from the for profit world, and may not fully realize how different the nonprofit world’s expectations can be. Grant funding issues are a major component with this. We offer customized consultation services for nonprofits as needed.
Program development is the entire purpose of your efforts. It is one thing to have great ideas and goals, it is quite another to write out the steps you will take to implement them. This is critical. All grants will require this information. Factors include eligibility requirements, reporting, sliding scale fees, follow-up procedures, evaluation and determination of success, as well as daily schedules of events and procedures.
BOARD OF DIRECTORS DUTIES
Your Board of Directors plays a critical role in your organization. Not only a requirement for receiving your 501(c)(3) status, they are essential in the checks and balances required to maintaining the tax exempt status. There are specific roles to play, responsibilities to enact, and financial obligations to the organization. Each member must have a job description and duties outlined in the organization’s governance documents. Large boards may also have committees designed to attend to specific tasks.
SCHOLARSHIP/GRANT PROCESS DEVELOPMENT
If your organization will be disbursing funding to other parties as grants or scholarships, this can impact your grant funding eligibility. Your status may be in a category of 509 tax exemption and labelled a foundation. You will be required to establish a clear set of guidelines relating to eligibility requirements, terms, reporting requirements, etc. for persons or entities who receive the funding. Seeking proper counsel in establishing such policies will liberate your board of directors to focus on other governance demands.
Board policy manuals are essential to good governance. This manual includes orientation information for new board members, as well as serving as a resource for policy reference. All board members must have access to the organization’s board policy manual.
GRANTS SOLICITATION PROCESS
Grant funding often provides large donation support for organizations that have been established within their communities and who receive funding support from multiple sources. Small grants under $10,000 can be achieved for small and newly developed organizations who demonstrate community support. Fiscal sustainability is a key component that all grant funders will seek. They do not like to be the first to provide funding and they want to know that if they donate, the funds will be used for what they were requested for. This can be problematic if an organization fails to raise the amount required for their project. This is why grants do not like being first. Seek first local donors, corporate sponsors, and hold local fundraisers. Then seek grant funding. There are thousands of private foundations, corporate foundations, and government grant funding sources. Their existence and your great idea do not mean funding. Government grants are competitive and more costly to write due to the depth of writing required and documentation supporting the request.
Using interns and volunteers to write grants can often waste time. Many assume that writing skills are all that is required. In reality, a “grant writer” most likely will tell you how your management of your organization is not up to par with grant funding requirements. This consultant will guide you to rectify program holes, evaluation strategies, fundraising requirements, and reporting restrictions (use of funds). They will require you to answer to them when preparing your application and reports. If they need you to tell them what steps they need to take, then you had better be 100% aware of all foundation demands and expectations. If you do not have time to do this, then find a grant writer who will hold you accountable. If you do not, you will lose funding. Writing the grant is only one step. Foundation research, including their 990 filing history, is essential to focusing your grant writing efforts productively. Timely reporting on the use of funds is also critical to receiving a favorable support from the foundation in the future and with other funders. You are accountable to them, not the other way around. They don’t owe you anything. Failure to do so may result in returning grant monies.
Upon establishment of fiscal sustainability, it is recommended that you hire a professional fundraiser to help you grow your programs. Upfront payment is common practice and it is unethical to offer a percentage of funds raised. Asking anyone to write grants or do fundraising with an “incentive” model, including exposure, and other carrots is unethical and can get your organization alerted to the national grant writing organizations and fundraising professionals organizations. Quality and professionalism need to be respected and paid accordingly. Their work isn’t what is in question. Their fundraising efforts are only as good as the functionality and sustainability of the organization they raise funds for. Their livelihood cannot be put in jeopardy over irresponsible nonprofit management. If an organization is grant ready and qualified for healthy fundraising, they can afford to pay a professional. Additionally, using an incentive or percentage based payment plan can disqualify you from most funding sources and grants. You do need to report how the funds were used. Major fundraising events for well established nonprofits can raise between $50,000 to $500,000.
DONOR RECOGNITION PROGRAM
Recognizing your donors is common practice and encourages increased donor retention and contributions. Donor recognition can take many forms, including physical plaques, art, or other media/print acknowledgment. This can also include public mention in PSAs, public events and fundraisers. It is important to have a well planned donor recognition program not only offers tier acknowledgement for contributions, but should also be paired with a powerful organizational statement that demonstrates your purpose and vision, and a showcase of your significant achievements. This demonstrates to the community and to your donors how their contribution enabled your accomplishments. It is a symbolic acknowledgment of partnership.
Grant funding can be available for one time needs, such as a building reconstruction or purchase. Capital campaigns, just like all other funding needs, must have a multiple source plan. No foundation wants to be the first to fund a capital campaign. Doesn’t matter if your organization has a 50+ year history and a multi-million dollar budget. You’re treated just like the new guys when you buy a building or want to perform some form of reconstruction or renovation. They want to see you hold fundraisers, secure local donors, and corporate sponsors. Many foundations like to offer the last half of your fundraising efforts to ensure success. At that point, they feel confident that the project will come to fruition. Occasionally, capital campaigns are used to build endowments. Not all foundations are interested in contributing in that manner. You would be better to seek private contributions and corporate sponsorships for such efforts. Purchase of expensive equipment is a common capital campaign endeavor and is frequently favored by foundations. They will still require fundraising efforts from the nonprofit outside of the grant request. Grants aren’t your magical fairies to carry you to never-never-land. They are the responsible parent expecting you to prove you deserve it. Show them. Capital campaigns do require preparation and should be treated seriously. Careful planning and skillful execution can result in favorable results.
Estate planning is the most commonly utilized form of planned giving. Your most devoted regular donors may wish to bequeath ongoing funding through their estate. Tax planning techniques along with professional estate management planners are involved in the disbursement of funding for the duration of the planned giving. This also helps the heirs to maximize gift contributions while minimizing the impact on the donor’s estate. Planned gifts are any major gift, made in lifetime or at death as part of a donor’s overall financial and/or estate planning.
STEPS FOR SUCCESS
Incorporation & EIN
501c3 Tax Exempt Status
State Tax Exemption
Logo & Marketing Material
Strategic Plan & Business Plan
Grants Solicitation Process
Business Sponsorship Program
Government Compliance (990)
Black Tie Events
Donor Recognition Program