How to Start a Nonprofit: A Definitive Guide [2024]

There are 1.5 million nonprofit organizations in the United States. These organizations include healthcare organizations, educational facilities, churches, local networking groups, and other charitable organizations.

You may be worried about starting your own with so many nonprofits, but nonprofit founders are passionate and courageous. Our step-by-step guide will give you a solid foundation to help you get your nonprofit running.  

Read on to learn how to register with your state and gain tax-exempt status with the Internal Revenue Service (IRS). You will also learn best practices to help you write a mission statement and business plan, find funding sources, form a board, and determine if you should start a nonprofit at all.

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What is a Nonprofit? 

The name "nonprofit" is a misnomer. Nonprofit organizations can make large sums of money. The primary difference between nonprofits and for-profit businesses is how they must spend the money they make. Nonprofit revenue cannot benefit the organization's founder, board members, staff, donors, or volunteers. A nonprofit's services must benefit the community to retain their nonprofit status and all funds raised must be returned to the organization and the community. 

Unlike a for-profit business, nonprofits must also comply with strong restrictions by the IRS that limit lobbying and political campaigning, and require nonprofits to be financially transparent.

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The Most Common Types of Nonprofits to Start 

The most common nonprofit status is a 501c3 organization. These organizations qualify for federal tax exemption and must operate to support the following exempt purposes set by the IRS: 

• Charitable 
• Religious 
• Educational 
• Scientific 
• Literary organizations 
• Testing for public safety 
• Fostering national or international amateur sports competitions 
• Preventing cruelty to children or animals

In addition to this tax-exempt status with the IRS, other nonprofits offer membership benefits to local community leaders, businesses, and promote social welfare. Visit the Internal Revenue Service (IRS) for a list of other nonprofit types. 

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Should You Start a Nonprofit Organization? 

Starting a nonprofit can be overwhelming, confusing, exhausting, and unnerving. You also won't make a lot of money. These facts can scare away most people, but if you want to do good in the world, starting a nonprofit can be the best idea you ever had. 

Nonprofit founders are passionate about their cause. Most founders are also intelligent and savvy business leaders, but running a nonprofit is different. If you aren't aware of these differences, you have a better chance of failure, regardless of your nonprofit idea. 

Most founders don't have a background in nonprofit fundraising, but it will be one of their primary responsibilities. As you learn more about how charitable organizations operate and find initial funding and long-term financial resources, you'll better understand how be become a successful nonprofit.

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Best Practices for Starting a Nonprofit 

In addition to registering with your state and federal government, you must do a few things to start in the right direction. 

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Write a Business Plan 

Before starting a nonprofit, you must know what you want and how you will make it happen. Nonprofit startups survive when they have a detailed plan that shares how they'll fulfill their purpose and mission.

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Data Collection 

Before starting a nonprofit, you must decide whether you really should. Do your research. Does your community need what you'll provide? Do other organizations already meet this need?  

If other nonprofit organizations meet this need, how will you be different? How many people can you help?  

A needs assessment will help you decide if your organization is needed and prioritize the most critical needs of your community. Adding a needs assessment to your nonprofit business plan will help you better communicate the need for your organization to potential funders. 

As a new nonprofit, you'll also want to create projections for your nonprofit and community's needs, including: 

• Fundraising and marketing resources 
• Operation and Program needs and expected costs

A SWOT analysis can help you examine external opportunities and threats, along with internal strengths and weaknesses. SWOT analysis can help you write your business plan, identify potential donors and partnerships, and develop new programs.

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Value Proposition 

A value proposition for a for-profit company states how it benefits its customers. Nonprofits must say how they benefit the community as a whole. Your organization's mission statement should share this information. It is also the most essential part of your organization.

You'll use it when registering with your state and the IRS and applying for grants. You'll also add it to marketing and fundraising pieces for your organization. Your mission statement must be understandable and exciting and explain who you are, why you're needed, and how you'll accomplish your goals. Your mission statement should already share this information, so if you've created a quality mission statement, you can add that here. 

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Programs 

Adding a section to your business plan about your programs will help further explain how each program works for your mission and impacts the community. If you need help thinking of programs for your new nonprofit, you can always research similar organizations to see what they do. You can use this as a chance to discuss with your board how you can differ and stand out from the competition. 

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Marketing Plan 

Your marketing plan is where you can share why donors will support you. You'll need to detail your ideal donor, including demographic and financial information. You'll also want to include their interests, attitudes, values, and fears. 

Next, you can discuss how you'll acquire new donors. This includes how marketing with a nonprofit website, paid ads, and peer-to-peer campaigns can turn website visitors into donors. You'll want to add the cost projections you collected in this section. 

From here, you can add how you plan to retain and upsell donors by acknowledging their gifts, sending regular donor communications, inviting donors to tour your facility, and encouraging them to become recurring or major donors. 

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Operational Plan 

Your Operational Plan discusses your organization's needs and how you plan to meet them. You can do this with: 

• Details on day-to-day operations 
• List of leadership and key personnel 
• Legal Requirements 
• Insurance needs 

You can also share the resources your organization already has in this section, like: 

• Building and equipment 
• Strategic Alliances 
• Patents, copyrights, and trademarks 

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Impact Plan 

In the beginning, you'll probably leave this section blank. As you grow, this is where you can share how your nonprofit programs and projects have affected the community and helped you fulfill your mission. 

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Financial Plan 

When starting your nonprofit, this section will include the projections you collected on what programs and projects will cost and how you will collect funds. Your tax-exempt status offers several financial opportunities that for-profit businesses don't have, including grants, corporate sponsorships, and individual donations. Add your strategic fundraising plans and plans for surplus funding to assure potential donors that you can fulfill your promises. 

Now that you've written your nonprofit business plan, you have details to use in your state and IRS applications. More importantly, you have something to use to connect and collaborate with other organizations and funders that can help you find success right away. 

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Form a Board of Directors

Another vital step is to form a community of believers to help you meet your goals. That number may seem easy, but you shouldn't just ask a few friends to become board members and call it quits. Instead, you'll want to understand your organization's needs and find board members with expertise in those areas. 

Board members must attend regular board meetings, hire and oversee an Executive Director, understand and vote on your nonprofit's financial statements, and promote and fundraise for your nonprofit organization within the community. Many nonprofit boards also require members to donate annually to the organization.

You'll want to create job descriptions and a training manual for your board members and leadership to ensure everyone is on the same page. When making a board training manual, there are several things you'll need to include, like: 

• Nonprofit Mission Statement 
• Welcome letter 
• Governance and board information 
• Strategic Plan 
• Financial and legal information 
• Programs and Impact 
• Board policies and procedures 
• Key Contacts and Resources 
• Training and mentorship opportunities 

In the beginning, you won't have most of this, but your board members should understand that it is their responsibility to develop these for the current and future boards. For now, your business plan will help educate new board members on your nonprofit's purpose and goals.  

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Apply for Tax Exempt Status

A primary reason donors give to nonprofit organizations is to get a break on their taxes. If your nonprofit does not have tax-exempt status with the IRS, it can affect donations.

The IRS allows churches, schools, charities, and other organization types to register as a 501c3. With this status comes several rules and regulations, like no political campaigning, limited lobbying, and the need to be financially transparent.

The benefits can outweigh these regulations for many organizations. Tax exemption makes applying for grants, corporate sponsorships, and major donor support easier and more successful.

Find Startup Funding 

Another step to take before registering with your state and applying for tax-exempt status with the IRS is to find startup funding. There are several costs included in starting a nonprofit, including state and IRS filing fees, website and marketing, location needs, and more.  

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Apply for Startup Grants 

The first place to check is grant funding. Your nonprofit organization can find startup funding with corporate giving programs, private foundations, and federal, state, and municipal grants. 

Before applying for these grants, you'll need the following: 

• An introduction email or letter 
• A business plan that has your organization's mission statement, budgets, and financial needs 
• Description of different programs that relate to the funder's mission 

Even if you can't find grants, there are other ways to raise funds and find support for your new nonprofit, including: 

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Connect with other similar nonprofits  

You may find organizations that match your goals or are willing to connect and work with your organization. 

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Sign up for an online donation tool  

Nonprofits can use several online tools to find startup funding, market their organization, and build relationships with donors.   

Zeffy is a 100% free online fundraising platform to help you create online donation forms, online raffles, event ticketing, peer-to-peer campaigns, eCommerce, and memberships. As long as you're registered with your state and have a nonprofit bank account, you can sign up with Zeffy. 

Find a Fiscal Sponsor  

Nonprofit startups can connect with fiscal sponsors to supply administrative and oversight services and financial support. Fiscal sponsors are nonprofits, so they understand and can help in ways you may not realize. 

If you're interested in finding fiscal sponsors, research local nonprofits and their missions to find an organization that may be willing to sponsor your organization. You can also ask community foundations or art councils.

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9 Steps to Register Your Nonprofit Organization

Now, you are ready to move on to the logistics of starting a nonprofit by registering with your state and the Internal Revenue Service (IRS). Remember that each state has its own rules and regulations for nonprofits, so it's best to check with your Secretary of State before getting started. 

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1. Choose your nonprofit's name 

Naming your nonprofit can be very personal. At the same time, your state may have a few restrictions, including a need to add "corporation" or "incorporated" with the name. You must also check with your Secretary of State's office to see if the name is available. If it is, be sure to register as soon as possible. 

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2. Choose your nonprofit's purpose 

Do not brush off this step. The purpose in your Articles of Incorporation and 501c3 IRS application must match exactly. This is why completing your nonprofit's mission statement is crucial before registering with the state and IRS. 

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3. Choose your Board Member and Leadership Team 

Most states require that you choose your board members when filing your Articles of Incorporation. Most states have their own requirements, but the IRS expects you to have at least three to five board members when you start. This may also be where you register your Board President, Vice President, Secretary, and Treasurer. 

As previously mentioned, you must develop a board onboarding and training plan to build a solid foundation for your organization. 

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4. Appointing a Registered Agent  

A Registered Agent will receive all legal notifications for your organization. This can be an individual or company and must be located within your state. 

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5. Get an Employer Identification Number

Once you've registered with your state, you can get an Employer Identification Number (EIN) from the IRS. All United States businesses must have an EIN. This number is required before you file for tax exemption. You'll also need it to open a bank account, file your taxes, and more. The person applying for this number must have a social security number, tax ID, or employer identification number.

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6. Hold Your First Board Meeting 

While you're filing the necessary paperwork with the state and IRS, you'll also need to start the real work. The first part of that real work is holding regular board meetings. During your first board meeting, members must write and approve your organization's bylaws and a conflict-of-interest policy. They must also elect all officers and vote to open a bank account. 

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7. Register with the IRS for tax exemption

Once you finalize your state registration, and if you are eligible to apply, you can register as a 501c3 organization with the IRS. The IRS requires nonprofit organizations to file for tax-exempt status within 27 months after registering with your state.

Nonprofit organizations can either fill out Form 1023 or Form 1023-EZ. The filing cost for Form 1023-EZ is $275, but you must meet specific eligibility requirements, such as:

• Gross receipts cannot exceed $50,000 during the first three years
• Mailing address in the United States
• Total assets cannot exceed $250,000
• Cannot be a successor or entity controlled by another

There are several other requirements, so you must fill out the entire eligibility form on the IRS website to ensure you can register with Form 1023-EZ. Those that don't qualify can file Form 1023 at $600. It will take two to twelve months to receive your determination letter from the IRS. Don't worry though, there are ways to fundraise before you gain tax-exempt status, including signing up with Zeffy.

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8. Register with the State to Solicit Charitable Donation

In many cases, nonprofit organizations can't solicit donations without registering with the state. This is critical for national nonprofits that plan to raise funds online and with events outside their state. In these cases, the nonprofit must register with each state that they wish to connect with donors. Secretary of State websites will often have online applications and details on registration requirements.

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9. Choose a Fundraising Tool 

After you register with your state, you can begin fundraising. This can mean hosting a fundraising event, starting an online campaign, selling products, and more. Online fundraising has become necessary for nonprofits, so finding the right tool for your organization's goals is crucial. Check out this article on the best fundraising sites to help you get started. 

Fundraising Strategies for Nonprofits 

Fundraising for your new nonprofit can be exciting. Sit down with your board members and discuss your organization's needs before creating a fundraising strategy for the year. 

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Develop a Fundraising Plan 

From the beginning, you must have solid knowledge of your organization's purpose, target market, and program and fundraising goals. This information will make forming a fundraising plan much easier. When you're ready to develop your strategic fundraising plan, you must start with financial and other goals.  

Then, decide which fundraising types will best fit your donor base. Collect detailed data from each event and fundraiser to make better decisions as time passes. Finally, don't be afraid to adapt and make changes to your fundraising plans.  

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Diversify Revenue Streams 

Many nonprofits will jump right to grants, assuming they'll cover all their organization's costs. Unfortunately, the competition for grant funding is intense, and nonprofits can't rely entirely on them. It's crucial to diversify your fundraising options and include other ideas like: 

• Events 
• Peer-to-peer and crowdfunding campaigns 
• E-Commerce
• Mailed donor appeals
• Major Donors
• Recurring donors or membership programs

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Personalize Donor Communications 

As you begin to receive donations, you must build relationships with donors to ensure they return to your events or give to your campaign again.  

Donor communication includes acknowledgment letters and emails, regular newsletters, and welcome letters when they join as a member or recurring donor. Nonprofits can also strengthen relationships with a thank you phone call and face-to-face meeting. 

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Build a Brand

As a new nonprofit, you have the chance to build your brand from the bottom up. Branding uses colors, fonts, images, and stories to share who you are. A primary part of branding is choosing a name, so you must start building your brand.  

Your name can help you develop a logo that stands out from your competition and share your mission. Color and font can help elicit different emotions from donors and add or detract from your organization's story, so spend time on those as well. Finally, founder and beneficiary stories can excite and inform donors better than any data and facts.  

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Connect with Major Donors 

As you form relationships with donors, you must create a database that includes their contact information, program interests, employment, and personal connections. After several fundraising events and campaigns, you'll start to notice the donors who give more than others. Use a donor management system to segment these donors, take notes, and create a moves management plan for each.

You'll want to learn about their interests in your organization, connect with them during events, and schedule times to meet with them one-on-one.  

Many major donors give to nonprofit organizations for tax exemption. One of the best ways to connect with these donors is to send a personal letter at the end of the year with your annual donor appeal mailing. You can use this opportunity to start a conversation about their interests in your nonprofit.

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Develop Corporate and Community Partnerships 

In addition to major donors, you must also connect with and form partnerships with local corporations, nonprofits, and community leaders. You can send an introduction letter and email and update your business plan to match their needs and interests. 

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Turn Volunteers into Fundraisers 

As a nonprofit, you'll quickly realize how important volunteers are for your programs and events. You must create ways to recruit and train volunteers for different projects, but you'll also want to find ways to turn these volunteers into advocates and fundraisers for your organization. 

Your board members should take a leadership role in various fundraising activities. You can do this by onboarding and training new board members about this expectation and forming a board committee to oversee fundraising activities. 

Another way you can encourage volunteers to fundraise is by asking them to join a committee for an existing event or make it easy for supporters to start their own. Your nonprofit can create a packet with branding details and marketing requirements for third-party fundraisers by individuals and organizations. 

Finally, an easy way to turn volunteers into fundraisers is with peer-to-peer and crowdfunding campaigns. First, you should develop a program or project to fund, and then you can connect with volunteers with a strong online presence. If you have any personal or professional contact with an influencer, you can also ask them to promote your campaign. 

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Example of a New Nonprofit Organization 

Daniel and Bryggs started the nonprofit Y'all in 2023 to care for queer and other marginalized communities. They give the funds they raise to individuals for surgeries, clothing, wigs, prosthetics, hair removal, and any other needs that limit people from living fulfilling lives.  

Y'all started with the idea to hold an event, "Fill all my Bowls," to fund Bryggs's transition surgery. They quickly realized they could raise more money than they needed and decided to make a larger impact on their community and state.  

It didn't take them long to realize that an online fundraising tool was necessary to collect donations at their event. Since they wanted to make sure all the funds they collected went to people who needed help, they went online to find a free fundraising software. That's where David and Bryggs found out about Zeffy.  

After jumping on a demo call and discovering that Zeffy was really free, they were ready to sign up. Their only concern was that most fundraising tools need proof that you're a 501c3 organization. While it only took 48 hours to incorporate with the state of Indiana. It could take another six months to get a letter of determination from the IRS, and David and Briggs weren't even sure if they wanted to do that. When they found out Zeffy only required that you be recognized as a nonprofit at any level, they knew it was the right choice. 

Since their founding, Y'all has raised over $17,000 with Zeffy. 

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Frequently Asked Questions 

How do I start a nonprofit with no money? 

There are several ways to start a nonprofit with no money. Many foundations, corporations, and federal, state, and municipal government grants exist for this purpose. You can also find fiscal sponsors to help with administrative and financial support. Finally, there are affordable online fundraising platforms that can help you raise funds immediately. Zeffy lets new nonprofits start raising money for free once you register with your state and start a bank account. 

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How much does it cost to start a nonprofit organization? 

The costs to start a nonprofit differ depending on your state and the size of your organization. Most states require you to file Articles of Incorporation and register to solicit funds. This can cost a few hundred dollars.  

If you're registering as a 501c3 tax-exempt nonprofit with the IRS, you must file Form 1023 for $600 or Form 1023-EZ for $275. After that, you may need funds to run a fundraising campaign or hold an event. Check out Zeffy for a 100% free online fundraising option.   

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What is the easiest nonprofit to start? 

The easiest nonprofit depends on your location and your state's legal requirements. Nonprofits like social or recreational clubs, community associations, advocacy groups, and other cultural groups can be easier to form, but the legal requirements still need clarification.  

These organizations are not 501c3 organizations, but you must still file taxes with the IRS. There are also other legal restrictions you'll need to know and follow. Finding a legal professional to help plan your organization's mission and programs and form a nonprofit is best. 

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What are the alternatives to starting a nonprofit? 

An alternative to starting your own nonprofit is to piggyback on other organizations. Fiscal sponsors already have 501c3 status. By joining their efforts, you can skip registering your organization and at once benefit from their tax-exempt status.  

You can also benefit from a fiscal sponsor's experience with fiscal management and administrative expertise. There is also a level of flexibility in joining forces with fiscal sponsors. If circumstances change and you wish to become independent, you can choose to do that at any time. 

Case Study: In high school, a friend of mine and I decided to start a community theatre in our town. With no previous knowledge of how to start a nonprofit, we went to the local art council to present our idea and ask for help. They let us use their 501c3 nonprofit status. We were able to form a board, rent a location to rehearse and perform a show and sell tickets without registering with the state or IRS.  

Conclusion 

We hope you feel ready after reading this step-by-step guide and best practices to start your nonprofit organization. Remember to do your due diligence before registering with your state and the IRS, and develop a needs assessment, business plan, and Board of Directors to ensure you start off on the right foot.  

After registering with your state, check out how Zeffy can help you create fundraising strategies to find startup funding. Visit our website to learn how we can help you fundraise online for free!