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Five Considerations When Starting A Nonprofit in a Tough Economy


In this tough economy, nonprofit organizations are needed more now than ever.  More and more people are finding themselves in difficult circumstances and, according to all available evidence, it’s going to get worse before it gets better.  Despite all the assurances of government, it simply isn’t possible for government to keep up with the need.  And even if it could, America’s charities prove on a daily basis how much more effective and efficient the private sector is.  But, there lies the quandary.  If times are tough for individuals and governments, times are also tough for charities…at just the time they are needed the most.  So, what steps are required to make sure the organization you are starting (or currently running) can work in tight economic conditions?

First off, the steps haven’t really changed.  Bad times require the same things that should have been happening in the “good” times.  The difference is that now you cannot survive unless you strategically operate your program.  Below are 5 essential considerations when planning a new nonprofit startup.

  1. Mission – This may seem self-evident, but our experience says it is not.  Your mission is what your organization is all about.  What need are you trying to fill?  What wrong are you trying to right?  What information are you trying to teach?  If you cannot answer such a question in 50 words or less, you may not know what your mission is.  Without a mission, nothing else that follows really matters.
  2. Practicality – Will your idea fly?  Is there really a need?  Will the IRS consider it within its definition of 501(c)(3) tax exemption?  Do you possess the ability to pull it off?  Do you have the necessary time to devote to this?  “Nonprofit” does not mean you can operate without a business model.  It’s still gotta work.
  3. Leadership –  One of the first things you need to thoughtfully consider is who will be on the Board of Directors. The board is the governing body of the organization.  Never look at your board as a necessity of governmental compliance.  They are not placeholders.  Your board should be a source of information, energy, wisdom, action and dedication.  Aside from “directing”, the board members need to be involved in fundraising for the organization. Hopefully, board members will bring with them some influence to help raise money for the organization to function. Also, board members should be willing to donate to the organization that they lead.  Why?  Consider this:  Would you want to donate to an organization that the leadership of which doesn’t believe in the organization enough to help fund it?  Also, avoid conflicts of interest when choosing your initial board.  That just makes things more difficult.
  4. Viability – This sounds similar to practicality, but it really is different.  Can your program survive tough times financially?  Are you and your board prepared to beat the bushes, sell your story, be creative in fundraising?  Can you stand out from the crowd?  The term-of-the-day is “social entrepreneurialism”.  Social entrepreneurialism simply means entrepreneurialism geared toward a cause instead of a for-profit motive.  You are starting a “social” company…and you must be able to generate more revenue than you spend.  It’s simple math.
  5. Compliance – This is not “start it and forget it”.  Just like any business, your program will be accountable to state and federal agencies for compliance with regulations that govern organizations like yours.  Whether it is end-of-year IRS Form 990 compliance, payroll issues or the general parameters of 501(c)(3) restrictions, your organization must be dedicated to transparency, rigid controls and methodologies to stay between the lines.

There is so much more that could be said.  The above is just a sample of some of the elements crucial to starting a successful nonprofit.  Now that you know, get out there and make a difference!

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

This Post Has 5 Comments

  1. For about 5 months now I have been doing a lot of research on non profits and how to start one. I'm incredibly passionate about putting together a rental assistance program that's a little more realistic than the one we already have in the area. However, I have experienced great reluctance to begin paperwork because of the economic state the U.S. is in currently. I've witnessed the Homelessness Prevention program here run out of money, important youth shelters close, and non profits remove entire sections of programs due to federal funding cuts. My thinking is, if these long standing non profits can run out of money and shut down shelters, is it realistic that I can provide such a huge service that would normally be federally funded for the most part? I know that I can get donations and grants to assist in funding but… would I be in over my head with this???

    1. You are wise to consider the true cost and risk associated with such a venture. The nonprofit landscape is littered with the bones of those with good intentions and little in the way of time, talent and treasure to pull it off. I can't tell you if you will succeed or not. What I can tell you is that, while many fail, many do succeed…and your realistic approach to the magnitude of the task is a good sign that you might do better than most.

  2. I am in the "nugget of an idea" stages of starting a non-profit organization in my county that will benefit the animal population and the owners of pets who are facing difficult financial times due to the economy. Many of the things I have read throughout your website confirm that I am on the right path. I look forward to your wonderful tips on everything about non-profits and hope to be a part of that community. Thank you for imparting this knowledge.

  3. I would like to know if a fraternal organization does not have the 501c3, after many years and only file with the secretary of state only. Can that organization get the 501c3 easily?

    1. Typically, a fraternal organization does not qualify under 501(c)(3) at all…regardless of when formed. Most fraternal organizations are social in nature, not charitable. Though there are exceptions, most qualify under 501(c)(7). Fraternities, sororities, Lions' Clubs, etc…these are typical 501(c)(7)s.

      As to your actual question: If the organization has been established for many years, it can still receive tax exemption if it qualifies. It is likely, however, that the effective date of the tax-exemption will be the date the IRS application is filed, not the organization's formation date. This means that all the prior years will be considered taxable, most likely. Your particular details matter greatly, so this is a generalization.

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