At least once a month I get invited for coffee with someone who is interested in starting a nonprofit. With 120,000 charitable organizations registered in North Carolina alone, my gut response is usually “DON’T DO IT!”
Don’t get me wrong – I see great value in the existence of nonprofits. And my coffee-mates are smart people (usually friends of friends) who are well-intentioned. Most have seen or experienced a social need and feel compelled to solve it. Some are seeking a way to honor a loved one. Others are at a point in their lives where they want to “give back” to the community or those who are less fortunate.
But starting a nonprofit – or more importantly, running one – is not a simple feat. Regardless of their motivation, I ask each person I meet with to consider the following.
- Simply stated, the term “nonprofit” merely indicates that a corporation has been given tax-exempt status. To start a nonprofit, one must file as a corporation with the Secretary of State. To do so, Articles of Incorporation and By-Laws must be submitted, and a Board of Directors established. Once the corporate filing has been approved, the organization can request tax-exempt status from the Internal Revenue Service. The wait for this can be months and there is no guarantee of approval. After tax-exempt status is awarded, the nonprofit can apply for a Charitable Solicitation License (CSL), which allows the organization to fundraise in a specific state. If the organization will be soliciting funds outside its home state, additional CSLs may be required. Currently, 34 states require a CSL and each has its own application process. Normal state and federal requirements must also be met regarding business registration, insurance, employees, and annual filings. The NC Center for Nonprofits has published a 21-page guide entitled How to Start a 501(c)(3) Nonprofit Organization in North Carolina which provides additional information.
- A nonprofit is a business and must be treated as such. Like any for-profit business, a nonprofit must perform key functions in finance and accounting, human resources, administration, marketing and public relations, and customer service (or stewardship). These are in addition to the organization’s programs, services, and fundraising efforts. It is not uncommon for fledgling nonprofits to become overwhelmed by the volume of non-programmatic work. Only 30% of organizations with a nonprofit status in North Carolina are currently considered active. As if running a business was not complicated enough, additional, more stringent regulations are placed on nonprofits—especially related to financials—to promote transparency and good governance.
- Speaking of governance, many people are surprised to learn that the Board of Directors is responsible for setting the direction and strategy of a nonprofit, not the founder or executive director. According to the National Council of Nonprofits, board members have a legal responsibility to ensure the organization uses its assets appropriately to advance the mission of the nonprofit within established laws and regulations. The founder/executive director reports to the Board of Directors and takes direction from the strategy established by them.
- Finally, the program or service you want to start likely already exists. In nearly every coffee conversation I’ve had on this topic, I have been able to identify an existing organization that addresses the same need or target client population. Before starting a nonprofit, I recommend that the individual do extensive research to see what organizations, programs, and services already exist and determine if they can partner with or augment them. For those considering starting an organization to honor a loved one, how about establishing a fund or scholarship in their name at an existing nonprofit? Rather than investing money in business start-up fees, why not make a donation to an established program?
Starting, and ultimately running, a nonprofit requires a big investment of time and, potentially, money. However, if you have identified a need that’s truly not being addressed, and you have the energy and resources to create an organization to fill the gap, we welcome you to the nonprofit sector!