Starting a nonprofit foundation can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful nonprofit foundation.
Importantly, a critical step in starting a nonprofit foundation is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
14 Steps To Start a Nonprofit Foundation:
- Choose the Name for Your Nonprofit Foundation
- Develop Your Nonprofit Foundation Business Plan
- Choose the Legal Structure for Your Nonprofit Foundation
- Secure Startup Funding for Your Nonprofit Foundation (If Needed)
- Secure a Location for Your Business
- Register Your Nonprofit Foundation with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Nonprofit Foundation
- Buy or Lease the Right Nonprofit Foundation Equipment
- Develop Your Nonprofit Foundation Marketing Materials
- Purchase and Setup the Software Needed to Run Your Nonprofit Foundation
- Open for Business
1. Choose the Name for Your Nonprofit Foundation
The first step to starting a nonprofit foundation is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your own nonprofit organization:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your nonprofit foundation.
2. Develop Your Nonprofit Foundation Business Plan
One of the most important steps in starting a nonprofit foundation is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise funds for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your nonprofit foundation.
- Company Overview – this section tells the reader about the history of your nonprofit foundation and what type of nonprofit foundation you operate. For example, are you a church, an educational institution, or charitable organization?
- Industry Analysis – here you will document key information about the nonprofit industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products and/or services like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your nonprofit foundation? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your nonprofit foundation make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business
3. Choose the Legal Structure for Your Nonprofit Foundation
Next you need to choose a legal structure for your nonprofit foundation and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the nonprofit foundation and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a nonprofit foundation together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a nonprofit foundation include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a nonprofit foundation is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the nonprofit corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your nonprofit corporation, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
4. Secure Startup Funding for Your Nonprofit Foundation (If Needed)
In developing your nonprofit foundation business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a nonprofit foundation to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a nonprofit foundation that they believe has high potential for growth.
5. Secure a Location for Your Business
When starting a nonprofit foundation, one of the most important steps is finding a location for your organization. There are a few things to keep in mind when choosing a location:
- The location should be easily accessible to the community you’re serving
- The location should be affordable and have space for your staff members and volunteers
- The location should be conducive to running your programs and activities
There are many great locations to choose from, so take your time and find the right one for your foundation.
6. Register Your Nonprofit Foundation with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
7. Open a Business Bank Account
It is important to establish a bank account in your nonprofit foundation’ name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
8. Get a Business Credit Card
You should get a business credit card for your nonprofit foundation to help you separate personal and business expenses.You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
9. Get the Required Business Licenses and Permits
Licenses and permits necessary to start a nonprofit foundation vary by state. However, some of the most common licenses and permits required are:
- Charitable solicitation registration
- Business license
- Tax exemption determination letter from the IRS
To find out what licenses and permits are needed in your state, visit your state’s website.
10. Get Business Insurance for Your Nonprofit Foundation
There are a few types of insurance that you will need to operate a nonprofit foundation. This would depend on the particular organization and activities it will engage in. A nonprofit foundation that deals with millions of dollars in contributions, for example, will need to protect itself from outside racketeering or criminal activities. You can get general liability insurance and commercial crime insurance to protect the organization against this type of risk. A small local nonprofit may not need these types of protection (or any at all) in order to operate legally.
Other business insurance policies that you should consider for your nonprofit foundation include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Directors and Officers Insurance: A nonprofit’s board of directors and officers (many of whom are volunteers) could be personally named in a lawsuit against their nonprofit alleging fraud or financial mismanagement. Directors and officers (D&O) insurance covers the cost of defending the directors and officers and pays any resulting money damages.
- Professional Liability Insurance: Sometimes called “errors and omissions” or “malpractice” insurance, this insurance protects against liabilities resulting from mismanagement of the organization, as well as workplace-related claims such as discrimination or sexual harassment. It covers not only directors and officers but also staff, volunteers, and the nonprofit organization itself.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
11. Buy or Lease the Right Nonprofit Foundation Equipment
There are a few key pieces of equipment that you will need in order to run your nonprofit foundation. The first is a computer and internet access, as most of your work will be done online. You’ll also need a printer and scanner so that you can print out applications, letters, and other documents, and scan in receipts and other paperwork. Finally, you’ll need a phone so that you can stay in touch with donors, volunteers, and other members of your team.
12. Develop Your Nonprofit Foundation Marketing Materials
Marketing materials will be required to attract and retain customers to your nonprofit foundation.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your nonprofit organization. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional nonprofit foundation website provides potential customers with information about the products and/or services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your nonprofit foundation.
13. Purchase and Setup the Software Needed to Run Your Nonprofit Foundation
There are three essential types of software that are necessary for running a nonprofit organization. The first is financial management software, which helps keep track of donations and expenses, along with the budget. The second is donor management software, which keeps track of all donors and their contact information, as well as processing and reporting gifts. The third is communication software, which helps manage email communications and newsletters.
14. Open for Business
You are now ready to open your nonprofit foundation. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start a Nonprofit Foundation FAQs
Is it hard to start a nonprofit foundation?
No, it is not hard to start a nonprofit foundation. There are a few reasons why it's not hard to start a nonprofit organization. First, there are many resources available online and in print that can help you get started. Second, the process of setting up a nonprofit is relatively simple, and most states have their own specific regulations that you must follow. Finally, there are many organizations that can assist you with the process of starting a new nonprofit, including the Internal Revenue Service (IRS) and the National Association of Nonprofit Organizations (NANPO).
How can I start a nonprofit foundation with no experience?
There are a few ways to start a nonprofit foundation with no experience. One way is to find an organization that is already established and volunteer your time to help out. This will give you a chance to learn about the process and get some experience. Another way is to look for resources online or in books that can help guide you through the process. You can also ask an expert in the field for advice or volunteer to help them with their nonprofit. It's important to remember that starting a nonprofit is hard work and you should try to get as much experience early on so you'll be ready when the time comes to run it.
Here are some tips on how to start a nonprofit foundation:
- Research the laws and regulations for existing nonprofit foundations in your state or region.
- Draft bylaws and articles of incorporation for your foundation.
- Secure funding to support your foundation's operations.
- Recruit employees to help manage your foundation's day-to-day operations.
- Market your foundation to potential donors and supporters.
What type of nonprofit foundation attracts the most funding/donations?
Donors are more likely to give money to certain types of nonprofits. The best-funded type of nonprofit foundations are educational organizations. Education foundations can be funded by a single private donor or a group of donors. They have a large degree of control over their grant-making and how their money is spent.
Another well-funded type of nonprofit foundation is the health-related foundation. Health foundations are typically funded by many donors and they support a wide range of public health initiatives. They typically are able to make larger grants than other types of nonprofits.
How much does it cost to start a nonprofit foundation?
Starting nonprofit startups or nonprofit corporations can cost anywhere from a few hundred dollars to tens of thousands of dollars. The amount of money you'll need to spend will depend on a number of factors, including the type of foundation you want to create, the state you live in, and the amount of legal and accounting assistance you need. Keep in mind, you'll also have to spend some money preserving your organization's endowment.
What are the ongoing expenses for a nonprofit foundation?
There are a few ongoing expenses for a nonprofit foundation. One of the most important is the cost of fundraising. This includes the cost of software, fundraising marketing, and hiring a fundraiser. Another important expense is the cost of general marketing and advertising. This includes the cost of designing a logo, website, and brochures. The last main expense is the cost of maintaining the office and paying staff. This includes the cost of a security system, workstations with computers, furniture for the office, and paying the employees.
How does a nonprofit foundation make money?
Nonprofit foundations are funded by either earned income or donations. A nonprofit foundation may generate earned income through the sale of goods and services. Capital gains, interest payments, dividends, rental income, and royalties can all be considered earned income. Additionally, sales of assets including stocks, bonds, real estate, or patents can also contribute to earned income.
Is owning a nonprofit foundation profitable?
There are a few reasons why owning a nonprofit foundation can be profitable. First, foundations can receive tax breaks for donating to charitable organizations because of its tax exempt status. Additionally, foundations can also receive tax breaks for investing in certain types of assets, such as municipal bonds or mutual funds. Foundations can charge fees to the nonprofits they support, which can be a source of income for the foundation. Any excess income above what has been budgeted for can be used to expand or improve programs and services.
Why do nonprofit foundations fail?
There are a number of reasons why nonprofit foundations might fail. One reason is that the foundation might not have been able to raise enough money to sustain itself. Another reason might be that the foundation was not able to effectively distribute the money that it had raised. A third reason might be that the foundation was not able to create a clear vision or mission statement.
In some cases, nonprofit foundations fail because they have been unable to get the appropriate board of directors. A board of directors oversees a foundation's activities and guides its future. In order for the foundation to be successful, it is important that the board of directors is knowledgeable about how non-profit foundations operate. If a foundation fails, it is usually because the founding board members did not handle their responsibilities well enough to make the foundation a success.