7 Steps to Starting a Successful 501(c)(3) Charitable Nonprofit

From Business Plan to Fundraising

The number of charitable nonprofits has proliferated in recent years. As of 2013, there were nearly a million such organizations in the US according to the Urban Insitute.

We're talking about "public" charities, the kind most of us support with our donations. They are called 501(c)(3) tax-exempt nonprofits.

There are ​many classifications of "nonprofits" within the IRS tax code. You probably do business with some of them without even realizing they are nonprofits. For instance, your daycare center might be nonprofit as well as your local credit union.

We're most familiar with public charities like the American Red Cross or your favorite museum. The number of public charities has grown rapidly, much faster than other types of nonprofits. 

Consequently, there is fierce competition among charities. All charities must raise funds from the public in order to qualify for tax exemption from the IRS.

Just as there is a high rate of failure among business startups, charities can go under just as quickly. That's why the founders of new charities must think long and hard about why, where, and when it makes sense to start a new organization.

Unfortunately, not everyone who starts a charity has thought out his or her idea. Don't make the mistake of just jumping into the nonprofit arena. Think carefully before starting your charitable nonprofit and follow these steps.

Do Your Research

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Having a passion for your cause is essential, but remember that a nonprofit is primarily a business, and you need to be realistic in starting one.

Is there a need for your organization? Or could you team up with another, existing nonprofit? Another nonprofit can even serve as your fiscal sponsor instead of or until you can become registered. Are you sure that a nonprofit is the best business structure for your idea? There are other ways to accomplish a social mission.

Develop a Business Plan

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Nonprofits are very similar to for-profit businesses in many respects. For instance, you need to have at least as much money coming in as going out even to survive, much less succeed in your mission. Many nonprofit start-ups launch on a wing and prayer rather than a well-thought-out plan. Here are some "plans" you need to have in place before you startup or soon afterward.

Make Sure That Your Organization Will Actually Qualify as a Nonprofit

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You might have a great idea, but are you sure it will qualify as a charitable cause? There are many types of nonprofits. Which one is yours? It may not be what you think.

Be Sure to Take Care of All the Legal Requirements

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Nonprofits are heavily regulated, both by the states in which they reside and by the federal government.

Regulation is needed to protect donors from fraud and ensure that nonprofits continue to serve the public good. Just because you are "nonprofit" doesn't mean that you can't get into some serious trouble.

Keep Good Records and Manage Your Risk

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Good record keeping is a must, and nonprofits have some reporting requirements that are special to them. Start with good records, and you are less likely to run into problems later. Manage risk with safety procedures and proper insurance.

Develop a Fundraising Plan

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Fundraising is a sophisticated, complex, and competitive endeavor. But it is unavoidable for a nonprofit. Don't make the mistake of thinking that all you need is a bake sale or a fancy dinner to raise the money you'll need to adequately fund your organization.

Build an Effective Board

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It cannot be overstated how important your board is to your nonprofit's success. It is legally responsible for keeping you on track with your mission, helps you to secure the funds you need to accomplish that mission, and provides much of the expertise that you will need. Find the right people, get them on board, and keep them interested.