Digging our Blog!
Subscribe to the Feed.

We want you to SUGGEST
our next Blog topic!

Simply send it to
marcie@wagnerfundraising.
com
 

Alltop, all the top stories

Archive for the ‘ Create a Non Profit ’ Category

The Making of a Nonprofit: Business Planning

Tuesday, July 12th, 2016
Create your own .org

Create your own .org

Failing to write a comprehensive business plan is perhaps the most common mistake made by those in the beginning stages of forming a nonprofit. While you are not in the business to make a personal profit; you are in the business of making a profit. Most potential board members, donors, and community partners want to see just how you intend to do that.

Your business planning process will also be the very best guide for you to satisfy the questions you must answer when applying to the IRS for tax exempt status. Adequately filling out IRS Form 1023, Application for Recognition of Exemption, requires you to think through and prepare a few of the following items: Organization Name, Organization Website, Organizational Structure, Articles of Incorporation, Bylaws, Charitable Purpose, Narrative Description of Organization Activities, List of Officers/Directors/Trustees and Five Highest Paid Employee’s with Proposed Compensation, Titles and Mailing Addresses, Financial Compensation and Conflict of Interest Policy, Narrative and Strategy of Fundraising Activities, and Three Year Financial Projection.

Prepare for your Form 1023

Prepare for your Form 1023

If your IRS application for exemption is approved, you are now open for public inspection. Your business planning materials and your business plan provides you with the audit trail required.

A typical nonprofit business planning process will address all of the critical questions asked by interested parties. The table of contents should include these seven sections:

Executive Summary: This is a synopsis of your business plan and financial snap shot.

Organizational Structure: Describe how your nonprofit is organized, including the staff and board of directors.

Products, Programs or Services: What programs or products are you offering? Include processes, the benefits of your services, future growth plans, and list anything new, on trend, or answering to a community need.

Marketing Plan: In this section describe who you are trying to reach and how you intend to reach them. List the constituencies you serve. Explain your competition and your potential partners. How will you promote your services and through what materials?

Operational Plan: Where will you be located and how will you deliver services? Explain in detail how you will evaluate your program and its services.

Spend 30 - 40 hours on your Business Plan

Spend 30 – 40 hours on your Business Plan

Management and Organizational Team: Who is on your management team? Provide information about key management staff and their expertise. List the members of your board. Detail their expertise. List financial sponsors. Include an organizational chart. Explain lines of responsibility. Provide an assessment of current and future staffing needs, including how you will use volunteers.

Financial Plan: Determine your current and/or projected financial status, thoroughly explaining sources of income. You will include an income statement, balance sheet, cash flow statement, and a minimum three-year financial projection.

Smart planning ensures your success

Smart planning ensures your success

If done well, your business plan will not only guide you to answer the IRS Form 1023 questions, it will also act as a document to present to potential major donors and grant-makers. It will help you to recruit board members and community collaborators. If you will need a bridge loan or line of credit, this document will prepare you to meet with a financial institution.

Starting and sustaining a nonprofit is in many ways much more difficult than starting a new business. Dedicate yourself to the business planning stage first, and you’ll find your journey will be a bit lighter.

Start Your NonProfit for Sustainability: Part Two Fundraising

Tuesday, June 26th, 2012

Finally, you are now in business and we can start fundraising for your organization in earnest.  Nonprofits, like most start up businesses, begin with the founder personally (and perhaps your board members) funding the organization until it can be funded with outside sources.  If you have to fund the organization yourself at the beginning, be sure to keep meticulous records of what you have put into the organization and be clear about its intent. For example, whether your funding is a gift or a loan to the organization. Here are some creative, fun and traditional ways to fund a nonprofit organization:

  1. Sell Something.  Collect and sell items on Ebay or Craigslist to raise your start-up capital.
  2. Borrow Against Life Insurance Policies.  If you have a life insurance policy, check to see if it has cash value. Most policies start accumulating cash value after a certain period of time.  When you borrow against your life insurance policy, your policy stays intact as long as you continue paying the premiums when due.  If you die while there’s an outstanding loan against your policy then the face amount is reduced by the loan amount. The nice thing about borrowing against your life insurance policy is that there’s no credit check, or income verification like most other loans. All you have to do is call you insurance company and let them know you want to borrow the cash value.
  3. Borrow from Family and Friends.  Your friends and family are a good source of capital fundraising. This might be one of the most cost effective ways to fundraise for your business—that’s if your friends or family members are not asking for interest on the loan.  You can also protect the spirit of the transaction by putting your agreement in writing and making small payments as soon as you can.
  4. Grants.  Depending on what your business is there are a number of small and large corporations that give away money in the form of grants.  Grants are usually competitive in nature, but once you receive the money repayment is not required or expected.  Grant amounts vary and some may have conditions. Once your grant period is complete, you should mail the grantor a final report clearly indicating what was accomplished with the grant money. This should be done whether or not it is required.
  5. Fundraising Registry Sites.  There are many fundraising sites that are geared toward nonprofits.  Most fundraising sites have fees or a percentage that you are required to pay based on the amount of money you raise.  The fees the site owner may charge could include a monthly user fee, or credit card fee and other nominal charges.  You should check before you start using the site.  Once you’ve set up your fundraising idea on the registry then it is up to your efforts to send your site link to everyone you know and request a donation.  Let them know how their contribution will help you and this will motivate donors. This is a fun way to raise money through your own creativity and watch your money grow on your site. Don’t forget to say “thank you”. Some fundraising registry sites to research are Network for Good and Razoo.
  6. Place a Donate Button on Website.  More and more nonprofits have a “donate” button on their websites.  If your ultimate goal is to fundraise then you need to consider a “donate” button on every page of your website. The internet technology today makes it easier for individuals to donate anytime without leaving the comfort of their home.

If you find a couple or even just one of the above idea’s to make sense and feel it will give your new organization enough cushion to seed your program – I would recommend that you also give some thought to investing in a part-time fundraising professional. Oftentimes the first investment in a fundraising professional is a consultant; which is smart as it most likely will bring in more money sooner rather than later. It is important to note that it may be more beneficial to your organization in the long run to have them on staff. Whichever direction you take, give thoughtful consideration to the level of importance those donor relationships are to offer your organization sustainability over the long-haul.

Start Your Nonprofit for Sustainability – Part One

Wednesday, May 16th, 2012

Part One of our series in starting a nonprofit will guide you through the steps of formal incorporation. Part Two of our series will provide you with proven ways to raise those first dollars for your nonprofit. Let’s begin.

So you’ve come up with a great idea and a vision to form a nonprofit organization. But where do you start? Here we’ve provided your road map to get a new nonprofit off the ground with sustainability always in mind. The process of forming and incorporating a nonprofit is similar to a corporation, except for a few differences. A nonprofit cannot be formed from any of the following entities: Sole Proprietorship, Limited Liability Corporation or a Corporation “C” or “S”.

A nonprofit, like a corporation, is a legal entity separate from the founder(s); it can survive the life of its founder(s) and can exist infinitely. Unlike a corporation that is owned by its shareholders, a nonprofit does not have shareholders and is not owned by anyone, but is managed by the board of directors. The other distinct difference between a corporation and a nonprofit is how the income is taxed. Now, let’s take you through the process. 

Step One: Recruit a Board of Directors.  A board should include diverse representation from the following: finance, legal, someone who represents or is considered an expert with regard to your mission, someone who represents the people you exist to serve, local corporate executive(s) – specifically from a company who tends to fund organizations like yours, community/professional volunteer(s) – persons with a network of wealth, and another nonprofit executive. Ensure that you have a job description in place which clearly indicates board member expectations, including all information related to your nonprofit. Expectations should include: governance, financial support, and hands-on leadership. You do not want a board of directors that feels “just showing up” fulfills their duty. Finally, you never stop looking for good board members. Your board should have a set tenure to ensure there is always room for fresh faces, ideas, and connections.

Step Two: Formation Meeting. The formation meeting is a meeting of the initial board of directors to vote on incorporating and pursuing the tax exemption status as well as to establish the purpose of the nonprofit. During this meeting and all subsequent board meetings, make sure to take meeting minutes to show a unanimous agreement by the board before moving forward.

Step Three: Naming Your Nonprofit. Name selection is important because it identifies your purpose and creates your identity and brand. Pick your organization name like you pick your child’s name—repeat it often, pretend to answer the phone using the name to hear if it has a nice ring to it. You can choose almost any name you want for your organization as long as it is not already in use. You can check name availability on your state’s governing website to see if it is available before you file it. Generally this is the secretary of state’s office.

Step Four: Incorporate.  The incorporation process is similar to that of a corporation. The Articles of Incorporation are prepared and filed with the state’s governing body; again, typically the Secretary of State’s office. Some states have sample articles which you can obtain and use in drafting your articles, however, meeting the state’s minimum filing requirement does not necessarily mean you meet the IRS’s requirements. Make sure you properly and carefully draft articles of incorporation that meet the requirements of the IRS if you plan to apply for federal tax exemption; which you will. There is a filing fee associated with this process paid to the state. The fee for the state is usually around $100; the filing fee for your tax-exempt status is around $850. 

Step Five: The Bylaws. You are required to prepare bylaws for your nonprofit. Bylaws are the rules used by the board to govern your nonprofit. Most states do not require a copy of the bylaws to be filed with the state. Regardless of filing requirements, it is a state law requirement that an incorporated entity have written bylaws. The IRS will require a copy of the bylaws to be filed with your application for tax-exemption.

Step Six: Obtain your Federal Employer Identification Number (EIN). Once you’ve completed your paperwork, you will need to apply for an Employer Identification Number (EIN) also known as a federal tax ID from the IRS. You can do this quickly and easily online. Don’t forget to print out a copy for your permanent records. You will also need a copy to submit to the IRS with your tax exemption application. To apply for your EIN visit the IRS’s website. It is important to note that simply holding an EIN number does not mean you are approved as a 501(c)3 by your state or the IRS. You can raise money for your organization prior to approval. However, be mindful that more often than not, granting organizations require an approved 501(c)3 and will ask for a copy of your approved status letter.

Step Seven: Application for tax exemption to the IRS. After you have incorporated your nonprofit and obtained your EIN, then you can start your tax exemption application to the IRS using IRS Form 1023. The form can be obtained at the IRS website. This is a comprehensive application. You must carefully read the instructions, learn about the laws of compliance, complete the application, and collect & assemble the attachments. Hiring a professional to help you is highly recommended. If you are attempting to do this on your own, the IRS estimates a few hundred hours are necessary to complete this application. After your initial review, complete the application to the ‘letter’ of their instruction. If your application is not clear or missing important information, it will be sent back to you for more information. If it does not fit within the tax exemption regulations, it will be denied. As mentioned above, there is a fee associated with this application; approximately $850. The fee changes periodically, so be sure to check the filing fee before you submit the application. The IRS is currently taking between 6-8 months to assign the application to an exempt organization specialist. If your application is approved, you will get a “Letter of Determination” that classifies your organization as tax exempt. The nice thing about this long process is that the date of your exemption is retroactive to the date that the IRS first received your application. This means that if you did receive a donation requiring 501(c)3 status prior to your approval, you will ultimately be in compliance with the funding organization and the IRS. Yet, it is not recommended to raise funds externally until you receive your Letter of Determination.

State Tax Exemption. Most states recognize and accept the federal tax exemption “Letter of Determination.” However, there are a handful of states that have additional state requirements to be income tax exempt for state purposes. You will have to consult your state’s governing body to see if there are additional state requirements.

Ongoing Compliance. After you are officially incorporated as a nonprofit organization, there are a handful of things that you must do to maintain compliance with state and federal requirements. Some states require an annual report. Most states require an annual corporate renewal, and some states do not require state income taxes to be filed unless the nonprofit receives a certain threshold income.  As you can see, each state operates differently. The key is to keep yourself informed and up-to-date with the requirements of your specific state. On the federal side, IRS Form 990 or a variation of Form 990 is required to be filed annually. This is the annual tax return form for nonprofit organizations regardless of income. Currently, the law states that if you fail to file Form 990 for three consecutive years, the IRS will automatically revoke your nonprofit status. If this happens, then the nonprofit can no longer receive tax-deductible contributions. Additionally, you will have to reapply for tax exemption again. You have taken the time to build your nonprofit, so take the time to take care of it and remain compliant.

Let’s quickly review your nonprofit incorporation steps: 

  • File the certificate of incorporation
  • Select individuals to serve on the board of directors
  • Develop vision and mission statements
  • Establish bylaws and board policies
  • Obtain an employer identification number (EIN)
  • File for federal tax exemption
  • Follow state and local nonprofit regulations

Next month look for a step by step process to raise those very first dollars for your newly incorporated nonprofit.