An 'Entrepreneur' by Any Other Name: 5 Things to Consider When You Start a Non-Profit
When people talk about entrepreneurs, they immediately think about the Mark Zuckerbergs or Elon Musks of the world. And, they're not wrong to think about those giant tech disruptors, who impact millions of lives daily.
Related: Should You Structure Your Business as a Nonprofit?
However, not all entrepreneurs are created the same. And not all have the same motivation. While some feel a passion for technology and disruption, others want to use their entrepreneurial skills to make the world a better place. In an era where more companies like Patagonia, Ben & Jerry's and others are putting a big emphasis on corporate social responsibility, more and more entrepreneurs want to join the fray.
Many of the latter aren't just leaving corporate America or the "corporate" part of CSR behind; they seek to become entrepreneurs who go the social responsibility route by launching non-profit enterprises.
According to the National Center for Charitable Statistics, there are more than 1.5 million registered non-profits in the United States. In 2014, the non-profit share of the GDP was 5.3 percent, according to the U.S. Bureau of Economic Analysis. There are reasons behind this growth: Non-profits give entrepreneurs the opportunity to directly give back to the community, and offer more immediate, tangible results.
However, starting a charity or any non-profit endeavor requires that it still be run like any other for-profit business: Non-profits need to generate enough revenue to cover all of their expenses, identify their target markets and work a plan that will deliver their services to the market.
If you're looking to start a non-profit yourself, but don't know where to begin, here are five pointers that will help you at the start:
Related: 5 Tips for Launching a Non-Profit Campaign on Kickstarter
What's your plan?
You wouldn't launch a venture without a solid business plan in place, why would a non-profit be any different? Your plan needs to have answers to these questions:
- What's your objective, you mission and your purpose?
- Who will your audience be?
- Do you have the resources to launch your enterprise?
- Why are you doing this?
The last question is perhaps the most important of them all. Every entrepreneur dreams up an idea, but the act of dreaming, alone, won't get you far. You need to put pen to paper, and that starts when you calculate your potential costs, define your goals and objectives and answer the above questions as truthfully as possible. Writing everything down gives your idea a more tangible feel and a solid foundation to start making your dream reality.
Sure, writing a detailed business plan can seem like a hassle, but the time you invest up-front will save you a lot of time (and headaches) later in the process. Most important: A detailed plan will help with the IRS when you apply for tax-exempt status (Form 1023) and for your future fund-raising efforts. It will also help you streamline start-up costs, office space, supplies, any infrastructure costs or licensing fees and other small details which, if forgotten, could derail your plan.
Normally, people say, "Don't sweat the small stuff," but this time, sweat the small stuff. And, remember, saying "I want to help people" sounds great in a beauty pageant, but it's neither a strong enough reason nor the mission you need, at the start.
Do you qualify for non-profit status?
This is the $64,000 question. According to the U.S. Internal Revenue Code, there are several types of non-profits that are eligible to receive exemptions from federal income taxes. The most common type of non-profit is a 501(c)3, which is also known as a "charitable organization."
The IRS says that in order to qualify for 501(c)3 status, an organization must be "organized and operated exclusively for exempt purposes" and its earnings may not benefit a private shareholder or individual. The organization, further, should be created or operated to benefit anty private interests, and it needs to limit how much political or legislative activities it conducts.
Non-profits fall into two categories: public charity and a private foundation. Public charities receive most of their income from the general public or the government. Public support here needs to be broad, rather than focused on a small number of people. Private foundations receive income from investments and endowments, not necessarily the general public.
Who's on your board?
Once you have a clear mission, vision and purpose, and you've established what kind of non-profit you want to run, next comes the question of who will fill the seats in your board of directors. These people will need to be fully committed to your cause, as they will be accountable to help the organization meet its goals; they'll be the non-profit's governing body and heavily involved in all fund-raising efforts.
I personally serve on a number of boards, including the Board of Governors at the We Are Family Foundation, which empowers youth by changing the game globally, with ideas, innovations and good social solutions. I have also worked with Simon Says Give and its CEO Dina Simon, a kid-founded and operated non-profit in which "kids celebrate kids"; and Phaware, an organization that aims to raise awareness for pulmonary hypertension -- which for me is personal.
Your board members will help write the bylaws of the organization, which will eventually serve as your operator's manual. Board members don't have to be rich, but they need to be influential in their communities and have the right connections. Those with a large network, those who are long-time members of the community and those who might have a personal stake in the non-profit will be staunchest supporters. Use every resource at your disposal and your board will definitely be a place to pull resources from.
What's your organization's name?
I know this seems obvious, but the name of your charity should be a no-brainer; meaning that if people don't get the name (or branding) of your organization, chances are they won't give you money. Your name, logo and brand message is your calling card to the world. If you have to explain it, you've lost your audience.
But, before you go looking for printers and start designing marketing collaterals, make sure no one else has the same name as you, or the same logo. A quick search with your state secretary of state will help you determine that.
Develop a legal structure.
Many people, including me, Google their symptoms when they're sick. Sometimes, a trip to the doctor's turns into the patient telling the doctor what he or she read online. But reading medical articles online makes you as much of a doctor as watching Law & Order makes you a lawyer. Don't think you know what your non-profit will require from a legal standpoint by just researching online.
While there are definite benefits to being prepared, and researching what you don't know, you must hire someone who has been down that road before. Someone who can put a solid legal structure in place. Do you want to establish a non-profit corporation? A B-corporation or an LLC? Also, non-profits vary by state, so be sure to find out what your state requires -- the names of initial directors, names of incorporators, statement membership, etc.
For tax purposes, you'll need to obtain your EIN (employee identification number) by filling out IRS Form SS_4.
Legal talk can be overwhelming and confusing, but regulation is needed to protect everyone involved -- whether that means shielding donors from fraud or ensuring the non-profit continues to serve the public good.
Related: When It Makes Sense to Turn a Passion Project Into a Nonprofit
Just like any business, your non-profit is accountable to state and federal agencies and must comply with all the laws currently in place. You must be transparent with your money disclosures and consistent in your methodology, to ensure that everything is on the up and up. Remember, "non-profit" is merely a tax status, not a business model.