When It Makes Sense to Turn a Passion Project Into a Nonprofit
In 2010 myself along with five Cornell students came together to start a program that believed that all children -- regardless of their race or socioeconomic status -- had equal potential to compete intellectually in our society. We were tired of children being written off because of where they were born or whom they were born to. Three of the team members had attended large, failing, inner-city schools and were the first in their families to graduate from college.
The program evolved into an organization called Practice Makes Perfect and has a full-time team of 10, a fully operational board of directors, a 501(c)3 status and almost 1,000 individual donors and foundation as we work to narrow the achievement gap by addressing one of the single largest, researched causes of the disparity: summer learning loss or summer slide.
Having had the good fortune of being at the helm of the organization through this evolution, I am often asked by student groups and individuals for advice about starting and building a nonprofit.
Here are a couple of things to consider before you decide if this is a project or worth considering as a nonprofit:
Start by giving thought to how large the impact is that you would like to have. Begin to think about the number of people you want to impact. Give some thought to how long you want to impact them for and how much that will cost. Ask yourself if you could imagine having several people working on your efforts full time.
If you decide you want to start a volunteer mentoring program between college students and local high school students for one summer you probably don’t need to start a nonprofit. If you decide you want to provide three-year job training for dozens of formerly incarcerated people, then you should probably incorporate and apply for a tax-exempt status.
Most of the time when people ask me if they should incorporate a nonprofit it is because they want to raise money to support their cause later that week or that summer. They come to me with a sense of urgency. They believe that foundations and individuals won’t fund them until they have a 501(c)3 status. And once they receive that designation -- with a little bit of work -- that funding will start to come in from individuals, foundations, and corporations. It took us over a year to get incorporated and receive our exempt status. That didn’t stop us from soliciting people for support. When you’re starting out, the donations you’re likely to get will be under $500, which for most people doesn’t have a large impact on their taxes.
People will support you because they believe in you and the work you’re trying to carry out, not because of a tax deduction. Yes, you won’t get funding from a foundation or a corporation but most of them won’t give you money immediately after you have your 501(c)3 either. They care more about your governance and alignment. Those are things you can work on without the tax-exempt status.
If urgency of funding is what is driving your desire to get a tax-exempt status, consider crowdfunding through a site like Indiegogo, Crowdrise or GoFundMe. You don’t need to be a tax-exempt organization and you can customize your profile to share your story. I highly encourage crowdfunding or peer-to-peer fundraising if it is going to be a short-term project or eventually become a nonprofit. If you’re on the fence and have an opportunity to collect funding from a foundation or a corporation, consider finding a fiscal sponsor. Organizations like Social Good, Net Roots Foundation, or TSNE allow you to use their tax exempt status to receive donations and provide your donors or funders with a tax deduction. I encourage most organizations, projects or nonprofits to seek out fiscal sponsorship during the early stages of their development.
Generally, I don’t advise starting a 501(c)3 until you’ve run a project and tested out your assumptions unless you absolutely know that you’re ready to commit a significant amount of time and resources into building an organization. The reality is that you can function and achieve your mission without the hassle of incorporating or applying for a tax-exempt status nowadays. Lastly, there is nothing wrong with starting things as a project and then having them naturally blossom into a nonprofit organization.