STEPS TO BECOMING A NON-PROFIT ORGANIZATION
Martin Acres Farm
Starting a new non-profit is neither an easy nor a swift task. Having a passion for your cause is important, but
remember that a non-profit is essentially 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 non-profit? Another non-profit
can even serve as your fiscal sponsor instead of or until you can become registered. Are you sure that a non-profit is
the best business structure for your idea?
Below you will find the major steps necessary to start a non-profit. This information was compiled together from
several different on-line resources. Keep in mind that this information is only listed as suggestions.
Keep in mind, what your non-profit does is the highest priority for any non-profit. Income generation is second.
*Note: The Office of the Secretary of State cannot provide legal advice or interpretation of federal or Kentucky law
to the public. If you need legal advice, please consult a qualified lawyer.
Rodney C. Martin
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TABLE OF CONTENTS
VISIONARY STAGE
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Step 1: Recruit an advisory committee.
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Step 2: Determine if you really need to start a non-profit.
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Step 3: Decide on the purpose and mission.
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Step 4: Create a mission statement.
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Step 5: Recruit board members.
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Step 6: Decide on a name.
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Step 7: Check for name availability.
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Step 8: Reserve and register a name.
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PLANNING STAGE
Step 9: Decide where to incorporate your non-profit.
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Step 10: Write the articles of incorporation.
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Step 11: File and incorporate as a non-profit organization.
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Step 12: Create a financial plan.
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Step 13: Develop a fundraising plan.
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Step 14: Create a business plan with a budget.
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Step 15: Draft the corporate bylaws.
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Step 16: Hold first meeting of the board.
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FEDERAL FILING
Step 17: Apply for Federal ID Number (EIN).
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Step 18: Obtain income tax exempt status from federal and state government.
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Step 19: Obtain business licenses and permits.
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Step 20: Open a separate bank account for the non-profit corporation.
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REFERENCES
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VISIONARY STAGE
Step 1: Recruit an advisory committee.
One of the first steps is establishing an advisory committee, which may become the founding board to guide the
organization through the following 19 steps.
What is an advisory committee? A group of volunteers that meets regularly on a long-term basis to provide advice
and/or support to an institution or one of its sub-units. This group of individuals brings a unique knowledge and
skills to effectively develop the new organization. The advisory committee does not have formal authority to govern
the organization, that is, the advisory cannot issue directives which must be followed. Rather, the advisory
committee serves to make recommendations and/or provide key information and materials to the organization. The
advisory committee can be standing (or ongoing) or ad-hoc (one-time) in nature.
When should an advisory committee be formed? Consider establishing an advisory committee when it’s apparent
that a major, current issue/challenge or complex program/product/service is too complex and/or numerous to be
handled by one or two individuals.
How should the advisory committee be defined/organized? For ongoing, major activities (for example, which
will last longer than a year) establish a standing advisory committee. For short-term activities (for example, one to
nine months), establish an ad-hoc advisory committee. Carefully define the role of the advisory committee in the
formal board of directors’ by-laws. In the by-laws, specify the advisory committee’s purpose, duration, guidelines
for membership, how it contributes knowledge and skills, and any structures/policies from which the advisory
committee interacts with the formal board of directors and organization members. Advisory committee, like formal
boards of directors, should have a chair that drives organization and development of the advisory group. The
advisory committee chair should be the point of contact between the advisory committee and the formal board of
directors.
Step 2: Determine if you really need to start a non-profit.
What is a non-profit? An incorporated organization which exists for educational or charitable reasons, and from
which its shareholders or trustees do not benefit financially. Any money earned must be retained by the
organization, and used for its own expenses, operations, and programs.
What makes an organization a non-profit is that:
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Its mission is to undertake activities whose goal is not primarily for-profit.
No person owns shares of the corporation or interests in its property.
The property and income of the non-profit corporation are never distributed to any owners, but are recycled
back into the non-profit corporation’s public benefit mission and activities.
Is starting a new non-profit organization really the best way to accomplish the goals you have set forth? Other
alternatives, including collaborating with an existing non-profit organization, establishing an informal club or
association (a viable option for groups with annual budgets under $25,000), finding a fiscal sponsor, or forming a
for-profit business, may achieve your objectives quicker, more efficiently, and for the best benefit of your target
audience.
Here are some of the differences between a business and a non-profit:
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When you start a business, it is for the financial benefit of its owners and/or shareholders. Profit is the goal
and the business pays taxes on that profit.
A non-profit entity has a mission that benefits the “greater good” of the community, society, or the world. It
does not pay taxes, but it also cannot use its funds for anything other than the mission for which it was
formed.
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Non-profit organizations can and do make a profit, but it must be used solely for the operation of the
organization or, in the case of a foundation, granted to other non-profit organizations.
When a for-profit organization goes out of business, its assets can be liquidated and the proceeds
distributed to the owners or the shareholders. When a non-profit goes out of business, its remaining assets
must be given to another non-profit.
A non-profit organization is, in a way, owned by the public. It belongs to no private person and no one person
controls the organization. The assets of a non-profit are irrevocably dedicated to the charitable, educational, literary,
scientific, or religious purposes of the organization. The cash, equipment, and other property of a non-profit cannot
be given to anyone or used for anyone’s private benefit without fair market compensation to the non-profit
organization. In fact, a non-profit’s property is permanently dedicated to exempt purposes. When and if the
organization dissolves, any remaining assets after debts and liabilities are satisfied, must go to another non-profit
organization – not to members of the former non-profit or other private individual.
Conduct a needs assessment. Even though the goal for your new non-profit is not to make a profit but to change
lives, it is also a business. As such, it is important to adopt many business-like procedures. One of those is
conducting a survey and/or other research before you launch a product or service. In the non-profit’s case, we call
this a “needs assessment” to determine if there is really a need in your community for the services you propose to
offer.
Here are some questions to ask during the needs assessment:
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Is there another non-profit that is providing or may provide the program or service you are considering?
Who is your audience? And, what is its demographic profile? Are they low income? Single mothers? Kids
with AIDS? Are they senior citizens? Where do they live? How do they get around (public transport etc)?
How many people are there who need your service?
What are this group’s needs and desires? Conduct a survey of a sample group to find out what they are
thinking. You may think they need one thing but they may actually need and want something else.
The key is to find out if the proposed non-profit is really needed. You would never start a business before
determining if there was a market for your product/service. The same goes for a non-profit. Ensure your eventual
success by making sure the need exists and that you are likely to be able to fulfill it.
If you do decide to start a non-profit, you will not be alone. The number of U.S. non-profits has grown at twice the
rate of for-profit organizations. There are an estimated 1.6 million non-profits in the US, and it is quite likely that
someone already has your idea. So, before you go ahead, try answering these questions:
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Are you cut out for this? Starting a non-profit is very much like starting a business. It’s just that you have
to find donors instead of investors. However, donor’s today demand that non-profits be run like businesses.
You will need a business plan plus produce measurable results later. You will, just like a business owner,
have to put in long hours, probably without pay, until you can get the new enterprise up and going. Some
people who start NPOs have to keep paying jobs during the startup period. You will need not only passion
for your cause but a big dose of entrepreneurial spirit.
Do you have the skills to start a non-profit? Running any organization requires good management and
administrative skills, and a non-profit is no exception. You might be driven by your passion for a cause, but
that will be no substitute for skill and experience. You can augment your own skill set by bringing together
supporters who have the experience and skills you may lack. Those early supporters could become your
board members or your first staff members.
Can you inspire others? You’ll need to convince donors to support your endeavor, and inspire staff to
work hard under sometimes difficult circumstances.
Do you have these qualities? The qualities that people who work in non-profits need are passion,
creativity, persistence, vision, and the ability to collaborate.
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Step 3: Decide on the purpose and mission.
The purpose of a charitable non-profit must be for the public interest and common good. It should establish a single
mission and a set of goals and programs that will accomplish that mission. To carry out your non-profit mission, you
will develop tactics and objectives. All of these will be part of your strategic plan.
A new non-profit should analyze what it wants to do, to whom it wants to reach, and how it wants to affect society.
A mission statement should be brief, timeless, and descriptive of what the organization is trying to accomplish. This
statement will guide the organization through its initial formation, program development, growth and change.
Step 4: Create a mission statement.
What is a non-profit mission statement? Every non-profit organization must have a mission statement. It
describes the purpose for which your organization exists. Without a clear mission statement, your non-profit may
drift off course. With one, you can measure every activity against it. It will keep you clear-headed and out of
trouble. A great non-profit mission statement is also a great branding tool. Use it to promote your organization and
to help convey the essence of what you are all about. Essentially, your mission is your goal – your reason for being.
Try answering the question, “Why did I start this organization?” The answer will be your first try at writing your
mission statement.
The benefits of a well-defined non-profit mission statement:
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It focuses your energy and clarifies your purpose. When you try to write your mission statement, you will
find that you have to really define what you are going to do. Many questions will come up that must be
resolved. For instance, who will you serve? And, who will you not? Are you concerned about just your
local area? Or the whole state? Be careful to keep your mission narrowly focused to ensure that you don't
bite off more than you can chew.
A well-defined mission statement can and should motivate board, staff, volunteers, and donors. It also helps
attract people and resources. It will be your best public relations tool.
A good mission statement can help you get 501(c)(3) status. If you plan to apply for tax-exempt status –
501(c)(3) or some other IRS classification – the IRS will be looking at your mission statement to see if your
organization matches its requirements for that type of entity.
Step 5: Recruit board members.
Control of a non-profit is exercised by a governing board of directors. The responsibility of that board is to see that
the organization fulfills its purpose. Board members do not act as individuals, but must act as a group. No one can
be guaranteed permanent tenure on a board, and the board can, if necessary, fire an executive or remove board
members. This means that no one, not even the founder of the organization, can control a non-profit.
Each state has regulations that determine the minimum size of the board, but the optimum number of people who
sits on the board should adequately reflect the constituencies the organization serves and its population interests. It is
also suggested that non-profits hold board meetings between nine and 12 times each year. As with the size of the
board, the number of board meetings each year should be determined by the work that needs to be accomplished.
Small non-profits. Small non-profits do not have typical structures because they vary significantly in their aims and
resources. A non-profit founded by community members to conduct community clean-ups and social activities may
have an all-volunteer structure and seek donations used to spend on these activities rather than on salaries or labor
costs. Such an organization may have only one principal director or a small board consisting of only a few people.
Because there is no staff, the structure doesn’t extend very far. Similarly, even if a small non-profit has an office and
staff of one or two people, it may be that an unpaid board member manages the staff or that one staff member is
made the director of the small operation. The director would then report to the board or a board member the board
designates.
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Typically, the non-profit operations are organized into major functions. These functions usually include central
administration and programs.
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Governance. The governance function of a non-profit is responsible to provide overall strategic direction,
guidance and controls.
Programs. Typically, non-profits work from their overall mission, or purpose, to identify a few basic
service goals which must be reached to accomplish their mission.
Central administration. Central administration is the staff and facilities that are common to running all
programs. This usually includes at least the executive director and office personnel. Non-profits usually
strive to keep costs of central administration low in proportion to costs to run programs.
Conduct of the board. The board should be responsible for its own operations, including the education, training,
and development of board members; annual evaluation of its own performance; and, when appropriate, the selection
of new board members. There should be written job descriptions for board members, officers, committees and
committee members. In addition to written job descriptions, the board should have written expectations for board
members, including expectations for full board participation in fundraising activities, committee service and service
activities.
Members. Non-profit organizations may have members that participate and provide input in terms of operating the
organization. Members of a non-profit organization have the right to participate in the current and future activities of
the non-profit organization. However, it is not a necessity for a non-profit organization to have members as a part of
its organizational structure.
Board. A non-profit organization’s board of directors will consist of individuals appointed by the organization’s
founders. A founder can serve on the organization's board of directors. Board members are expected to show a
passion and commitment toward helping the company achieve its mission.
Officers. Officers of a non-profit organization consist of positions, such as executive director or president, secretary,
treasurer and vice-president. The initial officers of a non-profit organization are selected by the board of directors. A
board member of a non-profit organization may also serve as an officer. The non-profit’s officers are required to
manage the organization’s staff to carry out the decisions made by the board of directors. Officers of a non-profit are
responsible for managing the day-to-day activities of the organization.
Staff. A non-profit organization’s staff members may consist of paid and volunteer workers. Paid staff members are
given their duties by the officers of the non-profit organization. Assess the expertise and staff needed to get the
organization through the beginning years. Generate alternatives for filling staffing needs (volunteers, interns, parttime staff, contracted personnel).
Committees. Committees are a big part of the structure of a non-profit organization. A non-profit organization may
form a committee to handle budget, fundraising and operational concerns, public relations and marketing, and
implementing programs that promote the non-profit’s mission. Every committee should have at least one board
member, but two board members is an ideal number. Other spots on a committee may be held by the non-profit
organization’s officers and staff members.
The composition and structure of the board of directors are important to the board’s ability to function and represent
the community served. The following is a series of board composition and structure best practices.
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All board members should be personally committed to the mission of the organization, willing to volunteer
sufficient time and resources to help achieve the mission of the organization, and understand and fulfill
their fiduciary responsibilities.
Non-profit boards must have a chair and a treasurer. A vice-chair and secretary are highly suggested.
No board member should occupy more than one officer position in the same organization at the same time.
The majority of the board should consist of members unrelated to each other or staff to allow for significant
deliberation and diversity.
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Board members should serve no more than 10 consecutive years to ensure broad public participation.
Board membership should reflect the diversity of the organization’s constituencies.
Board members who are not employees should not receive compensation for their board service, other than
reimbursement for expenses directly related to board duties.
If staff membership on the board is deemed necessary, it should be limited to the executive director but not
in chair, vice-chair, secretary or treasurer roles.
The board nomination process should be announced to the organization’s public, so that interested persons
or community members can nominate themselves or others.
Non-profit boards should hold quarterly meetings at a minimum.
Board committees should be organized as needed to effectively structure member’s roles and
responsibilities.
Each board should annually evaluate itself with a survey and discuss the results.
Step 6: Decide on a name.
It is crucial to your new organization’s identity to obtain a unique name under which to operate. Naming a business
can be a creative challenge, but it’s worth the time to really explore potential names to maximize trademark
protection and ensure that your name helps rather than hurts your business. When naming your business, keep these
three ideas in mind:
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Is the name available and not currently used by someone else?
Can the name receive trademark protection?
If you plan on making a website, is the name available as a domain name?
Guide to choosing a distinctive name. Choosing a distinctive name that conveys what your business does without
using generic terms can be very difficult, so here are a few ideas to get you started.
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Keep it simple. Ideally, you want your name to be as simple as possible, especially if you plan on making a
website with the name.
Make it unique. You want your name to be unique, because the more unique it is, the more likely you are
to receive trademark protection and avoid any potential infringement claims.
Avoid generic words and geographic names. Try to avoid extremely generic words standing alone in
your name, such as “shoes” if you are a shoe company (e.g., Bob’s Shoes). Also avoid using generic
geographic names, such as California, because you are less likely to be able to register names with a
geographic reference for trademark protection.
Don’t limit new business. Avoid choosing a name that is so restrictive that you will be unable to expand
your business.
Ask around. Always talk to family, friends and your professional contacts about any proposed name to see
what they think.
Step 7: Check for name availability.
Here are some suggestions to find name availability:
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Basic screening search. One of the best steps that you can take before jumping into a full blown search is
to do a simple screening search to make sure that doing a more in-depth search is worth it.
Look at the fictitious name databases. The next step in your search that you should take is to go through
the fictitious name database that is kept by your county or state government.
Databases containing names of corporations, LLCS and limited partnerships. If you are planning on
operating your business as a corporation, LLC or limited partnership, you need to check with your state’s
filing office to see if the name that you are planning on using is already in use by another corporation, LLC
or limited partnership.
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You can check any potential names for duplications through your Secretary of State’s Office. Search availability of
your non-profit’s chosen business name, and for similarity to existing names.
Find unregistered business names
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On the internet. The internet is a great place to start searching for unregistered trademarked business
names that are the same as, or similar to, the business name that you have picked out.
The Thomas Register. The Thomas Register is another great place to keep searching to find more
unregistered trademarks. The Thomas Register is a cross-industry website that contains thousands of
registered and unregistered trademarks and service marks.
Network Solutions. Network Solutions provides you with another great online tool that you can use to
potentially find out the availability of your chosen business name.
Registered trademarks. The last place that you should look when conducting your business name search is the
database of registered trademarks that is kept by the federal government. A trademark is a word, phrase, symbol or
design, or a combination of words, phrases, symbols or designs, that identifies and distinguishes the source of the
goods of one party from those of others. In addition to checking the federal database of registered trademarks, it is
also a good idea to check your state’s database of registered trademarks.
Step 8: Reserve and register a name.
Registering your own trademark. If you have found the name that you want and have started using it, you may
want to think about using federal or state laws to protect it. Although it is not required that you register a trademark
in order to “have” a trademark, it definitely helps if you ever have to enforce your trademark rights in court. Once a
name is reserved, no other organization may use that name. Generally, you must file an official “Request for
Reservation of Name Form.” Keep in mind that your state may require that your non-profit corporation’s name
include an identifying word such as “incorporated,” “limited,” “corporation,” or an abbreviation of such a term.
PLANNING STAGE
Step 9: Decide where to incorporate your non-profit.
Before beginning any filing or drafting, persons wishing to form a non-profit organization must choose whether to
define the organization as unincorporated non-profit organization, incorporated non-profit organization, or a limited
liability company (LLC).
Unincorporated versus incorporated. A non-profit can function as either an incorporated or an unincorporated
organization. Incorporating will require a few additional steps, but both can qualify for tax-exempt status. The
choice of entity may be based on future expectations and organizational goals and is the basis for all future
operations. You don’t have to incorporate to form a non-profit. A non-profit that does not incorporate is referred to
as an unincorporated association. Unincorporated associations can run just as smoothly as an incorporated
organization, but may not receive all of the benefits of an incorporated non-profit. An unincorporated non-profit will
still receive tax-exempt status, but limited liability protection given to directors and officers may not apply, unless
state law provides this protection.
A corporation has power to enter a contract. This power renders the corporation liable for the acts of the
organization as a whole, its directors, officers, and employees. Any non-profit corporation may sue, be sued,
complain and defend in the corporate name. For information regarding the extent of liability applicable to
unincorporated organizations, incorporated organizations, and LLCs, please consult a qualified lawyer.
What is a limited liability company (LLC)? A business structure allowed by state statute. LLCs are popular
because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC.
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What are articles of incorporation? When you incorporate as a non-profit, the state in which you incorporate will
require articles of incorporation. What is required may differ from state to state. It is important to contact the state
office (usually the Secretary of State) responsible for incorporations to find out what the requirements are.
Articles of incorporation provide information such as:
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The corporation’s name.
The name of the person(s) organizing the corporation.
Purposes for which the corporation is formed.
Wording that states that no part of the assets of the non-profit corporation are to benefit the members.
Number and names of the corporation's initial board of directors.
The initial director(s) or registered agent.
Location of the corporation’s registered office where legal papers can be served to the corporation if
necessary.
The articles of incorporation do not go into the details of how the corporation will be run. That is spelled out in the
corporation’s bylaws.
Step 10: Write the articles of incorporation.
It is necessary to write and file the articles of incorporation prior to applying for tax-exempt status from the Internal
Revenue Service. The IRS requires specific language to be used describing the charitable purpose of the
organization, and the requirements it must follow for exemption. The founders of the organization should write its
articles of incorporation. This document formally names the entity, its location, and its purpose. This document is
the legal record of how the organization is to be managed. It is important to remember when drafting the original
articles of incorporation that each state has default laws that non-profits must follow, unless their articles or bylaws
state otherwise. Incorporating an organization also provides stability during personnel changes, eases future
relationships with funders, contractors and employees, and provides the means to apply for tax-exempt status
through the IRS.
Step 11: File your articles of incorporation and pay filing fee.
The main purpose of incorporating an organization is that of risk management. Filing articles of incorporation
provides a limited liability for the governing body of the organization. If directors act in a responsible, reasonable
way, they can avoid personal liabilities to creditors of the organization. However, this does not include debts to the
Internal Revenue Service for due payments, or due to fraudulent activities.
Kentucky filing requirements. To begin, all non-profit organizations must file articles of incorporation with the
Secretary of State’s office. The articles of incorporation include the corporation’s name, statement of purpose, initial
registered office, initial registered agent who is designated to receive service of process, mailing address, and board
of directors who will manage the affairs of the corporation. The articles of incorporation may also limit the
directors’ liability for monetary damages from breach of duty. Instructions for filing the articles of incorporation are
attached to the end of the form itself.
After you have filed all the paper work for non-profit incorporation in your state, and received a copy of your
articles of incorporation, you can move on to submitting your application to the IRS for your federal non-profit
status as a 501(c)(3) organization. It is best to file within 27 months after the date of your incorporation.
Step 12: Create a financial plan.
Scout potential funding sources and target one or more sources for start-up.
Where will funding come from? Will programs rely on grants, individual donations, state or federal contracts? What
expenses will the organization incur?
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You need to have at least as much money coming in as going out in order to even survive, much less succeed in your
mission.
So, where do non-profits get their income?
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Individuals. People are the largest source of funding for non-profit organizations.
Corporations. They give in order to get...exposure, publicity, community respect, market share. Their
funding is more episodic, revolving around particular campaigns, events, and projects. Corporate funding
can be a good source of support for new initiatives, special programs, and special events.
Federal, state and local governments. Many non-profit institutions benefit from all levels of government.
Obvious examples are public education, higher education, and the public media. Federal, state, and local
government grants fund many programs provided by non-profits, especially in areas such as urban human
service non-profits, and healthcare.
Federated funds. Organizations such as United Ways, United Arts, etc., can be steady sources of relatively
large amounts of money.
Grant-making public charities. These organizations are a cross between a private foundation and a
charity. They typically receive funding from the general public, government and private foundations.
Foundations. They come in various sizes and types but their grants can be important and substantial.
Grants. It is a competitive world when it comes to funding for non-profits. That is just as true of foundation grants
as it is for individual fundraising. There are many keys to success in seeking a grant but perhaps most important is to
know what foundations are looking for in the non-profits they might consider worthy of a grant.
Non-profit characteristics foundations seek before making grants:
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Are you registered as an IRS 501(c)(3) tax-exempt charity? This is fundamental for foundations.
Where is your non-profit in the lifecycle of a non-profit? Fully functioning non-profits don’t just appear
full grown. They go through typical stages, such as the idea state, startup stage, growth stage and mature
stage. Foundations are looking for non-profits that are already “on their feet,” for the most part. A newly
organized non-profit might not meet the criteria.
Do you have a compelling mission statement? Your mission should be different from other non-profits.
Do you have capable leadership? You need a qualified staff and an effective board.
Do you have relevant programs with a good reputation for service delivery? How are your programs
different than other non-profits working in the same area? Can you demonstrate that your programs actually
make a difference for those you serve?
Do you have an efficient operation and good support systems? The question here is really about your ability
to deliver on your promises.
Does your non-profit engage in organization planning and evaluation on a regular basis? Do you have a
long-range plan? Do you evaluate your programs to see if they are really working?
Do you have adequate facilities? This includes basic physical facilities but also technical ones. You need to
have the tools that you need to function well.
Are your finances solid and do you have diverse revenue streams? Foundations want to be reassured that
you don't have all your eggs in one basket...especially theirs.
Do you have a track record? If you are a new non-profit, make sure that your leaders at least have a great
history and plenty of experience. Demonstrating that your organization plans well can also compensate
somewhat if you are a new organization.
Step 13: Develop a fundraising plan.
New ways for non-profits to raise income spring into existence every year, but where those funds come from stays
pretty much the same year after year. There is also a basic inventory of methods that should form the back bone of
your fundraising efforts. These are, literally, your “bread and butter.”
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For non-profits, attracting these major donors means:
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Being transparent.
Being accountable.
Tracking and measuring results.
Professionalizing your marketing and development efforts.
Having a Web-based presence.
Actively promoting your brand.
Would you invest heavily in a business you could learn little, if anything, about? Neither would savvy major donors.
How open is your organization to public scrutiny regarding its finances, operational functions, decision-making
processes, and more? This kind of openness facilitates relationship building among large donors who want to
support organizations they understand, respect, and trust – namely those that own and consistently demonstrate a
quality, transparent brand.
Here are some simple steps to get you started toward a successful fundraising plan:
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Develop your fundraising goals. You should have goals for the amount of money you need to raise, plus
what the money will be used for. Will you use it for overhead expenses? To fund an ongoing or new
program? To build a new facility? To develop an emergency fund for a future rainy day? To close a deficit?
You will likely have a number of goals. If so, develop a fundraising plan for each one.
Write down your fundraising plan. It is important not to just fly from one fundraising scheme to the next.
Develop a written plan that states how much you need to raise, from what sources, and how you will do it.
Don’t worry; the plan can be revised as you proceed.
Estimate how much your fundraising program will cost. Include costs such as postage, creating your
website, running special events, the cost of staff dedicated to fundraising, and the staff costs of managing
the volunteers who will help you raise funds.
Develop a timeline for your fundraising plan. Fill in a year’s calendar with specific activities, and
identify who will be the lead for each of those projects. Go further by developing timelines for each
fundraising activity, such as the direct mail campaign, the online auction, or the planned giving seminar.
Identify funding sources. Can current sources be leveraged to produce more income? Are there audiences
you are not tapping? Have you considered government or foundation grants? Civic groups, churches or
universities? How about product sales or other ways of achieving earned income? Do you have the capacity
to solicit funds online?
Evaluate your fundraising plan during the year. Evaluation will improve your results. Plan to evaluate
what you are doing every few months.
Ongoing versus episodic funding. Besides seeking support from a variety of sources, your fundraising program
should seek both ongoing financial support and episodic support.
Ongoing Funds. Ongoing funds support is usually gained through:
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The annual fund. An annual fund means just that, annual (or more frequent) appeals to a core group of
constituents.
Sales of products and services. Some non-profits own stores or provide services that can represent a
substantial income stream.
Multi-year grants. A grant-giving organization such as a foundation may provide restricted funding for a
particular project or program, or unrestricted funding to help cover the overhead costs of running the
organization.
Endowment income. Many large non-profits, particularly higher education institutions and healthcare
organizations build up large endowment funds that produce interest that is used to support the organization.
Episodic funding. This type of funding can come from foundation or corporate grants; special events; or a bequest.
These funds may be restricted to one purpose or devoted to unrestricted use by the non-profit.
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Two special types of fundraising. Two types of funding fall outside the scope of ongoing and episodic methods
and include a wide range of sources.
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The capital campaign. A capital campaign is a multi-year fundraising campaign with a particular goal
such as: funding a new building, raising funds for a particular project, such as cancer research, or
increasing a particular asset such as an endowment.
Planned giving. Most non-profits now have planned giving programs which enable a donor to confer a gift
at the time of his/her death; or to give a large gift immediately while receiving income during the donor’s
life.
A good fundraising plan will include a balance of these techniques and sources. Establishing unrestricted, ongoing
funding is the most important, followed by other funding that will grow the organization and ensure its future.
Step 14: Create a business plan with a budget.
Creating a thoughtful business plan during these beginning stages of a new nonprofit can provide a sense of
direction to the organization as it develops. A plan should include what the organization’s goals are, what programs
it will operate, where it will get funding, will it conduct events, will the organization have staff, volunteers, and
more. It should also include a budget plan. Where will funding come from? Will programs rely on grants, individual
donations, state or federal contracts? What expenses will the organization incur?
A business plan and budget are not only useful in thinking through the structure of the organization, but they are
required as part of the narrative section of IRS Form 1023, Application for Tax-Exempt Status.
Step 15: Draft the corporate bylaws.
What are bylaws? Bylaws are the rules that govern the internal management of an organization. They are written
by the organization's founders or directors and cover, at minimum, topics such as how directors are elected, how
meetings of directors are conducted, and what officers the organization will have and their duties. The particular
requirements for bylaws are set by the state in which the organization incorporates.
The bylaws will serve as the rule book for the non-profit. There is substantial flexibility to writing the organizational
bylaws to fit the uniqueness of an organization. They are flexible and relatively easy to amend as the organization
changes and grows.
Bylaws are much easier to amend than the articles of incorporation and should be reviewed frequently. This
document should be more detailed then the articles of incorporation and address the following organizational issues:
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Membership. If the organization will have members, who they are, how/when membership meetings will
occur, what notice is required for meetings, requirements of a special meeting, quorum, and voting.
Board of directors. Number, election process, meetings, length of term, number of terms allowed,
vacancies, removals, quorum, officers, and standing committees.
Fiscal management. Fiscal year, and committee/officer responsibilities, compensation of directors,
reporting requirements and dues.
Amendments. How will amendments be made and approved.
Consider the organization’s potential short-term growth, and build flexibility into the bylaws. Then, as growth
dictates, the board can propose changes.
As the organization grows and matures, board members should:
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Review bylaws on an ongoing basis, and revise as needed.
Contact an attorney to sign off on any substantial revisions to your bylaws.
If bylaws aren’t upheld during a dispute, board members could be held liable for breaching their duty to the
organization.
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Be sure to re-evaluate bylaws whenever the organization creates a major subsidiary program.
Step 16: Hold first meeting of the board.
The first official meeting should consist of the initial board members or incorporators. This gathering marks the
official start to the organization. At the first meeting of the board, the initial board members must approve the
drafted bylaws and adopt its principles. The new organization will also vote on new board members and officers as
it is called for in its bylaws.
FEDERAL FILING
Step17: Apply for Federal ID Number (EIN).
Non-profit organizations should have an EIN, often referred to as a Federal ID Number, even if it has no employees.
The EIN acts similarly to the social security number for individuals and may be requested when opening a bank
account or in other fiscal operations. Organizations must receive their EIN before filing Form 1023. Use IRS Form
SS‐ 4 – Application for Employer Identification Number (EIN). Organizations must be incorporated prior to
applying for an EIN.
Step 18: Obtain income tax exempt status from federal and state government.
Once the organization’s articles of incorporation have been filed and the initial board of directors has approved the
bylaws, the next step for a new non-profit is applying for federal tax exemption from the Internal Revenue Service.
The most common way to receive tax-exempt status is to apply under Section 501(c)(3) of the Internal Revenue
Code. Non-profit corporations qualifying under this section enjoy exemptions from federal, state, and local taxes,
and donors can write off their contributions on their individual tax returns. The Internal Revenue Service allows
organizations to file for tax-exempt status under section 501(c)(3) if they fit within one of five identified categories.
The organization must be one of the following:
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Have a charitable purpose.
Qualify as a religious group.
Be considered a scientific organization.
Serve a literary purpose.
Qualify as an educational organization.
The IRS defines these categories broadly, but does not rubber-stamp all applications. For example, scientific
organizations must perform research in the public interest, and educational organizations cannot espouse a particular
political viewpoint.
First, obtain IRS Publication 557 – Tax‐ Exempt Status for Your Organization. This 55‐ page document includes no
forms to file, but lays out the federal laws regulating tax‐ exempt organizations. It is available free and serves as a
useful reference guide for filing requirements, employment issues, lobbying expenditures, and many other complex
non-profit issues regulated by IRS codes.
Second, get copies of IRS Form 1023 and Form 8718 – Application for Recognition of Exemption under 501(c)(3)
of the Internal Revenue Code. Form 1023 applies for a ruling or determination letter on an organization’s exempt
status under Section 501(c)(3). This package of forms contains both Form 1023 and Form 8718 (User Fee for
Exempt Organizations Determination Letter Request). Form 8718 is used to process the fee for applying for taxexempt status and must be included when filing Form 1023. Organizations applying for exemption under another
501(c) section should file IRS Form 1024.
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The filing fee is $500 for organizations anticipating gross receipts averaging more than $10,000 during its
first four years and $150 for organizations anticipating gross receipts averaging less than $10,000 during its
first four years.
IRS Form 1023 and8718 must be submitted together. Processing time varies, but can take six months. Mail
the forms to IRS, PO Box 192, Covington, KY 41012‐ 1092.
The IRS will review your application and send you a letter indicating that it has approved your non-profit status. Or,
the IRS might ask you for more information. It can also deny your application. If that happens, don't give up; contact
a lawyer who specializes in non-profits.
You may need to apply to your state for tax-exempt status as well. Some states require a separate application to get a
state tax exemption; some states are satisfied with your federal tax-exempt status; and in others, you will need to
send a copy of your IRS determination letter. To find out what your state requires, contact your state tax agency.
Step 19: Obtain business licenses and permits.
When you start a business, there are federal and state rules and regulations that the company must abide by in order
to legally operate. State and local governments have more wide-ranging regulations for businesses, and there are
more local issues for small businesses to consider when starting up. For example, in addition to federal and local
requirements for businesses to obtain licenses, small business owners must also consider other local issues such as
zoning ordinances, building codes, and lease considerations.
State license requirements. Business licensing requirements differ from state to state, but most state governments
typically require the following types of licenses and permits:
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State business license. Essentially, a state business license is used to track and monitor businesses for tax
purposes and are required for businesses to operate lawfully in the state.
Tax registration. For states with a sales tax, you will have to submit an application for a sales tax license
to charge customers.
Occupational licenses. All states regulate certain professions and require practitioners of those occupations
to obtain (and maintain) licenses in order to do business. To confirm whether your state requires your
business to have an occupational license, contact your state’s licensing authorities.
Licenses for selling certain products. States require businesses to have licenses to sell products such as
liquor, firearms, and gasoline.
Unemployment insurance. For businesses with employees, most states require the business to purchase
into their system of unemployment insurance. Contact your state’s Department of Labor to find out more.
Local requirements and issues.
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Register your business name. You'll have to register your business name with local (and likely state)
agencies such as the county clerk, along with the business address.
Local business licenses. In addition to state or federal licenses where applicable, almost all businesses will
need a license from the local government (city or county) to lawfully operate within their jurisdictions.
These local licenses are typically very easy to obtain and require paying a fee.
Zoning permit. A zoning permit demonstrates that the location of your business is approved by the city or
county for your business’ usage. If your specific location isn’t zoned for your type of business and you've
signed a lease, you have trouble on your hands. So before signing a lease, be sure to confirm that the area is
zoned for your usage and that the lease accurately reflects the type of business.
Health permit. If you’ll be preparing food as part of your business, you’ll need to get permits from the
county to do so.
Building permits. If you want to remodel or build a new space, you must get building permits from local
agencies to ensure safety and to confirm that the remodeling or new space conforms to local ordinances.
You may also need permits for plumbing, electrical, and heat or A/C work.
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Environmental permits. In addition to state and federal agencies that cover environmental issues, local
agencies also regulate the environmental impact of businesses, including issues such as air quality, water
quality, and waste disposal.
Step 20: Open a separate bank account for the non-profit corporation.
To open a bank account you will need your EIN, articles of incorporation, your bylaws, and minutes of your board
of directors meeting authorizing opening of bank account. Choose a bank that has experience with new, small
nonprofits. Not all banks and not all bank accounts are created equal. It pays to comparison shop – or, more
accurately, it costs not to. Do not automatically choose the bank that you use for your personal account.
Find out if the bank has an account just for non-profit organizations (or at least, just for small businesses). This type
of account might have a lower minimum deposit and lower monthly fees or transaction costs than a regular business
account at the bank. Do not assume that the non-profit account is automatically your best option, however. The
account might work for many non-profits but have restrictions, lack services, or have high fees for specific
transaction that just don’t work for your situation.
Here are some questions to ask while researching which bank to use for your nonprofit:
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What is the minimum required deposit?
What is the minimum balance? What happens if the account drops below that amount? (For instance, some
“free” bank accounts require a high minimum balance, or sock you with high fees)
Is there a monthly account fee? What is it, and what does it cover?
Is there a check-writing fee? (Some banks let you write a certain number of checks per month without
costs, while others charge per check. If you won’t be doing a lot of financial transactions, a higher checkwriting fee might be a good trade-off for a lower monthly fee, but if you will be paying a lot of people
every month, the check fee becomes important).
What is the procedure for getting check signing rights? Your non-profit might want several people to be
able to sign off on checks (for instance, the executive director, the board president, and the board treasurer).
Is the bank convenient for you? If you like doing things in person, is the bank near you? If you need
ATMS, does your bank offer free ones near you? If you like the convenience of the internet, does the bank
have a solid on-line presence?
If you need, or might need, other services (like a savings account or small-business loan); does the bank
offer a competitive interest rate?
When looking for a bank for your non-profit organization, don’t just go for the obvious choices.
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Look at online banks. Because they have less overhead, online banks often charge lower fees and provide
better interest rates.
See if your non-profit organization would be eligible for a credit union account. Because the accountholders are the owners (instead of shareholders, as is the case with regular banks), credit unions tend to
charge less and give out more interest.
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