Starting your non-profit organization (NPO) is a noble pursuit that creates positive change in the world. It brings people together and makes a difference in communities. Furthermore, it offers philanthropic individuals numerous benefits, like better credibility, grants, and donors.
Although an NPO can be the harbinger of transformative impact, starting one requires careful planning and dedication. This blog will guide you in successfully launching your own NPO financial management.
But before we delve into that, let’s first understand what an NPO is.
An NPO is an enterprise granted tax-exempt status by the Internal Revenue Service (IRS). This is because it promotes a social cause and offers a public benefit. Sometimes, they are also called 501(c)(3) organizations based on the section of the tax code that allows them to function.
Any donations made to an NPO are generally tax-deductible for the companies and individuals that make them. Additionally, the non-profit pays no tax on money gained via fundraising initiatives or donations.
How do I start an NPO?
Starting your own NPO can be easy if you understand and follow the proper steps effectively.
Here’s what you need to do.
1. Studying feasibility and need
If you are thinking of launching an NPO, first put in some essential research to see whether you can start a non-profit and if your mission will serve the community’s needs. But remember, you can face failure in your mission if you consider forming an NPO when it’s not required or feasible.
Before thinking about starting the NPO, ask yourself questions to determine the feasibility and need of the non-profit. Some of them include:
- Do I have enough time, people, and money to begin an NPO?
- Will the economy support the NPO and my cause?
- What weaknesses, threats, challenges, and opportunities will my NPO face?
- How are my services distinguishable from others?
- Is my NPO an unmet need?
2. Developing a robust foundation
After assessing your NPO’s feasibility and needs, it’s time to build a strong foundation for its operation.
Here’s what you need to do for it:
a) Writing your value statement
This statement guides your organization’s actions and decisions. You need to:
- Begin by recognizing the core behaviors crucial to fulfilling your mission ethically.
- Clearly outline how these behaviors will be implemented in your NPO’s daily operations.
b) Writing your mission statement
This statement explains what your NPO does, how it does it, and why. You must:
- Answer what services your organization provides in one concise sentence.
- Include the organization’s values and the expected result of your mission.
- Ensure it showcases your passion, which led to starting the non-profit.
- Keep it concise and at an eighth-grade reading level.
c) Writing your purpose statement
It clarifies your NPO’s necessity, distinguishing it from potential competitors. You should:
- Convey to donor management systems and partners why they should support you.
- Explain your NPO’s services in 50 words or less.
- State your service category and elaborate on what differentiates you from competitors.
- Be clear and allow space for future growth in service offerings.
d) Choosing your NPO’s name
Picking your NPO’s name is an important decision. It should align with your values, purpose, and mission. You must:
- Brainstorm names for your organization’s services and descriptive words.
- Ensure the name is short, fits in domain names, and is memorable.
- Review domain availability utilizing tools like GoDaddy and state business filing agencies.
- Affirm trademark status using services like Legal Zoom.
e) Choosing your board of directors
An effective board of directors is vital for your NPO’s success. You need to:
- Specify the necessary skills for mission fulfillment (financial, marketing, legal, etc.).
- List individuals with the required qualifications and shared interest in your cause.
- Reach out to potential board members to discuss involvement.
- Evaluate their suitability for board positions by requesting that they volunteer initially.
3. Filing articles of incorporation
After evaluating your NPO’s feasibility and need, it’s time to file articles of incorporation. It’s a request made to your state to recognize your company.
Your initiative becomes a legal business once it’s approved. However, your firm still isn’t tax-exempted. For filing your articles of incorporation, first check whether the office in your state is the state’s business filing office. Remember, this office’s name and the steps and documentation to complete the filing differ in every state.
You must also apply for a federal Employer Identification Number (EIN) to operate your firm legally in the state. To apply easily, consider using EIN Assistant. Before filing, download Adobe Acrobat to obtain your confirmation letter online rather than waiting for it to arrive by mail.
4. Filing for tax-exempt status
The filing for tax-exempt status differs depending on the type of 501(c) organization you desire to establish. For instance, the most common type of non-profit organization is usually 501(c)(3), as it includes all religious, charitable, literary, and scientific organizations. You must file Form 1023, or Form 1023-EZ, to apply for 501(c)(3) tax-exempt status.
5. Maintaining your tax-exempt status
Your bylaws, records, and state and federal filing laws are significant in maintaining your tax-exempt status.
Here are some things to consider for your long-term tax-exempt status maintenance plan:
- Stick to your bylaws: Bylaws provide a plan for operating your company legally and ethically. Following them ensures your firm stays tax-exempt and financially healthy.
- Have detailed records: Keeping financial records like bank statements, grants, and organizational revenue and expenses is essential. It helps prove that your company is only utilizing funds to maintain your tax-exempt status.
- Filing federal tax forms yearly: Ensure you file a Form 990 or 990-EZ (if your yearly income is under $50,000). It will help keep your tax-exempt status and showcase to donors how your business manages to raise funds.
- Filing state tax forms annually: Most states mandate NPOs to file a request on the state level to demand donor funds from state residents. However, states like Texas direct you to file for corporate tax exemption. If required by your state, file this paperwork annually along with the Form 990 attached.
Following these steps will enable you to keep your tax-exempt status on a state level and solicit the funds for running your NPO.
Launching your own non-profit financial management business is a bold step towards becoming a force for positive impact. Following the above mentioned steps, you can establish your NPO and achieve your mission effectively.
Want to know more about NPOs? Escalon has helped over 5,000 companies across various industries improve their compliance regarding internal controls and streamline processes. Talk to an expert today.