Stan Hutton - Nonprofit Kit For Dummies

Grants from foundations and corporations make up a smaller percentage of giving to nonprofits, but their support can be invaluable for start-up project costs, equipment, technical support, and sometimes general operating costs. Some organizations get most of their income from foundation grants; others get very little. Chapter 17introduces you to resources to help you find potential grant sources. Chapter 18walks you through the process of crafting a grant proposal.

Fundraising works better if people know you exist. That knowledge also helps draw people to your theater or to sign up for your programs. Here’s where marketing and public relations enter the picture. Chapter 13helps you figure out what your message should be and how to circulate it to the world.

Make no mistake about it: Fundraising is hard work. But if you approach the task with a positive attitude and make your case well, you can find the resources you need.

Chapter 2

IN THIS CHAPTER

Weighing the benefits and drawbacks of starting a nonprofit

Starting your nonprofit the right way

Embracing the understanding of nonprofit ownership

Surveying the different types of nonprofit organizations

Knowing the difference between nonprofit and for-profit corporations

Enlisting a fiscal sponsor to help you provide a service or complete a project

Maybe you’ve been thinking for years about starting a nonprofit organization, or maybe an idea to solve a social problem or provide a needed service has just popped into your head. It might be time to make your idea a reality. But before you file the incorporation papers, you need to consider the positive and not-so-positive factors that can make or break your new organization. As with opening any business, starting and managing a nonprofit organization isn’t a simple matter.

Take a look at the economy around you. Are existing nonprofit organizations in your community thriving, or are they struggling to find financial and volunteer support? In addition, are you equipped to manage money and raise funds — which isn’t an easy task even when business is booming — and can you inspire others to work with you whether they’re board members, staff, or volunteers?

In this chapter, we pose some questions that you should think about (and answer) before you begin the process of incorporating and applying for tax exemption. If some of your answers point to the conclusion that your idea is worth pursuing but you want to test the idea first, we suggest that you consider using a fiscal sponsor. As we point out later in this chapter, the benefits of fiscal sponsorship are many.

A nonprofit, in this book, refers to a type of corporation that has been recognized by the Internal Revenue Service (IRS) as exempt under section 501(c)(3) of the IRS Tax Code and is described as a public charity. Later in this chapter, you can read about other kinds of nonprofits, to nail down the distinct attributes of these 501(c)(3) tax-exempt public charities.

Check out File 2-1 at www.wiley.com/go/nonprofitkitfd6e for a list of web resources related to the topics we cover in this chapter.

Before you jump headfirst into making your nonprofit dream a reality, you need to absorb some basic facts about nonprofit organizations. Let’s begin with some pros: You will

Receive exemption from taxes on most income to the nonprofit

Be able to receive, for most nonprofits formed under Section 501(c)(3) of the IRS Tax Code, contributions that are deductible for the donor

Have the opportunity to receive grants from foundations, corporations, and government agencies

Get to feel that you’re contributing to the solution of a problem or to the improvement of society. As the founder, your vision is unfolding for the greater good.

Just about everyone would consider these facts to be positive, but they don’t tell the whole story. If you’re thinking of starting a nonprofit to get rich or to avoid paying taxes, consider this list of cons:

Paying employment taxes: Nonprofit employees’ salaries are subject to income tax, like all other types of compensation. Tax-exempt doesn’t include payroll tax — it must be withheld, matched by the nonprofit, and deposited with the IRS on time every month (usually on the 15th day unless the 15th falls on a weekend or federal holiday).

Sharing the decision-making process with a board of directors: Even though you have the vision to form a nonprofit organization, the IRS requires it to have a board of directors. The board makes the decisions and is responsible for financial, management, legal, and operational oversight. Any decisions made by the founder or executive director must be approved by the board. (See Chapter 3for more about the board’s role.)

Filing an annual report with the IRS: The complexity of the report increases as your nonprofit income increases. (See Chapter 6for more information about reporting requirements.)

Competing with others for funding: Competition for grants from foundations, corporations, and government agencies is tough, and so is garnering donations from individuals. You’ll compete with more-established nonprofits that have successful track records.

Being unable to take any assets with you if you leave: If you decide to move on to other pursuits down the road, for example, you can’t take with you any assets accumulated by the organization you’ve built. Others will continue running the nonprofit, or else it will need to be dissolved and the assets given to another nonprofit. (See Chapter 20for more about the process for closing a nonprofit.)

A nonprofit organization is given special privileges because it’s formed to benefit the public, not specific individuals. Think carefully about your motivation for launching one.

Beyond thinking about the challenges you face in starting and running a nonprofit organization, you need to apply some common sense. Nonprofits don’t operate in a vacuum, and neither should you. Personal commitment and inspiration can take your organization far, but you also need to find out how your community will receive your particular idea. Before going full steam ahead, investigate your competition, garner community support, recruit the right board members, choose how to fund your organization, determine whether you’re truly ready to run a nonprofit, and develop a game plan. Read on to find out how to get your nonprofit off to a great start.