Before You Start That Nonprofit

Tuesday December 24, 2019 comments Tags: nonprofit, accounting, mission, vision

Any accounting, business, or tax advice in this podcast is not intended as a thorough, in depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax related penalties. If you need any help with that, please reach out. Otherwise, back to the episode.

Hey, it is Chyla Graham. It's time for another episode of the Nonprofit Nuggets Podcast. We are here to help the overwhelmed nonprofit leader feel a little less anxiety about money so they can make a greater impact. Today, we talk a little bit about some questions I get frequently, give you some answers, and hopefully your nonprofit can thrive.

So, one of the things you may not have noticed is that we try to keep all of our episodes under seven minutes, and that is because when I was in the audit world, clients would be ... A lot of clients would ask, "Hey, can I talk really quick?" Because they had a question, and we built in 15 minute increments. And so, they were constantly trying to be under the gun. So, I'm a little bit late, but I'm now going to set my clock for six minutes. And so, today's episode will try to be under that of questions. Just an ode to those who's speed built that way.

So, question number one I get a lot is how do I start a nonprofit? So, the first step to starting your nonprofit is to decide if you actually need to be a nonprofit. So, a nonprofit organization is really just a tax designation. It's just the IRS saying, "You are not going to be charged income tax." And even states, they can say that, too. They can decide, "Oh, you're a nonprofit organization." But at the core of it all, you're still a business. So, the question is not how do I start a nonprofit? The question is am I ready to start a business that I am relying on good will for? So, if the answer is yes, then dig in deeper.

So, we want to say ... I would say to you that if you are ready to start a nonprofit, you're ready to run a business solely on good will for the community, then do it. Your first steps would be to actually flesh out what that looks like. So, what type of organization? What type of services are you providing? So, how are you serving the community that you see? And are you going to serve anyone else? And this are you going to serve anyone else kind of leads back to that idea of being more sustainable. Lots of organizations who are solely reliant on donor funding find it hard to hit some hurdles.

So, the first hurdle is typically, "Man, how do we get to 50,000?" And then, "How do we get to 250,000." You think about, from the beginning, "How do we make our model more sustainable and inclusive in terms of we want to serve more people, and we don't want those people to have to pay, necessarily." You can think of doing a fee for service model, and this is where you might say, "Okay, we have a sliding scale for people." So, this could be maybe you offer free therapy sessions, but you offer therapy to anyone. It just so happens that if they are in a certain income bracket, they may actually pay $100 for a session versus $20 or no dollars.

And so, thinking about that, can you build a sustainable model off of that? Another thing to consider is do I have the time? So, it can be a lot of work. Not it can be. It is. It is a lot of work. And so, you want to make sure that you have the time to commit to it, that you protect that time, you honor your schedule, and you say, "Hey, for four hours, I'm going to be working on this thing." That is one way that you will get started. The other question on, "Hey, how do I start it," is set aside what type of application you will complete with the IRS.

So, with the IRS, there are two forms that you can use to apply, one of them being a (b)1023-EZ, and this is a short form that you could fill it all out online, $275. And then there's a longer form that is 20 some odd pages, and that one is $600. So, what's great about the short form is it's super simple, you don't have to think about a whole lot of documents for it. However, one of my colleagues, Linda [Ackey 00:04:56] over at Competent Assistance Nonprofit, she brought up that she was seeing a lot of organizations were struggling to get funding because they had done a 990-EZ. And so, there was not as much documentation on file for them. Versus if they had done a full 990.

With the full 990, you're turning over so much information to the IRS, bylaws, budgets. That because your public potential funders can look up this information or they can request this information and it's readily available for them, and they can use that info so that they can determine if you're going to be a good fit for their grant. And if you did the short form and you don't have that information, you're now making it harder for your funders to give you money. So, that's one thing I would recommend keeping in mind for whether or not you are going to start, how that's going to look. So, yay. Check out the IRS, see which one of those options you really have that time for.

And then my other recommendation when you're thinking about, "Okay, how do I start?" Is not doing it alone. So, not doing it alone in that you are going to reach out to some people who haven't already done this. So, you're going to see, "Hey, can I talk to you about what the process was like?" Reaching out to volunteer at an organization and saying, "Hey, can I volunteer?" So you can see what type of effort it truly takes to run an organization. And that'll give you that idea of, "Hey, is this something that I can do? Is this something that I have the capacity for?" And then getting board members.

So, you can get board members a number of ways. You can use Board Match, checking out with your local Chamber of Commerce to see if, "Hey, is anyone there who's looking to serve on a board?" And finding out, "Hey, what is it that you need for your state?" How many people do you need? Some states say you only need one, some states you need three. So, finding that out, and then telling those board members you are not looking just for a pretty face, or a nice name ... Oop. There's my alarm. So, I'm going to finish this thought.

But you're not just looking for that nice name, but you're really wanting someone who is going to help you, help push your organization further, and be willing to get their hands in. So, if you can get that, if you can get all that in, then yeah, I would say definitely continue the process. Go slow. Take your time. You don't have to become a nonprofit organization right away. You can always get your status at a later date. Because first and foremost, you are a business, so you need to make sure you are set up to operate as one, to be sustainable, to make sure that you have people along to help you for the journey. And then when you're ready and you have all your ducks in ... Or most of your ducks, some of your ducks in a row, you have some documentation, you go ahead and apply for that income exemption with the IRS.

Hope this helped. Hope for those of you who are thinking about becoming a new nonprofit leader, this makes it a little bit easier. And for those of you who are already leading your nonprofits, what are some things that you wish that someone had told you up front before you started your organization? Love to learn more? Follow us @cnrgadvisory, use the hashtag #nonprofitnuggetspodcast to let us hear what you're saying, and see how we can help.

Have fun. Bye.

PS-
Hey, hope this episode was helpful. I hope it gave you some answers to some of those burning questions. If you've still got some questions about how do you have your nonprofit move forward? Whether or not ... What should be some things you should focus on as you build up your nonprofit. Join me on Tuesday, December 10th for a 90-minute masterclass. This will be a active participation required type of class. We want to talk through the four areas of making a deeper impact. And I'm going to give you one thing to focus on to end 2019 strong.