A Guide to

Starting and Running

a Nonprofit Organization
Even though there’s no profit motive, you still Table of contents
need to focus on the bottom line. And for
Special considerations for starting your nonprofit
directors, workers, volunteers and yourself, organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
compensation is not a driving factor, passion l Understanding the unique aspects of a
is. Even though a non-profit has to be run like nonprofit organization . . . . . . . . . . . . . . . . . . . . . . . . . 4

any business, certain rules and laws also must l Recognizing state regulatory issues for nonprofits . . . . 5

be followed. These are just some of the special l Navigating federal regulatory issues for nonprofits . . . 5
considerations of non-profit organizations that
l Do you have what it takes to lead a nonprofit
will be outlined in this Guide to Starting and organization? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Running a Nonprofit Organization, brought to l Communicating your purpose, passion and
you by BizFilings and Business Owner’s Toolkit®. plan for your nonprofit . . . . . . . . . . . . . . . . . . . . . . . . 7

l Finding the right partners for your nonprofit

message . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

l Establishing your nonprofit organization . . . . . . . . . . 8

Selecting a board of directors . . . . . . . . . . . . . . . . 8

Filing organizational documents and tax

registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Fundraising for your nonprofit organization . . . . 10

Developing critical business functions and

operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Staffing your nonprofit organization . . . . . . . . . . 11

Seeking essential nonprofit skills . . . . . . . . . . . . . 12

Special considerations for running your nonprofit

organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

l Sticking to your nonprofit mission . . . . . . . . . . . . . . 13

l Running your organization like a business . . . . . . . . 14

l Complying with nonprofit law . . . . . . . . . . . . . . . . . . 14

l Effective fundraising is key to expansion . . . . . . . . . 15

l Pursuing a multi-faceted fundraising plan . . . . . . . 15

l Tapping additional information resources . . . . . . . . 16

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Special Considerations for Starting Your Nonprofit Organization

Join a Strong and Dynamic Segment of the Economy. Traditionally, starting-up a nonprofit organization involves
Welcome to the world of nonprofit organizations! You a group of service-minded people getting together and
are starting down a noble path, following in the footsteps pooling their resources of time, talent and treasures (and
of so many who have chosen the path of service to the those of others). Therefore, personal service, not personal
community (whether around the corner or around the profit, is often a motivating factor for these people, again
world) instead of the pursuit of commercial gain in different than their for-profit counterparts.
business. If you continue this pursuit, you will be joining
The specific services that are provided must be geared
a strong and dynamic segment of economy.
toward a “community,” however community may be
The National Center for Charitable Statistics reports that, defined. A public charity like United Way or Red Cross is
at the end of 2008, there were more than 950,000 public formed to provide a public benefit to persons in need. A
charities, 110,000 private foundations, and more than chamber of commerce or a trade association is formed
440,000 other nonprofit organizations (such as chambers to provide a mutual benefit to its members. In either
of commerce, civic leagues and fraternal organizations) case, the community served may be defined on a local,
— more that 1.5 million nonprofits, all-in-all — registered regional, national or worldwide scale.
and operating in the United States.
The nature of service, not profit, also means these orga-
Public charities reported total revenues in 2007 in excess nizations play by a different set of rules and laws estab-
of $1.4 trillion, and total assets of nearly $2.6 trillion. lished by state and federal authorities. As you would
Charitable giving totaled more than $280 billion for the imagine, this adds another layer of complexity to normal
same period, with religious, educational and human business operations. This means the leadership qualities
service organizations receiving the largest percentages needed for these types of organizations also are different
of the donations. than for a customary for-profit business. You’ll want to
familiarize yourself with:
As you can see, nonprofit operations represent a signifi-
cant segment of economic activity in today’s economy. So • Understanding the Unique Aspects of Non-Profit
it is vital to learn the basics about the nonprofit industry, Organizations
and the dynamic role nonprofits play in our economy.
• Recognizing State Regulatory Issues for Nonprofits
The Distinctive Character of a Nonprofit — A Service • Navigating Federal Regulatory Issues for Nonprofits
Motive; Not a Profit Motive. One of the distinctive char-
acteristics of a nonprofit organization is the absence of Building a Nonprofit Organization. Having completed
a profit motive in its operations. A business enterprise is a quick review of the distinctive characteristics of a
established to earn profits from the products or services nonprofit enterprise, you’re ready to take a look at the
it sells, and to distribute those profits to its owners (share- steps of the start-up process. First, you need to ask
holders, partners, or members). A nonprofit organization, yourself whether your personality and your purpose are
on the other hand, is established generally to perform a consistent with nonprofit enterprise. Then you will need
function or service — usually something that benefits a to effectively communicate your purpose to others and
broad community of people — without the commercial get them to share in your passion. A solid business plan
mind-set of making money for its owners.

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will need to be executed. Funds will need to be raised of supporters. You must paint a picture, verbally and
and legal requirements must be followed. This will otherwise, to convince donors to contribute some of
require special skills and special staffing. You need to their treasures and to inspire directors, employees,
carefully consider these issues: and, especially, volunteers to offer up their time and
talents for the mission of your organization.
• Do You Have What It Takes To Lead a Nonprofit
Organization • Fundraising. Unique to the nonprofit world is the
• Communicating Your Purpose, Passion and Plan for art of fundraising. Perhaps the fundraising itself is
Your Nonprofit not unique, but the sales pitch is. Fundraising in the
business world is based on the profit motive — ”give
• Finding The Right Partners for Your Nonprofit
us your money and we’ll make more money for you.”
Message
In the nonprofit arena, the “ask” is based on showing
• Establishing Your Nonprofit Organization that the financial contribution will result in the success-
ful achievement of the organization’s vision and
»» Selecting a Board of Directors
mission. Donors have to be sold on your vision and
»» Filing Organizational Documents and Tax mission, and on your ability to perform. Their ‘return
Registrations on investment’ is to see good things being done with
their money.
»» Fundraising for Your Nonprofit Organization
• Grant-writing. A key component of fundraising is
»» Developing Critical Business Functions and
grant-writing — formally requesting funds from
Operations
governmental entities, foundations and others to
»» Staffing Your Nonprofit Organization finance specific functions within the mission of your
organization. Learning the art to grant-writing is
»» Seeking Essential Nonprofit Skills
essential to nonprofits in their efforts to expand their
financial ability to serve their community.

• Volunteer Coordination. Many nonprofits rely on the

Understanding the unique aspects of
substantial contribution of time and talents from
nonprofit organizations volunteers. Volunteer coordination and management
Nonprofits are different from other business enterprises is far more sensitive that even the coordination and
in a number of ways. Several functions are unique to the management of employees. Why? Because volun-
nonprofit environment, or, at least, have some distinctive teers don’t have to be there. They’re not in it for the
features that should be understood by the person preparing paycheck. They should be treated with respect and
to enter the field. You’ll need to excel in these areas: dignity—it’s the only compensation they seek. So plan
their participation. Develop a staffing plan, recruit
• Communication. More than in almost any other carefully, provide clear job descriptions, set and
industry, effective communication is key to success in communicate goals, and supervise and evaluate their
the nonprofit world. As a nonprofit leader, you have performance.
to pass on your passion for your purpose to an array

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Recognizing state regulatory create a nonprofit organization under state law, but you
create a tax-exempt organization under federal tax law.
issues for nonprofits
And qualifying as a tax-exempt organization is the aim of
Just like any for-profit business with a formal entity desig- most nonprofit enterprises.
nation, nonprofit organizations are a creation of state law.
The commonly-held, but inaccurate, view most people
The laws of the various states provide for both the formal
hold is that the terms ‘nonprofit’ and ‘tax-exempt’ are
establishment of nonprofits and the ongoing regula-
one and the same. In fact, becoming a tax-exempt orga-
tion of their activities. Organizational laws are generally
nization is not the same as becoming a nonprofit; rather,
administered by the secretary of state’s office.
it is a ‘next step’ that follows after becoming a nonprofit
Typically, state regulation governs not only the incorpo- enterprise. Becoming a tax-exempt entity does not
ration and basic operations of nonprofits, but also the change the nature of your enterprise, but it dramatically
fundraising activities that are unique to nonprofit enter- changes the regulatory framework and reporting require-
prise. Such regulations, often referred to as charitable ments, and makes the federal government a far more
solicitation laws, control the manner in which nonprofits important ‘master’ than the state for your enterprise.
can solicit the public for donations. Charitable solicita-
The most well-known number in the world of nonprofits is
tion laws are generally administered by the state attorney
501(c)(3) — the section of the U.S. tax code under which
general’s office.
the core charitable organizations (charitable, religious,
In addition, most states have special tax laws that benefit scientific, literary or educational entities) achieve tax
certain types of nonprofits. Such laws may offer nonprof- exempt status.
its an exemption from sales tax on goods and services
A lesser known (but at least as important) number is
they purchase and use to carry-out their beneficial activi-
170 — the section of the tax code that allows American
ties. Property tax exemptions are often available, too.
taxpayers to make tax-deductible donations to qualified
However, such special tax treatment is often limited to
nonprofit, tax-exempt organizations.
a more narrow subset of the nonprofits, those with the
most ‘public-minded purposes’ — charitable, religious, These two sections of the tax code have more influence
and educational organizations, and perhaps a handful of on the operations of nonprofit organizations than any
others. Special tax rules are typically administered by the other legal provisions, state or federal. Why? Because in
state’s department of revenue or taxation. exchange for tax-exempt status and the right to receive
tax-deductible charitable donations, organizations must
Of course, there are federal regulatory issues to be aware
accept a tougher regulatory regimen, more intensive
of as well.
reporting obligations, and restrictions on their activities.

• Tax Exemption. The distinctive character of a tax-exempt

organization goes beyond merely having a service
Navigating federal regulatory
motive instead of a profit motive. A tax-exempt entity
issues for nonprofits performs a service that our federal government deems
to have such a high public or mutual benefit that the
While nonprofits are established and regulated primarily
entity is worthy of an exemption from income tax.
by state law, federal law actually has greater influence
on the nonprofit industry. Federal law is the tail wagging • Tax-Deductible Donations. Moreover, where our federal
the dog, so to speak. Why? Money. More to the point, government deems the services particularly worthy
income tax exemptions and deductions. Put simply, you because of their public benefit, as in the case of orga-

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 nizations exempted pursuant to 501(c)(3), American Starting a nonprofit takes a similar entrepreneurial spirit
taxpayers are permitted to deduct from their taxable as starting a business. But one thing is very different
income amounts that they donate to these qualifying — the role of the profit motive. A business entrepre-
organizations as charitable contributions. neur hopes for growth in his or her business enterprise
primarily as a means toward growing his or her personal
• Regulations, Records and Restrictions. In addition, a
financial reward. A nonprofit entrepreneur must have a
tax-exempt organization is characterized by a stricter
regulatory regimen, detailed record-keeping and different focus. Certainly as the nonprofit grows, there
reporting requirements, and restrictions on conduct may be some opportunity for higher compensation.
— all part of the price for tax-exempt status. The regu- But the entrepreneurial focus in a nonprofit must be on
latory regimen and reporting requirements begin with growing the organization for the sake of its mission, not
the application for tax-exempt status — either Form for any personal financial benefit. If your long-term inspi-
1023 for 501(c)(3) organizations or Form 1024 for other ration comes more from the fulfillment of the mission
types of entities — and continue with ongoing annual than from the pursuit of personal financial success, you
reporting requirements. may be ready to start a nonprofit.

• Restricted Activities. Restrictions on conduct limit the But that’s just the beginning. You need to make sure that
participation of tax-exempt organizations in political your stated purpose and mission align with the various
campaign activity and lobbying activity. Caution must requirements to secure nonprofit status.
be taken to avoid conflicts of interest in business trans-
actions with key board members, employees or others Simply put, if your purpose is to provide a public benefit
with a close relationship to the organization. And, of or a mutual benefit for a particular community, and if you
course, no part of the earnings of the organization can do not intend to pursue a financial return on investment for
go to the benefit of any private owner or individual. yourself or for any other private owner or individual, then
your purpose most likely is consistent with nonprofit status.

However, the laws of each state typically provide lists of

Do you have what it takes to lead the purposes for which nonprofit organizations can be
a nonprofit organization? established. You should carefully review the law in your
state as you begin the process of starting your nonprofit.
Do you have a purpose that you are ready to pursue with
a passion? Can you communicate your passion to others, If you intend to seek tax-exempt status for your nonprofit
and paint a picture for them with your words in a way that from the IRS, you will need to look at Section 501 of
will inspire them to participate with you in your plans for the tax code to learn what purposes are eligible for
a better tomorrow? Are you prepared to take the initia- exemption. Like the states, the feds also have a list of
tive to get things started, and then to take responsibility qualified purposes. Not all purposes that are eligible
for keeping operations running and growing? If so, you for nonprofit status under state laws are eligible for tax-
may be ready to start a nonprofit. exempt status under federal tax law, however.

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Communicating your purpose, passion • the manner in which funds will be raised, and antici-
pated sources of funds
and plan for your nonprofit
• the way in which you want the organization to be
Perhaps more than in any other form of endeavor, the first step viewed by others
to starting a nonprofit organization is to paint your vision so
that others can see what you are seeking to accomplish and
understand why it matters. Why is this so important? Because
Finding the right partners for
you will be asking people to support your vision with no expec-
tation of financial return on their investment. your nonprofit message

Purpose. You will be asking people to contribute their time, As you begin to develop the vision for your nonprofit
talents and treasures to the pursuit of your purpose. You organization, you’ll need to consider who you want as
must paint for them a picture of the future you hope to build partners in your endeavor. Sharing your purpose and
(your vision) and the path by which you hope to get there passion with the right people will be crucial to making
(your mission). Their ‘return on investment’ is to see your progress toward your goals. So who do you want draw
organization passionately pursue its mission and progress into your plans? Who is your audience? You will need at
toward the fulfillment of its vision. least three types of partners: Directors, donors and doers.

Passion. You need to be contagious in your passion. To • Directors. The directors of a nonprofit are essential
reach a point of commitment to and participation in your partners in the success of the organization. Forming
mission, people must become nearly as passionate — a solid board of directors is one of the first steps in
excited, hopeful, concerned, outraged — as you are about developing a nonprofit. You want to draw a group
the focus of your mission. So you must share your passion that is like-minded in their support of your vision and
as well as your purpose. mission, who will commit their time to the organiza-
tion, and who bring a variety of talents to the board’s
Plan. Then, after sharing your purpose and your passion, oversight of the organization. They can help you clarify
it’s time to share your plan. People need to know you mean your mission statement, build the organization, find
business; that you’re not just an idealistic dreamer. You funding, and stay accountable to the plan.
need to show them the roadmap of the route you intend
• Donors. To get your new enterprise started on solid
to take to accomplish your goals. That roadmap is your
footing, you want to draw donors into your plan.
mission statement.
Funding is always a key to getting a new enterprise
The mission statement is the basic statement of what the orga- underway, and it is no different in the nonprofit sector.
nization intends to do and how it intends to do it. It doesn’t You will want to look for individuals with an interest
have to be a final product, yet, because you may want to in supporting you and/or your mission. Also, seek out
include the board of directors in completing and authorizing foundations that have authority to finance projects
the statement (as well as the final business plan for achieving such as yours. As you share your vision with people,
the mission). However, you will want to include such things as: you may find some who are potentially both director
and donor.
• the target community to be served by the organiza-
tion (its primary beneficiaries) • Doers. You will want to recruit others to help you carry
• the services and benefits to be provided to the target out the work of your organization, too. As you develop
community your plan, you may find a need not only for volun-
teers, but for paid staff. Like the search for directors,
• the basic approach the organization will use to provide
you need like-minded people when it comes to the
the services and benefits
mission, but people who are diverse in the talents they
• the values and character qualities that will guide the
bring to the table.
operation of the organization

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Establishing your nonprofit organization • Organize the organization. Start thinking in terms of
the various functions that will be performed in your
Once your vision has been painted clearly for others to see, nonprofit, and start organizing the organization into
and some partners have been drawn in by your passion for functional units. One option is to divide functions into
it, and you have developed a mission statement and action four areas: governance, administration, programs and
plan to serve as a roadmap for implementation, it is time to fundraising.
passionately pursue the purposes for which your organiza-
• Recruit and coordinate paid and volunteer staff. Find
tion is being created.
like-minded people with enthusiasm for the mission
Be businesslike in starting and running your organization. and with diverse skills essential to the organization.
Just because it’s a nonprofit doesn’t mean you shouldn’t
• Seek professional assistance. You may need some help
treat it like a business. Some of the same keys to success
getting started because of the unique legal and tax
are as relevant to the operation of a nonprofit as they are
characteristics of nonprofits. Wisdom dictates getting
to the operation of a commercial enterprise. Effective
advice and counsel from an attorney and tax accoun-
management, accountability techniques, internal controls
tant early in the process. With the right people on
and performance monitoring are useful tools for getting
your board of directors, you may have the expertise
the most out of finances and personnel, regardless of
on board already. Or if your staff will include an expe-
whether they are used in a commercial or a nonprofit enter-
rienced lawyer and tax specialist, then you can rely
prise. A nonprofit is no less dependent than a commercial
on them. But if not, you may want to consider getting
enterprise on steady streams of funding to keep operating
outside professional support right away. This will help
successfully, so fundraising must be taken seriously.
to ensure consistent compliance with the laws right
Several steps must be taken in the initial phase of starting- from the start. It also offers confidence that all the
up a nonprofit enterprise: appropriate tax exemptions will be pursued from state
and federal authorities.
• Choose wisely those who will lead. No step is more
important than the identification and recruitment of
a strong, committed board of directors with diverse
Selecting the board of directors
talents to contribute to the mission of the organization.
Developing the proper governance structure and getting
• Faithfully file organizational documents and tax
the right kind of representation on the board of directors
forms. Next, make sure you take all steps necessary to
is important for the long-term success of your nonprofit.
comply with laws regulating nonprofit and tax-exempt
organizations — file articles of incorporation or asso- You want to have people who are like-minded in their
ciation with state authorities; file for tax-exempt status enthusiasm for the organization and its mission. But you
with the IRS; file for other state tax exemptions, such also want people with diverse talents so that different
as sales and property tax, for which the organization directors may be able to oversee and guide different
may qualify; and register under any required state aspects of the organization’s operations. You want a
charitable solicitation laws that may apply. board that is big enough for diversity in talents, but not
so big that it is unwieldy and ineffective in governing.
• Let the fundraising begin. Put your fundraising
mechanisms in place and start the flow of funds so In particular, you want to have board members who have
that programming can get started. Get your board strengths where you have weaknesses. If you’re not big
of directors involved. Remember — no funds, no on fundraising, you want at least one board member with
programs! experience and enthusiasm for it. If you’re not up on the

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technical compliance requirements for nonprofits, you may State Registration for Tax Exemptions. If the mission of
want to recruit a board member with a high level of expertise your nonprofit is consistent with purposes that qualify for
in the area. Your passion is likely to be in the pursuit of the tax exemptions in your state, then you will want to file
mission more than in the management of an organization, applications with your state tax department for exemp-
so you will want someone with good management experi- tions from the state’s sales tax and property tax. In many
ence who can offer you sound advice. states, income tax exemption is automatic if you have
received tax-exempt status from the IRS. Also, some
And, last but not least, you will want to have people willing
states’ sales and property tax exemptions are contingent
to hold you accountable for carrying out the mission of
upon your having already earned tax-exempt status from
the organization. You’re not looking for ‘yes’ men and
the IRS. Thus, you will want to coordinate your filings with
women, but rather people who will truly help you achieve
federal and state tax authorities
your goals. And you want them to encourage course
corrections when they see progress getting off track. States vary a lot regarding the purposes which qualify for
tax exemption. Typically, there is no question regarding
the core charitable purposes, but there is more variation
with respect to purposes that stray from those that are
Filing organizational documents and purely for public benefit. Also, be aware that many states
tax registrations require a separate exemption request for each tax type,
so you may have to file both a sales tax and a property
As you get your board of directors in place, the next task
tax exemption application. These forms and instructions
is to make sure all filings on both the state and federal
for making application are almost always available on the
level are completed for nonprofit status, income tax-
state tax department’s website.
exempt status, property and sales tax-exempt status,
and status for lawful charitable fundraising. This regimen State Registration for Charitable Solicitation. Another
of filings and registrations goes well beyond the require- unique filing requirement for nonprofits that intend
ments placed upon typical business enterprises. to solicit charitable contributions is the registration for
charitable solicitation. Most states require an organi-
State Incorporation. The first step in setting-up a formal
zation to be registered, usually with the state attorney
nonprofit organization is to file articles of incorporation
general’s office, before actively pursuing public solicita-
or association with the appropriate state authorities. A
tion of donations. Only a handful of states do not require
nonprofit can generally operate in the form of a corpora-
special registration.
tion, an association or a limited liability company. Articles
of incorporation are typically filed with the secretary of Each state will have its own forms for registration. However,
state in the state where the organization will be located. there is also a Unified Registration Statement (URS) that
can be used for filing in a majority of states. The URS is
While this is essentially an administrative matter, you will
the product of the Multi-State Filer Project organized by
want to prepare the articles of incorporation carefully.
the National Association of State Charity Officials and the
Especially if you will seek tax-exempt status with the IRS,
National Association of Attorneys General. Use of this form
your articles and bylaws must show the necessary features
will simplify your filing requirements if you intend to solicit
to qualify for tax-exempt status — that no earnings will inure
charitable contributions in more than one state.
to the benefit of a private owner or individual and that the
stated purpose of the organization is a qualifying purpose. • Multi-State Filer Project
www.multistatefiling.org
You can file this paperwork yourself, or you can hire a
third-party to do it for you, such as a lawyer/accountant • National Association of State Charity Officials
or a service provider specializing in these filings. www.nasconet.org

• National Association of Attorneys General

www.naag.org

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Federal Application for Tax-Exempt Status. If you want • Donations. There are different strategies and different
your organization to operate with tax-exempt status, target audiences for fundraising efforts. Hopefully, the
and if you want the donors that give to your organization people that you choose for your board of directors
to be able to deduct the amount of their contributions will also want to be donors, or at least will be ready
from their taxable income, then you must file for tax- to search their networks of relationships for others
exempt status with the IRS. (By the way, don’t forget to who are potential donors. You will need to engage in
file for your Employer Identification number (EIN) while attention-getting activities to get the notice you need
you’re at it). Form 1023 must be filled out and sent in to raise donations.
to request the exemption from federal income tax. IRS
• Grants. In addition to charitable fundraising, you will
Publication 557 will give you the information you need to
want to search for like-minded organizations, founda-
fill-out the forms and properly file them. Form 1023 calls
tions or governmental entities that offer grants for the
for a substantial amount of information to be provided
types of services you intend to provide. If you have
about your organization, including your best estimates of
someone within the organization who has solid grant-
financial activity during your first few years of operation.
writing skills, he or she will be a major asset over the
If your organization will not be eligible for tax exemption long-term.
under 501(c)(3), then Package 1024 will have to be used • Dues. If yours is a membership organization, the
for the application process, instead. The biggest differ- pursuit of member dues will be a major fundraising
ence that results from not being eligible under 501(c)(3) focus. Key to this fundraising methodology is your
is that the donors can not take tax deductions for the ability to convince potential members that the value
amounts that they contribute. of their membership will far exceed the cost of their
dues. To make this argument, not only do you focus
on the benefits of pooling resources for the benefit of
all, but you can provide membership perks that add
Fundraising for your nonprofit organization value to the member without costing the organization.
The lifeblood of the nonprofit organization is its fundrais- Always look for ways to add value for the member
ing. No money, no programs! Therefore, it’s crucial to lay without adding cost to the organization, as a way of
the foundations for an effective fundraising operation maximizing dues collections.
early on. Even if you really want to devote yourself to the • Fees for Services. Another possible source of funds is
program functions of the organization, you need to disci- to charge fees for the services that you are providing,
pline yourself to focus adequate attention on fundraising. at least to a portion of the clientele you are attempt-
ing to serve. Charging for the services you provide
Key to fundraising is your ability to communicate your
does not impact your nonprofit or tax-exempt status
vision, share your passion, and present your plan in a way
when the proceeds are used to carry on the mission of
that motivates people to jump on the bandwagon and
the organization.
commit their resources to your project.

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Developing critical business functions Fundraising. Some would include the fundraising function
and operations as part of administration, but it really is a function all to
itself — a specialty unique to the nonprofit world. Perhaps
The business activities of a nonprofit generally can be fundraising itself is not unique, but the sales pitch is. In the
divided into four functional areas: Governance, administra- nonprofit arena, the “ask” is based not on showing contrib-
tion, programs, and fundraising. utors that a great ‘return on investment’ can be made, but
rather on showing contributors that they can participate in
Governance. The governance function of a nonprofit is
the successful achievement of the organization’s vision and
characterized by the responsibility to provide general
mission. Donors have to be sold on your vision and mission,
oversight, strategic direction, guidance and accountability
and on your ability to perform. Their ‘return on investment’
to the organization and its operations. The term ‘gover-
is to see good things being done with their money and, in
nance’ generally refers to the functions of the board of
some cases, to earn goodwill as a result.
directors, but it also relates very much to the relationship
and interaction between the board and the executive staff
of the organization. Effective governance depends to a
great extent on the working relationship between board Staffing your nonprofit organization
and top management.
With most nonprofits, the staff — both paid and volunteer
Administration. The administrative function serves to — represents their greatest asset. These are the ‘doers’ —
manage and control the resources available to the orga- the ones that will actually perform the administrative and
nization for all of its operations and programs. It is a programmatic services comprising the core activities of the
central support service for the rest of the organization. organization. They are the ones who will be the hands and
Administrative functions include budget, finance and feet of the organization as it implements its mission.
accounting, procurement, general services, personnel,
facilities management and other like functions. Some might As with your board of directors, you staff needs to be built
include fundraising or member services in this category, but upon people who are like-minded in their commitment
these activities are really distinct functions in and of them- to the mission, but people who are diverse in the talents
selves. There is almost always pressure in a nonprofit orga- they bring to the table. Nonprofits are often in a position of
nization to minimize administrative costs as a percentage having limited financial resources, and when that is the case,
of overall costs in order to show that resources are used for having a staff that can truly operate as a team is essential.
programs as much as possible.
Their compensation is partly based on the satisfaction of
Programs. The programs are the heart and soul of a serving and achieving the organization’s mission. If you don’t
nonprofit. They are the means by which the organization have the right team in place, that “satisfaction compensa-
pursues its mission. Resources are allocated to specific tion” is reduced for all involved. Then the nonprofit suffers
programs in order to accomplish the goals set for each in achieving its mission, and vicious cycle could occur.
program. It often helps to think of programs in terms of
In the for-profit world, monetary compensation can go a
inputs, process, outputs and outcomes. Inputs are the
long way toward smoothing over bad team dynamics. In
various resources needed to run the program (money,
the for-profit world, the challenge is greater. You want your
facilities, clients, program staff, etc.). The process is how the
team “invested” for reasons other than money.
program is carried out (clients are counseled, children are
cared for, art is created, association members are supported, As for your paid staff, you’ll have to follow all the usual rules
etc.). The outputs are the units of service (number of clients for having paid employees, just like every other business.
counseled, children cared for, artistic pieces produced,
or members in the association, etc.). Outcomes are the Compensating Yourself. While you consider the recruitment
impacts on the clients receiving services (increased mental and compensation of a governing board and a staff for the
health, safe and secure development, richer artistic appre- nonprofit organization, you should also give some thought
ciation and perspectives in life, increased effectiveness to your own compensation. As a founder and leader of the
among members, etc.). organization, how should you be compensated for your

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work? Having chosen the nonprofit path instead of the Fundraising and Grantwriting. Nonprofit management
commercial path, it seems that your entrepreneurial spirit must engage in fundraising in order to meet the fiscal
is satisfied more by successfully building an organization needs of their organization. Often, the leader of an orga-
and pursuing a worthwhile mission than by building your nization is focused most on the programs and opera-
own personal financial empire. But you still have to consider tional activities, and fundraising can be easily ignored.
your own financial needs and the worth of your services to But fundraising is essential, and nonprofit leadership
the organization. You need to be compensated fairly for must strike an appropriate balance between the time
your contribution to the mission of the organization. they devote to fundraising and program management.
Too little attention to one area can leave an organization
Compensation is a two-tiered question: How will you pay
bereft of cash or quality services.
yourself? And how much should you pay yourself? The
response to the first question is obviously more limited in Nonprofit Budgeting and Accounting. Nonprofits are
the nonprofit setting than in the commercial setting. Salary,
unique entities created with a service motive rather than
fringe benefits, insurance benefits and retirement benefits
a profit motive. As a result, most nonprofits enjoy special
are the basic methods of receiving compensation from a
tax-exempt status with the IRS. Their lifeline of support
nonprofit. Other options for receiving compensation that
comes through grants and other donations to sustain
may be available in a different form of business enterprise
their continuing operations. These unique aspects of
are not really feasible in the nonprofit setting.
the nonprofit world call for methods of budgeting and
As to the second question, criteria have developed over the accounting different from those used in the business
years for judging “reasonable compensation” in a business world. Proper record-keeping and reporting is critical to
setting. Many of the criteria are equally relevant in the donors that intend to deduct their contributions on their
nonprofit setting. They include: tax returns. Thus, finding staff with these special skills will
be important for the maintenance of adequate records
• the nature and size of the enterprise
and for keeping up with the special reporting require-
• the nature and scope of the work you do for the ments of the organization.
enterprise
Program Development and Evaluation. Nonprofits
• any special qualifications you may have
typically deliver ongoing services in the form of organiza-
• the availability of others to perform the same duties tional programs. Therefore, it’s important that nonprofit
• general economic conditions management understand the basic principles of program
development and evaluation.
• compensation compared to gross and net receipts of
the enterprise Public Policy. Nonprofits often are at the forefront of
• compensation relative to other employees of the public policy, and often champion new legislation in the
enterprise public interest. Nonprofit management must understand
the rules and regulations governing public services —
• your compensation history for past services
especially the services that constitute a part of their orga-
nization’s mission — and must track and speak out about
changes that affect the delivery of their services. Having
Seeking essential nonprofit skills a strong working knowledge of the government agencies
and how they produce rules, regulations and laws can be
As you startup your nonprofit, we’ve tried to make you
beneficial to the long-term financial viability of an orga-
aware of the skills uniquely essential in the nonprofit
nization, especially if it relies on government funding to
setting. But it is unlikely that you and your team will be
carry out its mission.
able to do it all and do it all well. You should seek to
increase your team’s skill-set over time, as well as finding
others you can enlist or hire. These are some of the areas
you will likely focus on:

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Special Considerations for Running & Growing Your Nonprofit Organization

Once you have successfully started your nonprofit orga- Sticking to your nonprofit mission
nization, the rules of the road don’t change a whole lot
when it comes to keeping it running and growing. Just Now that you are up and running, don’t stop the passion-
as communication was essential in the startup phase, it ate pursuit of your purpose. Stick to the mission that you
remains key for a smoothly running operation. Continue laid-out in the beginning, and continue to devote energy
to passionately pursue your mission, steadily making and enthusiasm to the tasks before you. Keep working
progress on purpose. the plan that you developed, making appropriate course
corrections where necessary, and use the resources of
Keep running the organization like a business. Carefully the organization to effectively deliver services to the
maintain compliance with all state and federal laws community the organization serves.
dealing with your organization, its fundraising activi-
ties, and its tax reporting obligations. Nurture relations It’s no different now than it was when you first started
with your donors, and carry-on a multi-faceted fundrais- your nonprofit. Just as communication was the key then
ing effort. If yours is a membership organization, keep to draw in your directors, donors and doers to get the
making it worth the member’s time and money to be a train started down the track, communication is still the
member. key to coordinate all of the functions of your organiza-
tion so that the train reaches its destination on time and
Also, now that you are up and running, you may be able under budget, with as few detours as possible.
to find some time for a little networking. Try to connect
with other nonprofits and with people from other like- Keep your vision out there in front of all the players as
minded organizations that may want to help support the much as you can. Continue to exhibit your passion for
efforts of your organization. And finally, check out some the mission. And at every opportunity communicate,
of the many resources out there that can help you to run clarify and correct the plan for delivering services to the
your organization more effectively. community that your organization serves. Make sure you
pass on success stories to your directors, donors and
• Sticking to Your Nonprofit Mission doers so that they can be encouraged by the positive
• Running Your Nonprofit Organization Like a Business effect their contributions are having.

• Complying with Nonprofit Laws While still staying true to your mission, be prepared to
evolve and change as circumstances do. New opportuni-
• Effective Fundraising Is the Key to Expansion
ties will likely present themselves, but use strong criteria
• Pursuing a Multi-Faceted Fundraising Plan to judge whether the new ideas really fit your nonprofits
true mission. You don’t want to damage your credibility
• Tapping Additional Information Resources
or nonprofit status.

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Running your nonprofit organization Gathering together the right group of people as leaders,
managers, administrators and front-line workers is essential
like a business
to the success of a nonprofit — again, just like a business.
A business enterprise is established to earn profits and to The staff — both paid and volunteer — represents a
distribute those profits to its owners (shareholders, partners, nonprofit’s greatest asset. These are the ‘doers,’ the hands
or members). A nonprofit organization, on the other hand, and feet of the organization, the ones that actually deliver
is established to perform a function or service that benefits the core services of the organization. The staff must consist
a broad community of people, without the commercial of individuals who are like-minded in their commitment to
mind-set of earning profits for its owners. However, to effec- the mission, but who are diverse in the talents they bring to
tively perform its service and successfully fulfill its mission, the table. And they must be treated with dignity.
a nonprofit organization is well-advised to organize and
In so many ways, the nonprofit organization must operate
operate like a business.
with the same seriousness, the same focus, and the same
A nonprofit must start with a clear mission statement and determination as a business enterprise. These represent
a business plan that supports it — just like any business. It just a few of the ways in which the nonprofit can benefit
must have strong, like-minded leadership on its board of from operating like a business.
directors supporting its mission. The organization must be
structured so that operations can be conducted efficiently
and with an ease of administration. Functions must be
Complying with nonprofit laws
clearly delegated to appropriate divisions or departments.
Those with responsibility for specific functions must be Once your nonprofit has been organized in accordance with
given adequate authority to carry them out, and must be the law, registered to conduct charitable solicitations, and
held accountable for successful completion. approved for tax-exempt status by the IRS and the state tax
authorities, don’t think that your compliance responsibilities
Some of the same keys to success are as relevant to the
have come to an end. In fact, they’ve only just begun.
operation of a nonprofit as they are to the operation of a
commercial enterprise. Effective management, account- Your organization likely will have at least annual reporting
ability techniques, internal controls and performance obligations with your state’s office of secretary of state,
monitoring are useful tools for getting the most out of the office of attorney general, and department of taxation, not
finances and the personnel, regardless of whether they are to mention annual reporting requirements with the IRS.
contributing to a commercial or a nonprofit enterprise.
Typically, a corporate entity is required to file an annual
A nonprofit organization that seeks to grow and prosper report with the secretary of state to update its corporate
must consciously pursue financial contributions, much like status. This is a simple process, but failure to file can lead to
a business corporation pursues invested capital. It is no an involuntary dissolution of the organization — a headache
less dependent (and in some ways, more dependent) than that is best avoided.
a commercial enterprise on steady streams of funding to
keep operating successfully, so fundraising must be taken In those states where registration is required for charitable
seriously. Just like a business marketing its product or solicitation, an annual filing is typically required to update
service, a nonprofit must market its mission in a way that the registration and to provide financial information to the
attracts investors to “buy in” and support its efforts. state authority, usually the state attorney general.

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On the tax front, tax-exempt organizations are annually Pursuing a multi-faceted fundraising plan
required to file Form 990, Form 990-EZ, or Form 990-N
with the IRS. Small tax-exempt organizations with annual In the same way that you looked at a variety of tools and
gross receipts of $25,000 or less may be required to elec- strategies when you began fundraising during the start-up
tronically submit Form 990-N, also known as the e-Postcard, phase of your organization, you can pursue a multi-faceted
unless they choose to file a complete Form 990 or Form approach to fundraising as you continue to run and grow
990-EZ. Form 990-N is the simplest and least comprehen- the organization. Many options for raising funds can be
sive form to file, while Form 990 is the most comprehensive considered.
and detailed of the reports.
• Donations. Obviously, basic solicitation of charitable
You can anticipate that there will be annual state tax contributions must continue as a routine source of
reporting requirements, too. Check with your state tax funding.
authorities for the particulars.
• Grants. You can continue to pursue more substan-
tial funding through grants from foundations or
other organizations to support one or more of your
programs.
Effective fundraising is key to expansion
• Discounts. ‘Expense lowering’ can often serve as
It’s simple, really — your nonprofit cannot expand its opera-
another form of fundraising. Seek providers of goods
tions without increasing the finances that are available to it.
and services for your organization that are willing to
A steady, ongoing, multi-faceted approach to raising funds
reduce their prices because they support your mission.
is the foundation upon which your nonprofit can grow and
deliver more programs to the community it serves. More • Dues. In a membership organization, you will always
funding means more programming. want to keep evaluating the value of membership,
and make sure that you can clearly explain why the
For the funding pipeline to keep steadily flowing, your orga- value of membership is greater than the price of dues.
nization’s relationships with its donors need to be continu- As with donors, you want to nurture the relationship
ally nurtured, and new relationships need to be routinely with members. The ‘expense lowering’ concept can
developed. be used to provide membership perks to those who
join. If a person can enjoy discounts on the goods
Effectively communicating success stories arising from
and services they need simply by joining the organi-
successful delivery of the organization’s services keeps
zation, this may be value enough to easily win their
donors and/or members committed to the ongoing
participation.
financial support of the organization. They must be kept
informed of the good work done with their financial contri- • Fees. If it is appropriate for your mission and for the
butions, if they are to continue financing the organization. community you serve, consider charging a fee for the
services that comprise your mission. Routinely evaluate
Additionally, make sure they are aware of the financial needs
the amount of the fee that may be appropriate.
of the organization as they arise, and let them know how
much more the organization could accomplish if only there • Business activity. You may want to consider other
was more funding. Finally, they need to know that you are money-making activities to support your mission. Be
grateful for their generosity, so institute a regular program alert, though, if you seek to make money through
of recognizing and thanking your financial supporters. business activities that are unrelated to the mission of
And, make sure they receive essential documentation for your organization. Even tax-exempt organizations can
tax purposes in a timely fashion, so that they can properly be taxed on unrelated business income.
deduct their contributions when tax time arrives.

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Tapping additional information resources Also, the governmental authorities responsible for regulat-
ing nonprofits and tax-exempt entities provide substantial
There are numerous information resources that can help amounts of information on their websites. The IRS and state
you run your nonprofit organization. Several web sites and tax department web sites can help you with tax-related
organizations specifically target the needs of the nonprofit questions. The web sites of the various secretary of state
community. Here are just a few that you may want to take offices offer helpful guidance not only on setting up organi-
advantage of: zations, but also on staying compliant with annual reporting
requirements. And state attorney general offices (and the
• National Council of Nonprofits
Multi-State Filing Project) typically provide the information
www.councilofnonprofits.org
needed for compliance with charitable solicitation laws.
• Foundation Center
Take advantage of these resources to help you run and
www.foundationcenter.org
grow your nonprofit more effectively.
• Alliance for Nonprofit Management
www.allianceonline.org

• Center for Nonprofit Management

www.cnmsocal.org

• American Society of Association Executives and the

Center for Association Leadership
www.asaecenter.org

• Idealist.org

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