Four Mistakes to Avoid when Starting your Nonprofit
Ask any founder, and they will tell you that starting a nonprofit organization is hard work. However, the nonprofit sector is essential to society. Nonprofits provide services that uplift vulnerable persons and meet unmet needs; their worth is priceless.
For a more in-depth play-by-play of the steps necessary for starting your nonprofit, check out our blog series from last summer, How to Start a Nonprofit. Plenty of very well-meaning entrepreneurs have an idea and a passion but need help starting in the nonprofit sector. Here are four tips for avoiding pitfalls and creating sustainable organizations.
Don’t Depend too Heavily on Grant Funding.
Time and time again, I receive calls from nonprofit founders looking for grant writing help. Nine times out of ten, my advice is that they aren’t ready for grant writing. The truth is that many funders want to see at least one year of operations under your belt before they will consider funding your efforts. Too many organizations believe that grant writing is a magic wand that will provide all the funding for your work.
Grant writing should be an essential part of your overall fundraising plan, but it is only one part. Make sure to start your nonprofit with a fundraising plan heavily focused on individual donations. Build a broad base of individual donors by sharing your exciting new mission far and wide, and you will set yourself up for success. If you still want to brush up on your grant writing skills, check out my book, Grant Writing: The Complete Workbook for Writing Proposals that Win, or schedule a class here.
2. Don’t Fail to File.
A nonprofit organization is a business that has been granted tax-exempt status by the Internal Revenue Service (IRS) because it furthers a social cause and provides a public benefit. To accept donations, you must receive tax-exempt status from the IRS.
If you fail to file, you run the risk of acquiring large fines or penalties. Filing isn’t as scary as it may sound. You need a board of directors, articles of incorporation, and to fill out the IRS Form 1023. If that sounds too overwhelming, you can contact Spark Group, and we will walk you through the process, or you can find an organization to act as your fiscal sponsor.
3. Don’t Go it Alone.
The more people that you bring along for your nonprofit start-up journey, the better. Don’t try to start a nonprofit on your own. At the very least, you need board members. Each state has a minimum number of individuals that need to sit on your board. However, in addition to your board, you want to recruit volunteers, local collaborative partners, and donors. More people means more help, funds, and excitement. So, prepare your elevator pitch and start talking up your new idea to everyone you meet.
4. Don’t Commingle Funds.
Your new organization needs its own bank account! As soon as you have your determination letter from the IRS, you want to gather all the necessary documentation and head to the bank. Typically banks require your EIN number, IRS determination letter, bylaws, and board minutes approving the individuals authorized to set up the account. It is best to set up a time when all the new signers will be available to go together to the bank because you often need to have original signatures from each authorized individual.
Do not solicit donations and deposit them into your personal account. It is a recipe for disaster. Start your organization off right by taking contributions straight to the bank and establishing a separate account.
Setting up a nonprofit organization takes careful planning and a lot of support, but it doesn’t have to be scary. Avoid these four mistakes, and you are headed in the right direction! If you have further questions about starting a nonprofit organization, Spark Group is here to help. Contact us today for a free consultation.
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