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7 Question You Should Have the Answers to Prior to Creating a Nonprofit


Having an opportunity to start a nonprofit could seem like an opportunity of a lifetime. This is especially true when you will be able to provide a service to the community that you love.

However, you may also feel terrified as you make your way into unchartered territory. This feeling is normal and you are not the first to feel this way. When it comes to nonprofit organizations, there are many regulations set in place. Being classified as “nonprofit” is defined by tax laws as being any entity that provides a not-for-profit public service.

If creating a nonprofit still sounds good, then you need to be aware of seven questions you need to have the answers to before you start.

1. Will a nonprofit class be involved?

Knowing how to start a nonprofit class is a vital step. You need to know what you will be representing. A good example of a class includes specific wildlife that may be endangered but will receive a benefit from the organization. If your goal is to provide a service to only one individual or catastrophe (such as a pandemic), the IRS will not recognize you as being eligible for nonprofit status. However, the IRS will recognize your organization as a nonprofit if it offers a benefit to all who may be affected by the catastrophe.

2. Is a program included in your nonprofit?

In order to provide a service, you need to know how that service will be provided. This means you must be able to determine the exact way that your assistance will be provided. Not only that, but the program must be set up in a way that permits your objective to be met.

3. Are you able to obligate yourself to the required reporting?

This question is another big one that you need to have answered before your nonprofit becomes operational. Being able to fully implement a nonprofit will also need you to obligate yourself to the required reporting involved. The required reporting of the nonprofit involves a mix of forms that the IRS requires, either on a quarterly basis, yearly basis, or however the IRS dictates for the organization. Filing the required forms within the designated timeframes is also required in order for your tax exemption status to remain in effect. Regardless of the type of nonprofit organization you create, you will be required to file a Form 990 on a yearly basis.

4. Are you able to financially support your nonprofit?

Although it is not going to be easy to fund your nonprofit, it is still possible once you know where to turn. Some of the methods that nonprofits find funding is by funding it themselves, obtaining a grant, or through donating. The method seen the most often for providing funds is donations.

The origins of your donations can be from either an in-kind or cash. With cash, it is normally a certain amount of money received instantly from the donator. With in-kind, it refers to donations that equal cash amounts.

5. Is a budget available?

Having a budget will allow the nonprofit to manage their finances more responsibly. Also, knowing what resources go where is an important part of budgeting. Keep in mind that many nonprofits also obtain assets through donations. When you have a budget, it will be able to help determine if the true nature of the nonprofit will be private or public. To be able to properly assess your nonprofit, you must be able to provide four years’ worth of budgets to the IRS.

6. Do you have a long-term plan for funding?

Having a long-term plan for funding will help your nonprofit remain sustainable. This sustainability is often seen through profits or fundraisers that are made. The funds that are acquired are known as margins and if a nonprofit has no margins, remaining sustainable will be impossible.

7. Have you assigned board members?

Having a fully functional nonprofit also means having board members. The board members are normally less than ten and are comprised of individuals who are not associated with each other.

Sean Jacobson

I'm Sean, a former HR and business consultant providing you insights into the business world for Leader to Leader.

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