How to Turn Your Nonprofit Idea Into a Reality

Every other week, the Resilia team and community get together for Ask Us Anything - an open, informal conversation where our community members can do just that - ask us anything - about  their nonprofit needs. Last week we had another great session with our community and nonprofit formation experts Amanda Kemp, Jesse Hill, and Megan Walther  about How to Turn Your Nonprofit Idea Into a Reality. The Resilia community brought great questions, and our team of experts shared so much valuable insight and advice. 

From all the steps you need to form your 501(c)(3), to recruiting board members, we’ve got the top takeaways from Ask Us Anything: How to Turn Your Nonprofit Idea Into a Reality.

I have an idea, but I don’t know where I should start. 

If you are starting from the very beginning, one of the best places to get the ball rolling is to solidify those basic details first. Your organization’s name, mission statement, and your initial board members. Your name - think of that creatively, and think of a few different variations in case one of them is taken. The mission statement is going to be a short paragraph summarizing what your organization is doing, why you exist, who you serve, and how you’re serving them. Come up with a list of potential board members.

Key Takeaways from Ask Us Anything:

What about my board?

One of the most important things about being a 501(c)(3) nonprofit, is your board. As a tax-exempt organization, your board is your keeper. They are the ones who are looking to make sure that all of those funds that you are collecting are being used for the correct purposes, that you’re following guidelines, and that you’re being a responsible organization. To get started, you generally need three board members. And you as a founder can be one of those first board members. 

This is a really great time for you as an organization to find two people who are really interested in your cause, who want to see it succeed, who care about the work that you’re going to be doing. Ask them to step up and get involved. One of the great things about working with Resilia is that we have access to all kinds of resources to support that board education. So, if you have somebody who’s not really sure what to do, or you’re not sure what a board does, we’re able to break all that down step by step so you have a really great outline. And one of the things that’s great about Resilia’s platform is that all of your board members can be a part of it and you’re able to invite them to have access to all of those resources.

What is 501(c)(3) status?

Section 501(c)(3) is the portion of the U.S. internal revenue code that allows for Federal tax exemption of nonprofit organizations. Qualifying for 501c3 status means that your organization serves a general, charitable purpose of some kind. So while it’s not technically necessary to have 501(c)(3) status to start a nonprofit organization, having that 501(c)(3) status is going to unlock all of the major benefits that come with being a nonprofit organization.

What are the benefits of having 501(c)(3) status?

Some of the benefits that come with having a 501(c)(3) status means donations to your organization will be tax deductible, which is always a great incentive for potential donors. In addition to that, most foundation or federal grants will require that your organization be 501(c)(3) tax-exempt in order to apply for grants.

There are also additional financial benefits. For instance, you can receive tax-exempt financing, be exempt from federal income and federal unemployment tax, and have access to reduced postal rates. Those are just some of the benefits. Gaining that 501(c)(3) tax exempt status will really allow your organization to take full advantage of being a nonprofit.

How long does it take to acquire 501(c)(3) status?

There’s two different answers here. For smaller nonprofits, looking to raise $50,000 or less in their first year, that will qualify you for a 1023 EZ, which is a streamlined version of that IRS application we’ve been talking about. That process you’re looking at 2-4 weeks to incorporate at the state level, which is the first step, a couple of days to get your EIN number - which is like a social security number for your business - and about 3 months to get IRS approval. So right now you’re looking at a timeline for a small EZ organization of about 3 - 4 months.

If you are looking to form a bigger, more complex organization - like a church or a school - there’s the full 1023 application, and because you’re a bigger organization with larger parts, the IRS needs a little more information. The process for incorporating in the state is still about 2- 4 weeks, but the application process for us to work on it with you takes about 2 weeks and then you’re looking at a 5-8 month processing time. 

This is a great time to build the foundation for your nonprofit, and you’re also able to fundraise during this time. Even though you’re still waiting, the IRS back dates your determination letter to the date of application and you’re able to acknowledge any donations you receive as tax deductible as soon as you are approved by the IRS. This wait time is actually a really great time to get up and running and start figuring all of those pieces of your nonprofit. Resilia has a whole toolkit you can use to fundraise during that time.

How much money should I set aside for nonprofit formation?

This will depend on the level of support that you want and which tax-exempt application Resilia will do for you. So for instance if you know you’ll qualify for a 1023 EZ, the streamlined application for nonprofits starting small, then we have a basic plan that’s $699 plus the IRS filing fee roughly $275 for that, so you’re looking at about $975.

Now let’s say you are a nonprofit that has big plans. You know for a fact you’re going to raise over $50,000 in those first couple of years. Then you’re definitely going to need the 1023 long form. That is the longer application for tax exemption. That has an IRS fee of $600, so you’re looking at roughly $1600 if you want to do Resilia’s Growth plan. Our Impact  plan is an option as well. Once you get your tax exemption, you can hold that indefinitely as long as you’re a nonprofit. There is no recurring IRS filing fee that you’ll have to pay, as long as you are keeping up with your compliance. 

What are best practices for getting the word out about a new program?

The biggest thing about building a nonprofit is building your network. Find similar places that your participants or stakeholders might be involved in. Get to know the people that you are trying to serve, and understand what they’re looking at and where they’re going. If you’re looking at a kids program, Facebook might be the way to go, or a flyer in the community center.

It’s not just about saying here’s X,Y, and Z and what we’re doing. It’s telling your story and making sure people understand the purpose behind that program. If you can explain to people the roots of where you’re coming from, and who you are trying to serve, and what this program will accomplish, it’s just a magnetic sort of energy. So get out there, talk. Have your board members tell your story. Think of your board members as an extension of your nonprofit. 

Make sure you’re always sharing and telling the story of the work you are doing, the programs you are running, and the why behind it. 

What if I want to do a name change?

You have two options. If you are 100% sure that you want to change a name, it’s usually just a form that’s filed with the state that comes with a small fee. Once that’s approved, you’ll do the same thing at the federal level with your 501(c)(3).

There’s also the option of doing a DBA - Doing Business As. If you want to keep your original name, but you decide that you want to do something more simple, or say it’s something you want on the header of your papers, or it’s something you go by, you can do that. It’s a similar fee. If you don’t need an actual name change, but you want to add a name, you can do a DBA.

How do I ask someone to be on my board and what should I present them with?

Find people who are really aligned with your mission, and understand what are the requirements of the board. Then, lay that out for them, what the time commitment is, and what you expect of them. These are people who you want to help shape your organization and help you with fundraising, and getting the word out. It’s also important that your board is a reflection of the communities you are serving and has an understanding of those communities.

When is the ideal time to open bank accounts? When do I file my first tax form?

You can open your bank account when you get your EIN. That will allow you to have separate financials for your nonprofit. It’s ideal to get it after your incorporation because then it will be associated with your nonprofit and will make it a lot easier for other board members to access that account, and make the transition easier when you have board members leave. As far as filing your first Form 990, that is something that you will do annually at the end of your fiscal year. 

What happens if I start small and you get big unexpectedly? For example If I think I’m going to be under $50K and year two all of a sudden, I get a donation of $100K.

Once you get your 501(c)(3), it’s yours. In the course of business, you will change and grow, and that’s okay. You will not have to go back and sign a different form if all of the sudden you’ve had a successful year of donations. What will change is the forms you may have to fill out at the end of the year: for example, the type of Form 990 you may file will shift depending on your gross receipts. 

Can a board member be a family member?

Board members can be family, but we recommend that they are not the majority of your board. It can be a potential red flag with the IRS, and it may put your application at risk of being rejected. 

What do I need to do before having my 501(c)(3) status?

When you’re starting a nonprofit, you should have a plan. You should have an idea about what you want to do program wise, and for fundraising. If you qualify for the 1023 EZ, that does not have to be submitted with your application for the IRS. You have a little more time, you have a lower budget, you can flush that out.

If you are a larger organization or expect to be, and you have to file the full 1023, you do have to have at least a good idea of your budget, even if it’s a simplified version. What do you think you will be able to raise? What do you think will be some of your main, key expenses? That will be a part of your application. Again, that doesn’t lock you into that though. There is an understanding at both the state and federal level that organizations are fluid, and that’s why you have those times annually to check in and make updates. 

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