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chapter, we pose some questions that you should think about (and answer) before you begin the process of incorporating and applying for tax exemption. If some of your answers point to the conclusion that your idea is worth pursuing but that you want to test the idea first, we suggest you consider using a fiscal sponsor. As we point out later in this chapter, the benefits of fiscal sponsorship are many.

      

When we use the term nonprofit in this book, we’re referring to organizations that have been recognized by the IRS as exempt under section 501(c)(3) of the IRS Tax Code and described as public charities. Later in this chapter, we describe some of the other kinds of nonprofits to point out the distinct attributes of these 501(c)(3) public charities.

      

Check out File 2-1 at www.dummies.com/go/nonprofitkitfd5e for a list of web resources related to the topics we cover in this chapter.

      Weighing the Pros and Cons of Starting a Nonprofit

      Before you jump headfirst into making your nonprofit dream a reality, you need to understand some basic facts about nonprofit organizations. We begin with some of the pros:

      ❯❯ You’ll receive exemption from taxes on most income to the nonprofit.

      ❯❯ For most nonprofits formed under section 501(c)(3) of the IRS Tax Code, you’ll have the ability to receive contributions that are deductible for the donor.

      ❯❯ You’ll have the opportunity to receive grants from foundations and corporations.

      ❯❯ You’ll get the feeling that you’re contributing to the solution of a problem or to the improvement of society.

      Just about everyone would consider these facts to be positive, but they aren’t the whole story. If you’re thinking of starting a nonprofit to get rich or to avoid paying taxes, consider the following list of cons:

      ❯❯ Nonprofit employees’ salaries are subject to income tax like all other types of compensation and the organization must pay employment taxes.

      ❯❯ You’ll be required to file an annual report with the Internal Revenue Service (IRS). The complexity of the report increases as your nonprofit income increases. (See Chapter 5 for more information about reporting requirements.)

      ❯❯ You can’t start a nonprofit organization to benefit a particular individual or family member.

      ❯❯ Competition for grants from foundations, corporations, and government agencies is tough, and so is getting donations from individuals. You’ll be up against more-established nonprofits with successful track records.

      ❯❯ If you decide to move on to other pursuits down the road, you can’t take any assets accumulated by the organization you’ve built with you. Others will need to continue running the nonprofit or it will need to be dissolved.

      

The bottom line is this: Think carefully about your motivation for launching a nonprofit organization. Remember that nonprofit organizations are given special privileges because they’re formed to benefit the public, not specific individuals.

      Doing Your Homework First

      Beyond thinking about the challenges you’ll face in starting and running a nonprofit organization, you also need to apply some common sense. Nonprofits don’t operate in a vacuum, and neither should you. Personal commitment and inspiration can take your organization far, but you also need to find out how your community will receive your particular idea. So before going full steam ahead, investigate your competition, get community support, decide how to fund your organization, determine whether you’re really ready to run a nonprofit, and develop a game plan. Read on to find out how to get your nonprofit off to a great start.

       Assessing the competition

      Just as if you were starting a business, you should examine your competition before starting your nonprofit organization. If you wanted to open a grocery store, you wouldn’t choose a location next to a successful supermarket, because the market can bear only so much trade. This principle holds true for nonprofits, too. You may have the best idea in the world, but if someone else in your community is already doing it well, don’t try to duplicate it.

      On the other hand, if your area doesn’t have a similar program, ask yourself why. Maybe your community doesn’t have enough potential clients or audience members to support the project. Or maybe funders don’t perceive the same needs in the community as you do.

      

Assessing the needs of your area is a good way to evaluate the potential market for your nonprofit’s services. You may want to use some or all of the following methods to determine your community’s needs:

      ❯❯ Online surveys or written questionnaires to a random sample of residents in your community

      ❯❯ Interviews with local foundation and civic officials

      ❯❯ Focus groups with people who are likely to benefit from the organization

      For more details on assessing your community’s needs, see Chapter 7.

       Finding people to help you

      Your chances of success increase if you begin with support from others, and the more help you have, the better. Sure, you can probably find an example of a single-minded visionary who battles alone through all sorts of adversity to establish a thriving nonprofit, but starting and running a nonprofit organization is essentially a group activity.

      When starting a nonprofit, you need to find people who will serve on the board of directors and support your efforts with donations of money and volunteer time. The first people you usually identify as supporters are family and friends. How can they turn you down? In the long run, however, you need to expand your supporters to others who believe in the organization’s mission (and not because you personally created it).

      

Some people hesitate to share their idea with others because they believe someone may steal it. We think this fear is largely unfounded. No matter what your idea is, you’ll be better off if you invite others to join you in making it a reality.

      To find people to help you and support your organization, take every opportunity to speak about your idea before civic groups, religious groups, and service clubs. You can pass out fliers or set up a booth at a volunteer fair. Set up a Facebook page and invite your contacts to spread the word. Talk to your friends and coworkers. Put on your salesperson’s cap and convince the community that it needs your program.

      

If you’re having a difficult time drumming up support, it may be a sign that you need to refine your idea or that others view it as impractical. You may need to go back to the drawing board.

       Figuring out how you’ll pay the bills

      Funding your nonprofit organization is a big issue. Even if you begin as a volunteer-run organization and work from a home office, you still need funds for letterhead, a website, supplies, equipment, postage, and insurance. You also have to pay filing fees for your incorporation and tax-exemption applications. Many nonprofit startups are funded by the founder in the beginning. Are you able to pay all the startup expenses before revenues start flowing to your new nonprofit?

      Putting together a budget can help you decide whether the startup expenses are manageable for you. You’ll be creating lots of budgets sooner or later, so you may as well get an early start. Flip to Chapter 11 for details on budgeting and other financial issues.

      If you can’t fund the operation by yourself in the early

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