Should You Start a Nonprofit?

Somebody close to you has said you should start a nonprofit. They said it as a compliment, because you saw a need that other people walked past, and because you are the sort of person who does something about it.

They are right about the need. The part worth slowing down on is the vehicle.

Does the organization need to exist?

This is the first question, and it is uncomfortable because the honest answer is sometimes no. Not because the work is unnecessary, but because a new legal entity is not the only way to do it.

• Somebody may already be doing it. Search your county, not the internet generally. If an organization within thirty miles runs something close, a conversation with them may get the work started this quarter rather than next year.
• You could run it inside an existing organization. Many will host a new program if someone brings the energy and some of the money. You skip formation entirely and inherit their infrastructure.
• Fiscal sponsorship exists for exactly this. A sponsor lets you receive tax-deductible gifts under their status while you test whether the thing works. It is the closest thing to a trial run, and it is badly underused.
• It might not be a nonprofit at all. If the work can sustain itself on what people pay for it, a different structure may serve you better and leaves you in control.

None of these are consolation prizes. Each gets help to people faster than incorporation does, and each leaves you free to form an organization later if the work proves itself.

What the status actually is

A nonprofit is not a kind of business. It is a tax status attached to a corporation, and the trade behind it is specific: favorable treatment in exchange for accountability to the public.

Two consequences of that follow immediately, and they surprise most founders.

• You will not own it. There are no shares and no owner. The organization belongs, in effect, to its purpose, and the board holds it in trust.
• The board can remove you. A properly constituted board hires and can dismiss the executive, including the founder. That is not a flaw in the design. It is the design.

The obligations do not stop

Formation is a project with an end date. Compliance is a permanent condition, and it is where new organizations most often come unstuck, usually quietly.

An annual federal return. State registration, renewed. Charitable solicitation registration in every state where you ask for money, which includes a public donate button. Payroll filings once you have staff. Minutes for every board meeting. Conflict-of-interest disclosures, collected annually rather than signed once.

None of it is difficult. All of it is recurring, and it needs an owner and a calendar rather than a founder's memory. That is why a start-up engagement treats compliance as a system rather than a stack of paperwork.

What has to exist before you accept a dollar

New organizations fail for structural reasons far more often than for lack of commitment. The structures are unglamorous and they are all cheaper to build before money arrives than after.

• A real board. Not three friends who agreed over coffee. People who understand they are accountable, with defined roles and terms.
• Bylaws somebody has read. Adopted deliberately rather than downloaded and signed, because they govern every contested decision you will ever have.
• Separation of duties. The person who writes the checks should not be the person who reconciles the account. With two people this is awkward. It is still necessary.
• A chart of accounts built for how you will report. Retrofitting this after the first grant is painful and entirely avoidable.
• A conflict-of-interest policy. Small organizations have more conflicts, not fewer, because everyone knows everyone.

The founder-dependency trap

In the first two years the founder does everything, and that is reasonable. The trap is that it becomes the operating model. Every decision routes through one person, nothing is documented because it is all in their head, and funders begin to notice that the organization is a person.

It shows up in diligence as a risk, and it is the thing most likely to end the organization, because it has no answer to illness, burnout or a better job offer.

The protection is to write things down earlier than feels necessary and to give the board real work from the beginning, rather than recruiting people to approve what has already been decided.

If you are still in

Plenty of people read all of that and remain certain, and they are often right. The work matters and somebody has to do it. If that is you, the order matters more than the speed.

1. Write down what the organization is for, in one paragraph, and what it will not do.
2. Recruit the board before you incorporate. Who is willing to be accountable for this?
3. Form the corporation in your state, then apply for federal exemption.
4. Build the financial infrastructure before the first donation arrives.
5. Register to solicit in your state before you ask anyone for money.
6. Only then start fundraising, with a clear view of what you are ready for.

Most founders do this roughly in reverse, starting with a logo and a fundraiser. It is not fatal, but it means building the foundation underneath an organization that is already running, which costs more and is considerably less pleasant.

The question underneath the question

When someone asks me whether they should start a nonprofit, the useful answer is rarely yes or no. It is a different question: what is the fastest way to get this help to the people who need it, and is a new organization genuinely that way?

Sometimes it plainly is, and then the job is to build it properly rather than enthusiastically. Sometimes it is not, and finding that out in a conversation costs you an afternoon instead of three years. Either outcome is a good one, which is why the conversation is worth having before the paperwork rather than after.