What Everyone Is Not Telling You About Starting A Nonprofit

One of thee most asked questions we get is "how do I start a nonprofit"?  Although there are literally hundreds of "how to" resources online in the form of blogs, checklist, training and even books, somehow the question never seems to go away.

This can only mean one thing.  Either the information is not very accurate or the passion filled visionary that's reading about it is still lost because.... well frankly it's just not clear enough.  We'll go with what's behind door number two. 

And we get it.  One thing that most people won't tell you is that a nonprofit is started in stages. Secondly, some of the information out there is only telling you how to form at the state level.  That's fine of course if you are a church (because churches get automatic exemption) or if you are not looking to get any major or minor funding beyond asking for general donations. But if you are planning on seeking funding, then your best bet is to also seek 501(c)3 tax exempt status.  For the record, nonprofit and tax exempt are two separate meanings and processes.  But you can read more about that here. 

The main portion that is most overlooked is that you are not starting a cause or a campaign, not even a project.  You are starting a BUSINESS!  So when you look at this from a business startup perspective, you realize that you are not just putting some paperwork together for a passion project, you are going through a legal process and forming a corporation.  This corporation is tasked with operating efficiently with a specific set of skills.  Those operation skills earn you the right to receive tax free donations to provide the funding fuel that your vision needs.  At it's most complete formation, you have to take your nonprofit corporation and then request tax-exempt status from the IRS.  We'll get into that in a moment.   So we are going to talk about the 3 phases of true nonprofit startup success.


The mistake we see most people make when starting a nonprofit is starting with the wrong thing.  The excitement and nostalgia of it all makes most take a detour onto "things that don't matter road", instead of staying on the straight and narrow path of "do what matters lane".  You don't need to get business cards printed, a website made, or flyers to host an event that you are not even legally structured to have.  All those things will come later on in stage 3, but for now, just know that they don't serve a purpose right now.  So here we go.

You Have To Start With Your Vision.

 You are going to first need to find out if what you want to do meets these 3 criteria.

  1. It's Needed-meaning it fills a gap of a specific problem in the community.  Now unless you are putting 7 figures into the nonprofit and starting it as a foundation to give away your money to other people, you will need to know whether or not the community you intend to operate in actually needs what you want to give.
  2. It's Feasible-meaning that this is not the exact duplicate that someone else is already doing that you could have actually just teamed up with them to do through volunteer work.  You will need to be able to gather a small army of like minded people to help you get started.  This will usually end up being your founding board.
  3. It's Fundable-meaning there are several donors, funders and grantors who are willing to fund your mission because it aligns with their's as well.  Nonprofits are all about partnership and collaboration.  Sometimes what you want to do should potentially be a for profit business, or maybe a project that you and a group of volunteers can get done without legal formation.  


This is correctly the 2nd stage and not the first, because now you will know how to proceed and how to fill out the organizing documents.  If you skip stage 1, you can find yourself getting very frustrated when you attempt to fill out the supporting documentation.  This is because you don't have the answers to the questions being asked.  This is what causes many people to turn what should take weeks into months, sometimes years and inevitably they give up and tuck the papers away in their desk drawer and tell themselves "I'm working on it".  Some will even say I am in the process of starting my nonprofit, and that's just code for saying I got stuck or lost along the way and now I don't know which direction I am going in.  So make sure you don't skip out on the research.

There are 3 important processes that happen during this phase:

  1. You form your nonprofit corporation.  This is the first step of the public process of getting your legal structure in place.
  2. Your EIN or Tax ID number.  This number becomes the main identifier of the nonprofit organization.  It's like the social security number you receive when you're born.  But just like your parents had to apply for you to receive your social security number, you also have to apply for a federal tax-id number for the organization.  Here is the link to apply directly.  This very critical 9 digit number becomes your calling card to funders, banks, donors and of course to the government.  Warning, do not apply for this number until after you have received your nonprofit corporation documents back.  This lessens the chances that you have the wrong name on the document or the wrong creative designation attached to the number.
  3. You File the form 1023 application with the IRS.  Now we know what you are thinking so we are going to answer the question now.  You want to know "is it okay to file the 1023 EZ form with the IRS."  Here is some background information about it.  On July 1, 2014, the IRS released it’s short and streamlined version of the Form 1023 of the application for tax exempt status.  It is a specific application for those nonprofits that are “small” and will operate on an annual operating budget of less than $50,000 per year (for the past or next 3 years), and have under $250,000 in assets.  There are some exceptions to the types of organizations that do not qualify to file this particular type of form, and churches is one of them.  You can read the full scope of qualifications here.  

    Here is our take on it, and in our professional opinion.  We do not encourage anyone to apply for tax-exempt status using the IRS Form 1023EZ application, and here is why:

    • It does not provide a sufficient foundational framework for a nonprofit business in our opinion.
    • We are committed to seeing churches and Faith organizations make a significant impact in their communities and in the world, without budget restrictions.
    • The shortened form can provide some challenges to receiving certain grant funds as through this application you must stipulate that you cannot maintain separate donor advised accounts, and this is how many grantors operate in general.


Ok now, here we are.  The most overlooked and missed stage in the entire process.  This is the part when you actually set up your nonprofit business.  The mistake we see sooooo many visionaries make here is that they get their nonprofit documentation and begin to immediately begin looking for ways to get grant funding.  So, let me ask you a question.  If you were going to a bank to get a loan for a new business venture, do you think that you would automatically qualify based on the fact that you have a business license?  I know, I can imagine you shaking your head side-to-side, and you are right.  Absolutely not.  Why?  Well because you haven't "sold anything yet", for starters.  You haven't had time to develop a business plan, have a few years or at least several months of bank statements, and you have no way of proving that you can survive without the loan, and finally, there are no takes even filed on the business yet to even know if the business social security number you got back in stage 2, has good credit or not.

Unfortunately people have the misconception that having a nonprofit automatically qualifies you for a grant.  Well, it doesn't, no more than having a job automatically qualifies you for a mortgage.  It's just not that simple.  The best thing you can do to breath life into this new legacy venture you created is take the time to set up your business structure.  We like to call this the back office and the front office.  You can read more about it here, but essentially this is the stage when you get your bank account and accounting up and running, set up your company files, get a website, and some business cards, set up your email and office line, and make an online social presence for yourself before you launch into the world and start asking donors for dollars.  That's right, your first dollars should come from individual donors, not grant funders.  But that's a whole other story and process that we will talk about later.

Sidebar, it is our desire to be an transparent and honest with you as possible when it comes to seeing your vision realized.  We know you have every good intention of helping others by what you create, we just don't want you to go all in unprepared because missteps will cause you to struggle and extended struggle causes failure.  We don't want that.

There you have it, the information about starting a nonprofit that most people are not telling you about.  Maybe it's because they have never actually set up and ran their own nonprofit, maybe they were only sharing what they thought was most important or easiest for you to know, or maybe it was because the other person they got the information from fell in the 1st or second category.  Well, I will tell you this speaking from experience on both sides of the spectrum, starting and running a nonprofit, and starting them and consulting others about how to succeed at it as well, we understand all the moving parts and what works, and what doesn't, that is what we ARE telling you.  

We have attached an ultimate nonprofit startup checklist which gives you all the steps spelled out, you can download it here.  We also invite you to join us for our upcoming Free nonprofit startup training webinar.  Get more information about that here.

Congratulations on your decision to start a nonprofit, we know you are going to do amazing things.  If you are ready to get the step by step you need to make it a reality like pronto...then click here to check out our amazing course Nonprofit Startup Formula. 

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