5 Critical Questions to Consider before Forming a Nonprofit Organization

A family member recently told me she wanted to start a nonprofit organization.

I have that same conversation with a lot of people who come into my office, telling me about their ideas. In fact, hardly a week goes by without someone asking, "How do I start a nonprofit organization?"

Many of the well-intended people who ask this question lack a thorough understanding of the complexities and regulations involved in starting a nonprofit organization.

In this article, I offer five important questions to consider before forming a new nonprofit organization:

1. Are you sure a need exists?

From your perspective, the need may be real and urgent. But do others in the community share your view? Can it be proven beyond just your opinion? Is there truly an unmet need?

In order to garner support from individuals, business, and other organizations, it will be necessary to gather credible data. Talk to experts in the community and research available information/studies on the topic. Find out what local leaders and nonprofit groups have to say.

You don't have to be an expert, but you should take time to become well versed on the issue before you start an organization. After all, as the founder of an organization you should have a clear understanding of the issue and its many facets so you can explain it with clarity to potential supporters and donors.

In addition to understanding the need, it is important to determine if your organization has the expertise to address it. Does the work you are proposing provide a solution to those in need? Do you have the ability and resources to fix the problem or improve the situation?

2. Is another local group already addressing the need?

This may be one of the most important considerations in starting a new nonprofit organization.

Too often, people want to start an organization to do something that is already being done.

If such a group does exist—even if they don't do the job quite like you would—resist the urge to launch a competing organization. Instead, consider how you might collaborate, putting your passion and energy to work into their cause, rather than on creating a new nonprofit organization.

Having multiple nonprofit organizations in a community with similar missions and doing nearly the same thing creates many dilemmas:

? Donors who care about the cause are forced to choose which organization to support and can become disillusioned at the duplication of services.

? Those who need the services of the organization have to figure out which group does what and which one best meets their needs.

? Other local nonprofit organizations may lose support. With limited grant money and corporate sponsorships, adding one more organization to the list cuts into the precious few resources.

3. Do you understand the legal requirements?

The federal government, as well as each state, has its own requirements for starting a nonprofit. Here are the common steps:

a. File articles of incorporation with the Secretary of State.

b. Apply for exempt status with the Internal Revenue Service (IRS).

c. Apply for a federal employer identification number. Regardless of whether or not you have employees, nonprofits are required to obtain a federal Employer Identification Number (EIN) which is also referred to as the federal ID number.

As a registered 501(c)(3), the organization must not be operated for someone’s private benefit, must not support or oppose a political party or candidates for office or have as the mission of the organization the achievement of something only possible by the passage of legislation.

Once registered, you most likely will be required to file annual reports known as form 990. Failing to complete these can cause you to lose your tax-exempt status.

4. Can you sustain the organization?

Going from nothing to a strong, sustainable organization is no small task.

Start-up money from friends and family often helps nonprofits get started. But beyond the initial costs, it takes a lot of money to sustain an organization. Typical expenses, such as salaries, facilities, supplies, insurance and program services, add up quickly. Funding can be unpredictable, sporadic or—in worst cases—a dry well.

About five years ago, a lady in our community started an organization to work in the area of child abuse. She spoke with passion to members of the public and was able to acquire funding and in-kind donations for the work. But within 18 months, she had lost her focus and abandoned the idea.

Those who had made donations to her organization felt betrayed by the failure. Her board members, volunteers, and community leaders who had pledged their support were disheartened that the work ended so abruptly.

It is better never to start a nonprofit organization than to start one and fail within a couple years. Failure has broad implications for those who need the services as well as for donors who invested in the work. The end result is bad for all, including other nonprofit organizations that may be viewed negatively due to the mismanagement of one.

5. Do you have a plan?

Quite simply, passion is not enough.

While you may feel passionate about helping people in need and making the world a better place to live, you cannot succeed without proper planning.

Starting a nonprofit organization requires just as much planning as launching a for-profit business enterprise.

You'll need to determine who will do the work, how they will be paid, where the work will be done and who will serve on the board. You'll need to set up a budget and identify funding sources.

Last, but not least, you'll need to determine what success looks like and how you will measure it to know if you are reaching your goals.

Truth is, most of the people who ask me if they should start a new nonprofit are told, "No, please don't do it." But if you can answer these questions positively, and if you do give each one careful consideration, you may be able to develop a strong and effective nonprofit organization.