Jocelyn, 25, is an executive assistant in a St. Louis suburb and runs a small volunteer tutoring program at a local church on evenings and weekends (she’s not religious, but the church provides a meeting place and a steady stream of volunteers). In the wake of the election, she’s grown more worried about mounting economic inequality and the effects it will have on the low-income students she works with. She’d like to grow her program into a full-blown 501(c)(3) nonprofit; ultimately, she hopes to quit her job to run it full-time. However, she doesn’t even know where to start — the legal and accounting paperwork seems insurmountable, and the idea of raising money is daunting, to say the least. How can she proceed?
Nothing destroys idealism quite like paperwork. Brace yourself: Convincing the IRS that you should be exempt from taxes will involve a lot of dull, unsexy red tape. But don’t let that rain on your do-gooder parade. If this election has any upside, it will be this surge of grassroots mobilization in its scorched crater. For some people, this resolve won’t last, and complacency will gently reel them back to the sofa; for others (like you), it’ll be the start of great things. So, grab hold of that red tape and do a ribbon dance with it. This is your moment.
At the recommendation of several nonprofit founders who have successfully navigated the 501(c)(3) process, I’ve broken it down into the following steps. Best of luck, Jocelyn.
Step 1: Keep doing what you’re doing.
“It sounds obvious, but my No. 1 piece of advice is do the actual work,” said Jeannie Lang Rosenthal, who founded Let’s Get Ready, a nonprofit that prepares low-income high-school students for college, when she was a 19-year-old Harvard undergrad in 1998. (LGR has since served over 25,000 students with over 8,000 volunteer college coaches.) “If you want to hold drives for the homeless, find a church where you can make sandwiches. If you want to do financial literacy, start teaching. Be sure you want to commit to it long-term, because the paperwork will kill your enthusiasm if you don’t have a lot of momentum for your idea.”
What’s more, having something to show for yourself will get you much further when you ask people to help you. “People will be much more inspired to give if they see something tangible that they can participate in, and if they can see results,” said Jeannie.
Not to be a wet blanket, but charitable organizations can be a crowded market, particularly near urban areas, and it may be a more strategic use of your valuable time, energy, and resources to skip the 501(c)(3) hoopla altogether in favor of piggybacking on someone else. Check out your “competition” — other nearby nonprofits that are doing something similar (here’s a comprehensive database of nonprofits around the country) — and think about joining forces with them. This is also known as “fiscal sponsorship” (a redundant expression, I know), and you’re technically receiving it already from the church you mentioned, which is a great jumping-off point. If you want access to a broader demographic, you might want to look for additional partners moving forward.
Jessica Craft founded Rock to the Future, a Philadelphia-based nonprofit that brings music education to underprivileged kids, in 2010. She got a fiscal boost from a local organization called Women for Social Innovation before she started the 501(c)(3) process. “If I would change anything, it might be actually getting 501(c)(3) status in the first place,” she told me. “There are a lot of extra costs and responsibilities associated with being a 501(c)(3) versus being fiscally sponsored. I’m happy that we have 501(c)3 status at this point, because there are a lot of benefits now that Rock to the Future is in growth mode. But if you plan on staying small for a while, then using a fiscal sponsor might be a better route.”
According to Grantspace, a great online resource for nonprofits and charities of all stripes, fiscal sponsorship can also be your best chance at longevity: “Forming a new nonprofit might be the most complicated way to act on your passion to serve your community. The biggest challenge for most new nonprofits is to develop and maintain reliable income streams. Estimates vary, but most experts agree that less than half of nonprofit start-ups survive beyond five years. Of those that survive, perhaps one-third are in financial distress.” In other words, don’t jump the gun. You might be more effective if you keep your scope narrow.
3. If you’re still convinced, nail down your concept.
At its core, a successful nonprofit pinpoints a resource gap and a resource glut and finds a way to connect them. Jeannie is an almost-too-perfect example: At Harvard, she was among students who were, to put it mildly, very skilled at getting into college (the resource glut, in this equation), and there’s no shortage of low-income high-schoolers seeking guidance for higher education (the resource gap). “As freshmen, we had more knowledge about the college preparation process almost anyone else in the world, but as soon as we started school, that information became completely useless to us — although it was still very useful to a lot of other people,” she said. “If you have a surplus of something, find out who needs it, and then create the link.”
To build your case, research your immediate area and get hard numbers on the demographics. American Fact Finder, a website put together by the U.S. Census Bureau, has search functions that map out social characteristics (i.e., age, income, education level, etc.) by region or Zip Code. You might also want to check out the National Center for Education Statistics, which provides more detailed data about test scores, graduation rates, and other figures related to your organization’s goals.
4. Plan to spend some money, and then spend some more.
Nonprofit status doesn’t cost a fortune, but you can’t get it for a song, either: Applying for federal tax exemption can cost between $400 and $850 or more, in addition to state fees for incorporation. (Yes, you have to incorporate yourself, a process that differs state by state.) “For us, the incorporation fee and nonprofit filing fee came to a total of around $1,000,” said Jessica. Then there are the costs of maintaining your status, which requires filing a 990 tax form every year and occasionally paying for an audit or a review by a certified CPA (it’s true — you have to pay someone to make sure you’re compliant with the IRS’s 501(c)(3) regulations). “We hire an accountant who completes the 990 form and annual financial review for $2,000,” Jessica continued. “Next year, we’ll need to get an audit because our revenue will be over $300,000, and that will likely cost over $5,000.”
If you’re wondering why Jessica is so forthcoming about dollar amounts, it’s because she has to be: Once you start a nonprofit, the organization’s finances are open to public inspection — it’s part of your accountability to serve your mission. If you’re doing things right, that won’t be a huge deal, but it’s something to keep in mind.
5. Build your army.
Every nonprofit needs a board, and a good one — not just because it sounds official, but for legal reasons, too (it’s part of the check-and-balance structure that nonprofits are required to observe). This is not one of those situations where you just get your friends to pitch in — unless your friends are heavy hitters with fancy connections. Instead, stalk the most powerful people you know. Is your friend’s mom a school principal? Get in touch with her. Is one of your volunteers a partner at a law firm? Ask for a meeting.
“A lot of people starting nonprofits are long on passion and short on experience, because many of them are young,” said Jeannie. “When I started LGR, I had never even worked for an organization before, much less run one, so it felt like putting together a bicycle without directions while it was careening downhill.” She relied heavily on student networking events to find people qualified to help her, and also recommends reaching out to people in the start-up space. “Start-ups are in the unique position of having to build everything from the ground up, while being constrained in resources. Those are the people to talk to — don’t just stick to the nonprofit world.”
Your board members can also steer you through the finer points of getting your house in order. You’ll need to write a mission statement that clearly outlines your objective, the group it serves, and how it will do so. (Idealist.org has a handy guide.) You should then create a business plan that addresses how you’ll pay for everything. (Bridgespan.org provides sample templates, as well as further resources for drafting your own.)
Even if you’re a tireless superwoman who’s miraculously capable of doing all of this by yourself, don’t. “Entrepreneurship can be extremely lonely,” says Jeannie. “It can be very all-consuming. You’re breathing your work all the time.” A diverse and committed board will stave off isolation and balance out your skills and experience (or lack thereof).
6. Get someone to do the legal paperwork for free.
Unlike many of life’s most unpleasant tasks, there are actually lots of people — namely, corporate lawyers — who assist nonprofits with the aforementioned forms and red tape. “There’s a very strong ethos in the legal profession of pro-bono work, so most law firms will set up nonprofit status pro-bono if they believe in you,” said Jeannie. “It’s difficult for somebody to do on their own, but for a big law firm, this is a run-of-the-mill procedure.” Jessica took a slightly different route, with the same result: “When I searched online, I found University of Pennsylvania’s Entrepreneurship Legal Clinic, which pairs law students with for-profit or nonprofit projects, and submitted my application. Over the course of a semester, Jake — a law student — helped us prepare for our 501(c)(3), all pro-bono.”
The gist of what they’ll be doing for you is file an incredibly boring tax form called form 1023. The fine print is complex and beyond the scope of what I can explain here; do everyone a favor and find an attorney to go through it for you. From start to finish, the process can take from 3 to 12 months, depending on your organization and how many questions the IRS has about it.
7. Prepare to work really, really hard.
“Starting a nonprofit is a really big deal,” said Jeannie. “It’s not like a small business; you can’t just put a shingle up outside your door, and then take the shingle down and be done if you feel like it. The IRS makes it so that you are filing paperwork for a very long time, and there’s a lot of requirements that will stay with you for many years.”
However, it can also be the path to large-scale impact. A major perk of 501(c)(3) status is that you can raise money more easily. Donors are incentivized to give to you because they can deduct contributions from their taxes, which allows you to widen your funding, expand more quickly, and eventually take over the world.
Still, fundraising is a beast, and it will take time away from the actual one-on-one tutoring that you love to do — as will the pencil-pushing and random chores that come with leading an organization. You’ll be chief cook and bottle-washer, hustling between meetings and answering emails and kissing people’s butts. You’ll work around the clock. The paperwork will never end. This will be your life. And as long as you’re walking in with open eyes, it will be totally worth it.