Kevin Gilhooly

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The Big Three

May 13, 2021

Three Concepts Required For all Nonprofits

Forming a tax-exempt nonprofit organization is a long process in clock time - it can be tedious, but it is not difficult. However, the foremost requirement for starting a nonprofit is knowing what you are going to do - and knowing specifically enough that you can determine what you will do and approximately how much it will cost. 

I have three items that are required before you begin any of the paperwork. They are conceptual, but key to the formation and operation of your organization. 

The Vision

Your vision is how you want the world to be - what you are trying to achieve in the long term. This can be theoretical - you may not believe you can achieve it alone. So, a vision might be "All school children have books" or "All dogs have homes." 

Theoretical does not mean vague. "I want to help people" is not a good vision. It does not define what problem you are trying to solve. Be  more specific. If you cannot clearly define what problem you are trying to solve (even if other people may not think it is a problem), then don't start the paperwork. 

You will need a mission statement for all of your paperwork. Many of the services will do your paperwork for you and just put that you will do stuff that is considered tax exempt. That is not very specific. 

The vision is a positive statement because your nonprofit is doing good deeds. So, instead of "People are starving", the vision is "No more hunger.

The Mission

Your mission is what you will do to help achieve the vision - it is the action your organization will take to move forward. This is not theory, this is action. So, a mission might be "We distribute books to third graders in the Dallas Independent School District" or "We operate a no-kill shelter for abandoned dogs." 

The mission is often a local version of the vision. So, the vision is global ("all dogs") and the mission is local ('abandoned dogs in the Dallas Metroplex.") The mission may also filter the vision - for example, "all dogs have homes" is your vision, and your mission is to rescue pit bulls. 

Your nonprofit will implement programs to help achieve the mission. Very small nonprofits - or ones with a very focused mission - may only have one. (I was on the board of a community radio station. We had a $750K budget, but we ran a radio station.) So, a local pet shelter would probably have adoptions, spay/neuter clinics, and pet owner education or school programs. 

The Business Plan

The business plan is how you will pay for it all. There are templates available for creating a business plan which are designed for a for-profit, but the concepts are all the same. We can help you develop your business plan.

You need to make an honest estimate of your costs (start-up and ongoing) and an honest estimate of your income (grants, donations and fees.) If they total to less than zero, that is an issue. Nonprofit does not mean "don't need money." If you don't know how much everything is going to cost, do that first. You may be surprised. You may be horrified. (If you can't do anything before you have a 12,000 square foot facility, and you are trying to start cheap, it's not going to work.)  

Don't assume there is money available before your 501(c)(3) is in hand (donations and grants generally require tax exemption.) The IRS Form 1023 (the 501(c)(3) long form) says you can call if you haven't heard anything 180 days after you file. So, it is not instantaneous. Even Form 1023-EZ (the short form) has a 30-day limit before you can check on status. So, the first six months are probably for planning and not for doing, unless you have very simple (cheap to implement) programs. 

If you have expensive programs (running a home for refugees, operating a food truck for the poor), think about what you can do first to start small because that will give you experience, help get you noticed in the neighborhood and help build a reputation. If can't do anything before you have a really expensive physical location, you can't just sit around waiting for the money to arrive, because the first thing most grant applications will ask is "What have you done lately?"

Don't assume grants will pay for everything. (I'm not saying there aren't grants for startup costs, I'm just saying it's not the norm.) Don't assume you will start with grants, as some require you have a track record (some defined successes.) Some grants require that you have filed a Form 1023 and not the Form 1023-EZ.

You will also need the business plan (and a line-item budget for the project) as a precursor to most grants. Grantors don't want to hear "we need ten grand." They want to know what you will do - specifically - with the money they are granting. They want to know how long you need the money, and how you will measure success. While there are some grants for general funds, most are program-based. "I need money to file my 501(c)(3)" is not a program.

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