There are many steps between the initial idea stage and an operating 501 (c) (3) organization and the process will usually span a period of a year or more.
After you come up with an idea for a service or a program that can best be developed on a not-for-profit basis, it is critical to find other individuals who share your vision for this idea. These individuals must be willing to share the work involved in getting your idea off the ground and serve as your starting board of directors.
It is also important that your board offer financial support, as the level of board support is a question that other funding sources will often ask. It is helpful if board members with specific skills can be recruited; e.g. an accountant and/or a lawyer as well as people experienced in the field of service you hope to provide.
Once your team is formed you should apply for a federal employer identification number (EIN) which becomes your nonprofit’s ID. This can be done online at http://www.irs.gov by filling out Form SS-4. There is no cost to file this single page form.
The next step, filing Form 1023, will take considerably more work. This is the form required to be recognized as exempt under Section 501 (c) (3) of the Internal Revenue Code. Form 1023 is a 26-page form required for all but the smallest nonprofits while the newly released Form 1023-EZ is a stream-lined version which you must file online. The fee to file Form 1023 is $400 or $850, depending on your size.
A SCORE mentor or your outside accountant can tell you the appropriate form which depends on the planned receipts and assets of the organization. These individuals can also help with completing the form accurately, which can help to expedite this often slow process.
Articles of incorporation and bylaws, which should be prepared by an attorney, are among the attachments required for Form 1023. Also required is a three-year budget. This may be the most difficult document to prepare, but it is also the most important one.
A common comment at this stage is, “How do I know what my expenses will be, much less my receipts?” Start by making your best projection of the costs of your project, using conservative estimates. Then figure out what resources are available to cover those costs. Are grants available from government or other sources? Can I charge fees for some services? Can I get pledges of contributions from individuals?
If the combination of all your expected resources is insufficient to cover projected expenses, you may have to reduce the scope of your planned operation or delay startup until additional resources are identified.
Registering with the state as a nonprofit organization is also required. You should apply for an exemption from sales tax on purchase, which will save some money on operating expenses. If you will have employees, additional registrations for payroll withholding and other taxes are also required.
After these challenges are met, you are now on your way to begin operating your nonprofit enterprise. Kitsap SCORE has mentors with non-profit experience who are available to assist you.
Do you have a question? If so, click find a mentor in the main menu.