No matter the motivation for starting a nonprofit, creating a foundation is a highly intricate process. You’ll need to understand the organization’s fundraising sources and how that impacts its standing with the Internal Revenue Service, among other things.
eHow spoke with Jason Marsden, executive director of the Matthew Shepard Foundation, about researching similar foundations, the IRS documentation process and targeting potential donations.
Getting Started
Carefully research who is out there doing the work right now. Are there existing organizations that deal with that issue or similar issues? Is there a niche that hasn’t been filled? Are there specific types of work or angles on that work that aren’t being done? And if there is, there is so much administrative and fundraising work that goes into the care and feeding of a nonprofit organization that if you don’t actually have to start one you shouldn’t.
It gets very complicated in the details: trying to make sure you abide by all the IRS regulations, obey all the laws, that you registered at the state and local level, [and] that you're up to date on all your paperwork to the state — the secretary of state.
Where to Turn
Find an attorney who has expertise in corporate startup work and [with] the IRS and the nonprofit code to help write a [Form] 1023 because that is a lengthy and complicated document that requires you to estimate what the first several years of your operation are going to look like. It requires you to state what your nonprofit mission is and you go through a long process with the IRS as they review it.
You'll need people who have expertise in fundraising and in grassroots organizing and in program delivery, [who] have expertise in public relations and working with the media, administrative expertise. You'll need a full set of people who can step in there into leadership roles and serve on your board … and of course do the charitable work.
Outreach and Recruit
Affiliate with another nonprofit organization in the community. Maybe it’s one that has a similar mission; maybe it’s one that is a community foundation for that specific local area; maybe it’s a university or some other entity that has tax-exempt status that does community outreach work. That’s called a fiscal sponsorship arrangement … and they would take some level of responsibility for your project, your accounting and funds management. And that process might go on for several months or a year.
Recruit your initial board of directors, possibly even before you file your 1023. A board of directors is crucial throughout the entire lifecycle of the organization. "Include people from a lot of different disciplines: the business world, the nonprofit world. They will be your main supporters and cheerleaders," Marsden says. You'll want to be writing your strategic plan -- there are a lot of people who provide consulting in this area ... and you’ll want to begin that process, possibly before you file for your tax-exempt status.
Start outreach to the community you're trying to serve and talking to the media to try and generate public support for your work.
Defining Success
It’s always better if you can have measurable, numeric outcomes that you're trying to achieve, and a way of tracking, as you go, how many of those you are accomplishing so you can know that by six months or by the time you file your year-end report [that] you’ve nailed those down flat.
Constant evaluation and communication: asking yourself the tough questions. If you have the strength and discipline to make yourself do that as you go, you’ll waste less effort and have a vastly higher rate of success at the end.
Talking Points: Money
Where will the organization get its money. If you’re going to have a sort of homegrown or grassroots organization and the money is not all coming from one rich family or one very motivated donor who is going to put almost all of the money into it, then you generally set it up as a 501(c)(3), classify it as a public charity and make sure the money you raise comes from a broad range of various sources. That secures your ability to have a tax exemption -- to be judged by the IRS as a tax-exempt organization -- so that donors can give money and receive the full tax deduction for charitable donations, which is very important to many donors.
Pitfalls of Single Sourcing
If you don’t meet that public support test, the IRS will classify you as a private foundation or another category, which may not receive the full benefit of deductibility for your donors.
The Lure of Deduction
Especially in this economy, it’s tough to convince people to just hand you money. One of the few things in the tax code that actually helps charities make a case for donors to give money to them, in addition to the work they do (hopefully the donor feels it’s important work and work they want to support), is the ability to include it when they file their taxes.
Talking Points: Fundraising
The No. 1 source of fundraising for almost everything is individual contributions, usually in modest amounts. "And donors give money to things they care about, that are effective, that have an impact and that communicate well," Marsden says.
Telling Your Story
Aside from advertising and marketing visibility, and good media coverage, the best way is to do your work well and have a big impact, because then your local newspaper is going to notice.
Also, be tough on yourself. Look at yourself like a stranger … like someone asked you to donate $500 to it and ask yourself, “Do these people deserve my $500? Let me look at how they run themselves: what they do and what they’ve accomplished.” If you can convince yourself as if you were a stranger, that you would give money to the organization … then other people are probably going to feel the same way about it.
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