Poor Initial Research
While passion for your cause may be strong, research is essential before
determining if a need exists for a new organization to address it. Can the
need be addressed if you partner with an existing organization? Do you
have any idea of the operational aspects of a nonprofit organization?
Would the organization qualify for tax-exempt status? Read everything you
can before starting.
No Business Plan
You will quickly discover that a nonprofit organization is a business. In
order to survive, it must have at least as much money coming in to the
business as it has going out in services and expenses. Have you written a
realistic business plan?
Not for a Charitable Purpose
Sure it's a great idea, but does in qualify as a charitable cause? The
basic definition of a tax-exempt 501(c)(3) nonprofit organization is one
that serves the public good and is organized for religious, charitable,
educational, scientific or literary purposes. If you are unsure, research
similar organizations for information.
Failure to Register
Registration of nonprofits is required in most states. Some people think
they donít have to register and since they are "nonprofit" they really
wonít get in any trouble. Wrong! I spoke with the head of a state charity
bureau who used to be a prosecutor and he looks forward to being one again
any time it is necessary to protect the interests of the people.
Registration protects citizens of states from becoming victims of fraud
and registration of charities, paid solicitors and fundraising counsels
helps to maintain a responsible environment for charitable work.
Failure to Keep Good Records
As a business, the organization will be required to file various reports
of business activity. You just canít make things up thinking that you
wonít be held responsible. (see Failure to Register) If you are not
organized, learn to be before starting a nonprofit.
No Funding Plan
Raising money is a tough and competitive requirement of most nonprofit
organizations. If your experience with raising funds was through attending
a dinner, golf outing, bake sale or car wash, you need help with
fundraising. Without funding, there is no way to sustain a nonprofit
Not Complying with IRS Statutes
Yes you must file a federal tax return and yes you do need to learn what
the federal government requires of nonprofit organizations. You receive
great tax breaks by being a 501(c)(3) nonprofit and complying with
reporting is a fair deal considering the benefits you receive. To help
you, the IRS has a Web site dedicated to exempt organizations Ė
Misjudging Time Requirements
Running a nonprofit is not a hobby. If you think that you can run a
nonprofit organization part-time, you need to have others helping you or
you will fail. When you consider that it is a business and is subject to
filing and reporting requirements in addition to service work, you quickly
realize it requires a full-time commitment.
Not Building an Effective Board
Leadership is critical and an effective board is one that is composed of
talented, dedicated and working people. Your board should add integrity to
your work, offer access to funding, provide some of the expertise you need
and be dedicated to your mission.
Not Investing in Professional Talent
At a minimum, you will need a lawyer and an accountant to help you get
started. They donít need to be on staff and instead can be retained only
as needed. The same is true for fundraising counsel. There are a few
critical areas that will make or break an organization and you will be
better able to survive by paying a professional well only for the time you
need rather than paying an inexperienced worker to muddle through. Having
certain systems set-up by experienced professionals will save money in the