Business Advice: 5 Tips For Starting A Charity

Business tips on how to start a charity or nonprofit.

Launching a new charity is a rewarding experience, both personally and undoubtedly for the sector the charity will be serving. As with any business venture, it can manifest itself into an overwhelming task without thorough investigation and planning. Consider these five steps for starting a charity:

1. Decide on the mission. If you've got a specific cause in mind, you're already halfway through Tip #1. If you've yet to discover the perfect mission for your investment, simply look to your interests and what resources are available to meet potential goals. In either case, seek out the competition; find out what they do, how they do it, and learn how it fills a particular community or global need.

While charities, also known as and referred to interchangeably as "˜non-profits, foundations, leagues, 501(c)3's, organizations, charitable corporations, etc.' are goal-driven entities working towards the betterment of communities and people, both locally and afar, having too many agencies providing the same or similar services in a tight geographic location may not actually be a wise business move, or it may be a service that is not necessarily in demand, leaving the charity to suffer in the long run.

Utilize the information you've gathered about the competition to your benefit by gauging the approximate services to be offered. Not only does knowing the competition assist in the completion of a good business plan, but also a plan built on a structurally sound foundation.

2. Filing requirements. All charities are corporations, thus leaving the entity subject to not only the possibility of local registration and business licensing requirements, but are also subject to state and federal filing statutes for the same intensive purposes.

Registrations and licensures may be required for things such as your charity's corporate identity (trade name) and business license. Depending on your locality and state, you may be required to have a general use/excise tax license, as well as any specialty insurance the charity may need, above and beyond the typically required insurance policy. If the charity will have employees, there is also a requirement and paperwork to be completed with the state level Unemployment Security Division.

The Internal Revenue Service provides a wealth of information and incidentally most of their publications and forms at their website. Simply point your web browser to your favorite search engine, entering a search for "Internal Revenue Service" to visit the IRS site. Don't forget to grab a FEIN (Federal Employer Identification Number) application form, as you gather their documents. Regardless of the number of employees, or the fact there may be no employees, every charity still needs this unique federal identifier, if only for the simple task of opening a bank account. The instructions for these forms are quite thorough; there are phone numbers available to reach an office that can answer any additional questions.

The most difficult aspect of the paperwork filing is synchronizing the local, state and federal submissions in the correct order; this will vary per state, and may be dependent of one before or after another, but again be sure to find out prior to submitting the final paperwork. This seemingly minor oversight can cause many unexpected delays in the process.

3. Board member selection. Get a jump start on the fine details by locating individuals deemed worthy, knowledgeable, experienced, and more importantly, interested in the mission and goals, to sit on your board. Board member number requirements vary per state, but the board can be comprised with a minimum of 1-3 individuals and upwards of 12-18 for the average size organization.

While even the smallest charity requires a board, a president, and typically a paid Executive Director, none of these positions and seats can be offered unwisely. Minimally, an attorney and a certified public accountant are ideal, leaving any open seats offered to valued members of the community who will take an active interest and facilitate resources (financially and otherwise) aiding the mission and ultimately contributing to the viability of the organization.

A word of warning: The one issue that avails itself time and time again to the detriment of a charity is board members whom are poorly selected. Unfortunately there are individuals who seek nothing more than the "˜status' their appointment affords, failing to become an active and integral player lending to the success of the operation.

4. Business Plan/Budget: Most charitable entrepreneurs start out wondering why they need a business plan by assuming a charity is not a business - the fact of the matter is that every charity is a business; a corporation to be exact. As with every corporation, a solid business plan is elemental in the success of nearly all business entities.

Establish your investment budget considering the following detail to develop a business plan:

- Startup costs (Down Payment, loan fees or deposits, installation, office furnishings, supplies, equipment (computers, telephones, fax machine, paper, ink, etc.), document preparation, i.e.: Articles of Incorporation, marketing collateral, identity design, trade or service mark fees.

- Professional and legal fees

- Mortgage payment or lease fees, renovation costs or deposits, recurring monthly charges

- Utility installation, one time and recurring monthly charges. (Telephone service, electric, natural gas, water and sewer, and Internet connectivity)

- Operating capital - monthly recurring charges, cost of goods and wages for personnel, and of course, taxes.

- Budgetary forecasts, including profit and loss evaluation.

Remember, the overall objective of the budget is to flesh out a thorough list of all the items required to establish and maintain the charity.

Additional articles of the business plan, outside of financial forecasts and should also include these often-overlooked items:

- A mission statement is vital; one of which exudes the goals of the operation, demographic of individuals the charity serves, and clearly defined outcomes.

- Establishment of base salaries and wages.

- Definition of job positions and duties.

- Measurable goals and outcomes for the first five years.

- Identify sources of potential funding, as well as fund-raising activities.

* This is not meant to be an all-inclusive list of what should be drafted into the plan. It is highly recommended to seek out the services of a professional consultant and tax advisor before drafting the final version.

5. The fifth and final tip can be summed up in one word, patience. Gather all the patience one can muster for the duration! Whether opting to go with an agent or firm for the initial setup, or preparing the documents yourself, expect the process to take one year on average to become a legitimate entity without undue delays. With these five tips, there will be plenty to consume that seemingly long period of time, providing a stable foundation from which to launch the charity, settling in to the true task of serving the community.

© High Speed Ventures 2011