Tuesday, March 18, 2014

Should You Start a Nonprofit Organization?

It's only mid March but already we have had about seven inquiries from people looking to start a nonprofit organization.   All great ideas.   All people who are passionate about their concept.   So what is our typical response?   We try to talk them out of it.

Why?  Because the cost to start up a nonprofit and to maintain it on an ongoing basis, can eat into the funds raised in the early years essentially curtailing a great concept before it can even get off the ground.

The initial costs to start a nonprofit include incorporation fees, assistance with the IRS form 1023 to apply for nonprofit status, the IRS filing fee, and the state filing fee.   These fees can range between $2,000 and $3,000.  

The ongoing fees at a minimum include director & officers liability insurance and the administrative costs related to fundraising and the required acknowledgments.  

Instead we encourage potential new nonprofits to consider two potential courses of action:
1-Is someone already doing something similar?  Can you partner with another organization?  Would your idea work as a program within an already existing nonprofit?
2-Consider a fiscal sponsorship arrangement.  In this arrangement, you operate under another nonprofit's formation but you are independent from a management standpoint.   The National Council of Nonprofits has a nice discussion on Fiscal Sponsorship here.

 A new client pursued the fiscal sponsorship arrangement and found a great fiscal sponsor.  Not only were they willing to set up the arrangement, they provided advice on the business plan and set up some valuable introductions for this new nonprofit.

Sometimes a nonprofit concept has already taken off.   Similar services are not available and the concept meets a great need in the community.  There is a strong volunteer base and donors want to provide funds.    In those cases, the organization has the foundation to move forward and is ready to apply for their own status.    We can help them apply for their IRS status.  For more information email us at cbergvall@bbco-cpa.com for our white paper-Basic Guide to Starting a Nonprofit in Pennsylvania.