By Jonathan Barona
2020 has been an interesting year, to say the least. With so much happening in our world we regularly hear from individuals exploring new ways to support the community and help those in need. This conversation will often start with a desire to create a new organization to tackle a specific problem they are passionate about.
Whether your passion is health care access, support for the arts, social justice, or any one of hundreds of other worthy causes, it’s critical that you explore all of the pros and cons of forming a new nonprofit. We suggest reviewing the questions below before starting a nonprofit or social impact project:
1. What problem are trying to solve?
You have a great idea about how to make a difference in the world, but maybe you don’t have actionable plan yet. Identifying a tangible issue that you are trying to solve will help you determine your mission and ensure your solution is strategic and targeted. Consider the following questions to establish your goals:
- What value will this organization bring?
- Who is the target audience?
- Do you have the skills, capacity and financial ability to start a nonprofit?
It’s also important to research whether there are any existing organizations already serving the mission you intend to fulfill. There are thousands of nonprofits in Central Texas. Starting a new nonprofit may not be the right solution, especially if you have to compete for scarce resources with like-minded organizations.
2. Do you want to be a funder or a program provider?
At the community foundation, we work with many eager individuals who want to address a community issue by utilizing their financial resources and robust network. Because they are entrepreneurial by nature, their first thought is to create a new organization. However, we often encourage exploring alternative options, such as a donor advised fund or field of interest fund. These funding mechanisms can help solve social issues by providing financial support to existing programmatic experts. Establishing a grantmaking fund allows you to work with existing organizations to help shape the programming available to the community.
3. Should you start a nonprofit or for profit?
It’s important to determine whether you truly want to start a charity, or whether what you’re envisioning would be better structured as a for-profit business. The rules and tax advantages are different, and so is the way the enterprise is funded. Recently many state legislators have started recognizing social impact businesses. For example, in 2017 Texas authorized the creation of Public Benefit Corporations, a domestic for-profit corporation that is intended to produce a public benefit and to operate in a responsible and sustainable manner.
4. What is your organizational structure?
Starting a new charity requires setting up a legal entity as well as the required accounting and organizational systems. Unlike a for-profit business, to qualify as a tax-exempt nonprofit, you need to secure 501(c)(3) status by filing a 1023 or 1023ez application with the IRS. This exemption is what allows the organization to be free from paying income tax, and it also allows people to donate to the organization and be eligible for a tax deduction on their own tax returns.
5. Are you ready to fundraise and promote your cause?
We also work with community members who want to start a charity because they are passionate about a cause and are programmatic experts, but don’t have the fundraising or business/management expertise. Whether you start a for-profit or nonprofit project, you will need to promote your cause in order to raise awareness and fundraise. Luckily, there are many consultants, advisers and incubators out there to help you launch a social impact project. The key is not to go it alone and ask for help when needed.
Answering these questions up front will help you determine the best path forward before starting down a long and potentially expensive road. If you are exploring a new social impact project, consider contacting us to discuss the best approach for your idea.