Soapbox Engage Blog

Starting a nonprofit from scratch requires passion, purpose, hard work, creativity, resilience…and money. As with any organizational effort, financial planning is critical to the success of an organization.

One of the biggest questions that can be difficult to answer is, "how much money do I need to start a nonprofit?" The concise answer is, "it depends." There are a host of variables that will impact the answer to that question. Even if you don’t have the exact numbers, you can still have a sound financial plan and be prepared for the initial costs of starting a nonprofit.

We put together a guide to help you identify the standard costs associated with starting a nonprofit. Pre-planning will help you either find enough funding or save enough money to support the startup costs.

We’d like to go on record to say that we are not financial experts, nor are we legal experts. You should seek legal and financial counsel before making any decision.

Treat Your Nonprofit Like A Business

In reality, a nonprofit is a type of business, so a nonprofit should impose business-like standards on itself. Some nonprofits even incorporate before they apply for tax-exempt status. Even if some requirements are a little different, it’s essential to treat your nonprofit like a business venture.

Develop a nonprofit business plan

Every nonprofit needs a business plan. You need to know where the money is coming from and how your organization is spending it, right down to the penny.

Business plans are also helpful in fundraising. They are critical in attracting major donors, applying for grants, and persuading foundations to fund your work. Business plans also help you recruit board members and help keep your organization focused on the right goals.

Of course, your business plan will grow and change as your organization develops. Your plan might be elementary when you are first starting out. Here are some of the essential things to include in your nonprofit business plan:

• Executive Summary: Describe your mission statement and provide a list of your products, services, programs, and objectives. Outline your fundraising plan to demonstrate how you plan to finance your organization.
• Organizational Structure: Outline the structures in your organization, even if they don’t exist yet. Include growth plans and objectives.
• Programs and services: Describe the programs and services your organization offers and include unique features that distinguish you from similar organizations. Provide details about the benefits of your programs and services and how you plan to continue developing them going forward. Outline any services, programs, or products you might launch in the future. Detail how you plan to deliver those services.
• Marketing Plan: Nonprofits should focus on describing who you want to serve and how you plan to reach them. Provide details about different groups of people you intend to serve and the needs your organization will meet.
• Evaluation plan: Outline a clear way your organization will measure your impact. Most individual donors and foundations want to support organizations that can demonstrate that their efforts are making a difference. Outline how you plan to measure your impact.
• Financial plan: What are your income sources? What is your fundraising plan? What is your current and projected financial status?

As we said, your business plan should grow and evolve as your organization matures. Revisit it often and make frequent updates, so it’s always ready when you need it, and so you are continually assessing the organizational and financial health of your nonprofit.

Be frugal, not cheap, when investing in your organization

Healthy businesses invest in their own growth and development. Nonprofit organizations should do likewise.

Sure, nonprofits are working with much smaller budgets, but that just means you need to be more creative, innovative, and strategic with your investments. From the very beginning, make quality investments that will help you accomplish your nonprofit goals, promote your values, and make your organization sustainable for the long term.

There’s a big difference between being cheap and being frugal. Being cheap means you prioritize keeping costs to the absolute minimum. Being frugal means you look for ways to maximize value. Both businesses and nonprofits should value frugality, not being cheap, and be willing to make valuable investments.

One example of a valuable investment is a high-quality online donation page. Your organization won’t be able to fundraise efficiently or effectively without the ability to receive and process online donations. Some organizations try to put off launching a donation page or website because they are intimidated or believe they can do it later, but this stunts their financial growth.

Nonprofit Startup Costs

Every nonprofit is different and will have a wide range of startup costs. However, some costs are relatively universal when starting a nonprofit.

Incorporation costs

Every state has different regulations about how to incorporate, but you need to be an incorporated business before you can apply for charitable status. Every state has its own process, and some charge additional fees.

Many experts advise hiring an attorney to ensure you put your paperwork together correctly and help you with the initial incorporation process. While hiring a lawyer isn’t required, it’s always a good idea to start off on the right legal foot.

All in all, experts estimate that you’ll likely spend anywhere from $100 to $1,000 on incorporation costs.

Applying for tax exemptions

Typically, organizations have about 27 months from the time they incorporate to apply for tax-exempt status. The IRS has a host of information on its website about the process of applying for tax exemption. The cost of applying for tax exemption depends on several factors.

If you plan to raise less than $50,000 and you are a charitable organization, school, or church, your organization can probably file the 1023 EZ form online. The process usually takes less than 20 hours in total and costs about $275. The more complicated Form 1023 takes much longer to complete and usually has a fee of about $600.

Check the IRS website as the fees change regularly.

Insurance coverage

Almost all businesses and nonprofits need some kind of insurance. The type of insurance your organization needs and the costs vary widely depending on your structure and what programs, services, or goods you offer.

At a minimum, you’ll probably need general liability insurance, which can cost anywhere from a few hundred dollars to a few thousand dollars. Additionally, board of directors insurance can be important, too.

Find an insurance agent in your area who has experience working with nonprofits.

Domain name and website

Every nonprofit that plans to be around for more than a few weeks needs a website. A website is one of those places where you really don’t want to be "cheap." It’s where many people will interact with your organization for the first time. Your website should also be part of your fundraising plan.

Don’t fall for the temptation to get your teenage nephew or college-age neighbor to help you out. If you keep your requirements to a minimum and emphasize quality over quantity, you can have a good website designed for a very reasonable price.

It costs between $10 and $50 to register your website’s domain name, and a basic website costs about $10 to host (though many hosting plans are annual, so you may have to pay for the entire year upfront). It’s perfectly acceptable to use a simple website builder to build your initial landing page using a template. You can upgrade your site later, just make sure you own the domain name.

Before you start your nonprofit, take the time to map out all the expenses you think you’ll incur in the first year or two. Be as detailed as possible (don’t forget to budget for printing, paper, coffee pots for your office, and all the other things that add up quickly). Being realistic is the first step to making a plan.

As you create your budget, invest in areas that will maximize value. Don’t be afraid to spend money on things that will make your organization better and cut costs elsewhere. Resist the urge to be "cheap" in the fundraising, marketing, and website categories. These are areas that will make you money and help your organization grow. In short, spend as little as possible, but be smart about it.

Are you ready to take the next steps to start your nonprofit organization? Here are three more resources to help you take the next steps on your journey.

• Don’t Choose A Nonprofit CRM Without These 6 Features: One of the tools every new nonprofit should invest in as quickly as possible is a CRM system. A CRM system will help your nonprofit organize and keep track of your fundraising and networking efforts. This tool will help you choose the best CRM system that fits your unique needs.
• Surefire Ways To Improve Your Nonprofit Storytelling: The best communicators and fundraisers are almost always excellent storytellers. It’s worth spending the time and energy to improve your storytelling skills so you can communicate more effectively with volunteers, potential donors, supporters, and the people you serve.
• 5 Easy Ways To Maximize Your Fundraising On Facebook: Social media is a central part of our culture, and int’s transforming the way people network and fundraise. If done correctly, you can expand your support base and raise significant funds with Facebook.