This is the first in a two-part series of articles on starting a nonprofit organization. Look for part two in the next issue of Banking Business.

Starting a nonprofit organization is a meaningful and exciting endeavor, but it can be challenging to navigate the legal, structural and operational requirements involved. A nonprofit organization plays a vital role in addressing community needs and fostering positive change, and setting up one involves a structured approach to ensure long-term success.

Understanding Nonprofits

A nonprofit organization is a corporate entity established to serve a public benefit, without any private ownership or shareholders. Unlike for-profit businesses, nonprofits operate solely to advance their mission rather than generate income for founders or organizers. Many nonprofits pursue tax-exempt status with the IRS, allowing them to receive tax-deductible donations and avoid federal corporate income tax. There are various types of tax-exempt organizations, with the 501(c)(3) classification being one of the most common. To explore the requirements and benefits of different tax-exempt categories, refer to the IRS’s website (irs.gov).

This checklist will guide you through the essential steps, from defining your mission to securing funding and establishing effective operations. By following these guidelines, you’ll lay a solid foundation for your nonprofit to make a lasting impact.

1. Define your organization’s identity

Before diving into paperwork and logistics, clarify the purpose and identity of your nonprofit to establish a strong foundation for future outreach and strategic growth.

• Select a name that is memorable and reflects your mission. The U.S. Small Business Administration (SBA) website (sba.gov) provides advice about choosing and registering a business name. Avoid names that could be misleading or imply association with government agencies.

• Write a clear mission statement that explains what your nonprofit aims to accomplish, who it serves and why it matters. Craft a vision statement that outlines your organization’s future goals and long-term aspirations.

• Identify both the group your organization will serve and those who may support you (such as donors, partners or community stakeholders). Knowing your target audience is key for effective outreach, messaging and fundraising.

2. Conduct a needs assessment

Once you’ve clearly identified the community or group your nonprofit will serve, conduct a needs assessment. This will guide you in developing impactful, mission-driven programs that align with the specific needs of your community.

• Define your target audience by determining who will benefit directly from your nonprofit’s activities or services. Consider their shared needs, challenges and concerns.

• Identify key constituents—such as service recipients, beneficiaries, community supporters and other stakeholders—who will interact with or support your nonprofit’s mission.

• Specify your focus area. For example, your organization could assist disadvantaged youth; support low-income families; advocate for crime victims; or serve any other group in need of support, guidance or resources.

3. Build your board of directors

A skilled board of directors will help guide your mission, strategy and operations, strengthening your nonprofit’s governance, decision making and overall impact.

• Designate roles such as president, vice president, secretary and treasurer, and write clear job descriptions for each. Check out the National Council of Nonprofits website (councilofnonprofits.org) for more information about the roles and responsibilities of board members.

• Look for board members who are passionate about your mission and bring varied expertise, such as finance, marketing or legal knowledge. Board members will shape your organization’s vision, make critical decisions and represent your nonprofit in the community.

• Outline a formal process for electing board members in your bylaws. Look up your state on the National Council of Nonprofits website for more information about your state’s bylaws.

• Equip new board members with key resources such as your bylaws, organizational budget and meeting schedules. This helps board members feel prepared and engaged from the start.

• Depending on the structure of your nonprofit, elect officers from your board members. This team will work closely with you to build a strong foundation and guide the organization’s direction.

4. Establish your nonprofit team

Build a strong team to run your nonprofit, whether through paid staff, volunteers or a combination of both.

• Define specific roles for team members based on their skills and interests, ensuring everyone knows their responsibilities.

• Create an organizational chart to clarify the structure and hierarchy within your team.

• Develop a work plan to outline tasks and timelines to keep your team focused on priorities and deadlines.

• Utilize volunteer committees to involve individuals with special skills such as event planning, fundraising or outreach.

• Even if you’re starting solo, reach out to a few trusted individuals in your network who can lend their expertise or creative ideas to support your mission.

5. Create a budget

Creating a comprehensive budget allows your nonprofit to allocate resources effectively, ensuring stability and supporting long-term growth.

• Estimate operating costs by projecting both current and future expenses including salaries, rent, supplies, taxes, legal fees and maintenance.

• Account for unexpected costs by setting aside a contingency fund to address potential increases in expenses or unforeseen challenges.

• Seek professional input. Consult with accountants, business operations experts or legal advisors to help refine your budget and ensure it aligns with your nonprofit’s financial goals.