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Introduction
Unfortunately, not every aspect of the world is equal, hence why there are class divisions in every single society, for example. But, vulnerability on Earth pierces much deeper than just the difference between the rich and the poor. There are people across the globe that are suffering and are in desperate need of a helping hand.
Whether it’s related to health, education, religion, finances, basic human necessities or war-torn communities, non-profit organizations create a link between those that are able to help and those in need of that help. Ultimately, if non-profits didn’t exist, humanity would be failing in its duty to protect the less fortunate.
Just simply having the idea to launch a non-profit is commendable, because it’s people like you that make a true difference. By not having a profit margin as your primary focus, you’re automatically putting your own situation aside, so you can help those that are wishing for light at the end of the tunnel.
Now, although making money isn’t your goal, you still need to be aware of how to build, launch and run a fully-fledged business. Without a certain degree of business acumen, you’ll struggle to sustain the operation of your non-profit. So, we’ve put together an awesome eBook that’ll guide you through every stage of the process.
With this as your resource, you’ll have all you need to glide through the procedure and launch a successful non-profit organization in no time at all. So, without further ado, let’s delve in.
What is a Non-Profit?
As the name suggests, a non-profit is an organization that isn’t concerned with how much money they’re making compared with how much they’re spending. In fact, the bulk of their work is to give, give, give. In society, the non-profit isn’t always the term that is attached to those types of organizations; some people naturally use charity, NPO or 501(c)(3).
But, you need to know much more than what the name implies if you want your venture to be successful. You see, when people decide to launch a non-profit, they automatically become exempt from any tax. As you’re probably aware, most non-profit organizations rely heavily on donations from the generous public, and those that make donations can deduct that from their own taxes.
But, that doesn’t mean non-profits aren’t monitored by the IRS, because they are. The organization must display their financial and operating information so that the public can clearly identify what their contributions are being used for. That’s because transparency is huge when people are giving their hard-earned cash away.
If someone donated $100 and the non-profit didn’t display their information, that money could be used for items unrelated to the charity without the contributor knowing. Another advantage that a non-profit has is that they pay absolutely zero income tax on all the donations they receive and all the money they generate through fundraising events. So, that means if you arrange a sponsored run which makes $10,000, and you also receive $10,000 in donations, you’d be able to keep the whole $20,000.
But, you must fall under certain niches to qualify as being a non-profit. If you intend to support religion, back science developments, enhance education, reinforce public safety or help those in need, you’ll be able to label yourself as a non-profit organization.
Basically, anything that benefits the public in some way or another will get the green light. Like any other business, a non-profit must be managed professionally if you’re looking for longevity. That means liaising with volunteers regularly, treating paid staff properly, and prioritizing the happiness of your “customers.” If it doesn’t run like a well-oiled machine, the success of the non-profit will be very limited.
You probably didn’t expect to hear that non-profits have paid staff, but they do. Those on salaries will face the same employment taxes and workplace rules as profitable businesses. Of course, salaries will typically be lower, but individuals in the upper echelons of the hierarchy do typically get compensated well.
How It’s Different from For-Profit
The biggest differentiator between non-profit and for-profit organizations is related to taxes. See, a non-profit starts its life as a for-profit corporation registered through the secretary of state’s office in the particular state where it will focus its operation. Once it’s all official, you then need to source an Employer Identification Number (EIN) from the IRS.
You can then use that EIN to submit an application to the IRS seeking exemption from any taxes. It’s a lengthy process to be approved, as the IRS needs to see proof that you’re operating as a non-profit and will also review your mission statement that discloses how you plan on serving the public. Once you’ve been approved, the corporation will then evolve into a non-profit, tax-exempt organization with a 501(c)(3) label.
For-profit businesses are the complete opposite. As they operate with the intention of maximizing their profit margin and making as much money as they can, they face the full wrath of federal and state taxes. If they fail
to abide by the taxes, they’ll receive fines and punishment from the IRS. Another difference between the two entities is how taxes are reported. Both are required to submit tax returns to the IRS each year, but the variance lies in the reason for filing them. For-profit organizations file quarterly tax returns to demonstrate how the company is performing and to showcase they’re paying their taxes on time. Whereas, a non-profit organization will file tax returns to prove to the IRS that the revenue they’re generating is being recycled to fund their mission, and not to add to long-term profit.
A third difference is that it’s a compulsory requirement for non-profit organizations to publicly disclose all of their financial and operational information. Plus, they must have information readily available so that they can provide it within 30 days of a written request. That’s so the donors, and the widespread public, feel reassured that they aren’t being cheated when they donate to your cause.
On the other hand, a for-profit corporation has two options; they can either become a public company that features on the stock exchange, or they can become a private company that keeps their information secret. In general, a privately-held company is managed by the founder or owner, and not a board of directors. A for-profit must follow the regulations set out by the Securities and Exchange Commission. A non-profit is automatically run by a board of directors.
Different Types of Non-Profits
Not all non-profit organizations are considered the same. The non-profit bracket is split up into different factions, and your organization’s faction is determined by what your mission is. So, as a general rule of thumb, there are four main categories – public charities, foundations, social advocacy organizations, and professional & trade organizations. We’re going to discuss each of them.
A public charity is essentially an organization that either provides free or extremely affordable services to help people who are vulnerable. It doesn’t matter what your motive is, if you’re actively and directly helping the less fortunate, you can be considered a public charity. The revenue needed is funded through the public, government, corporations, and foundations. Many schedule fundraising events to give people an extra reason to donate.
For instance, you could frequently create free workshops for the unemployed to acquire new skills. Alternatively, you could be a church that supports and provides for the local community. Some other examples of a public charity include libraries, hospitals, and museums.
Next, a foundation is an organization that sponsors fundraising events, community programs, and smaller non-profit entities. They sit just above public charities because they indirectly serve the public by backing other non-profits in their endeavors. There are literally hundreds of thousands of foundations across the globe, and they all have the same goal.
Now, foundations are split into three key areas – private, corporate and community. The private type deal with the distribution of vital funding to the vast array of public charities; the corporate type offers financial grants to non-profit organizations from large corporations; and, the community type handles funding for non-profits in a certain region. Moving on, social advocacy organizations are those that strive to make a difference on a certain topic. They function with the help of donations and members who are also fighting for the same cause. With the funding they receive or generate, they set up rallies, spread information and hold events to push for social change in alignment with their mission. A superb example is the National Organization for Women and Greenpeace.
Last, but by no means least, are the professional & trade organizations. This type of non-profit provides an abundance of support for people who are in the same line of work. Usually, people are required to pay a small fee to become a member to help the organization sustain itself, but they’ll then receive free or discounted training. The National Association of Realtors is just one example.
What to Consider Before You Start
It’s imperative that you don’t just rush into things and dive into a nonprofit venture head first. You need to assess the situation and figure out whether you have what it takes to build a successful organization that doesn’t rely on sales. Thousands of applications get sent into the IRS every year, but roughly 50% get declined.
That’s why it’s so crucial that you plan first. If you cover all bases and embark on your journey on the right path, you’ll be making a huge contribution to your society. There’s no denying that non-profit organizations are a necessity; governments simply cannot find an equal correlation between supply and demand. The responsibility also falls on successful non-profits to help those in dire circumstances.
To ensure that you’ve thought about the process thoroughly and have put a tick in all the non-negotiable boxes, we’ve put together 10 things that you must consider before you even get started.
