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One, Two, Three* Easy Steps to Start-Up a Nonprofit Upstart

My recent post, “Grant Writing from Recession to Recession: This is a Great Time to Start a New Nonprofit,” featured a phone call I received from a “Mrs. Smith” who inquired about using our services to fund her new nonprofit. A few days ago, we received this comment from another real world Mrs. Smith, in this case, one Rev. Loring Pasmore, who asked:

I’m a Mrs. Smith with my ducks in a row and no money to jump start my programs. How do I get started?

To the good Reverend and all the other Mrs. Smiths out there, here are the three action steps to start-up a nonprofit upstart:

Step 1: Resign yourself to the reality that, like for-profit start-ups, your nonprofit will need some working capital to get going between, say, $10,000 and $100,000, depending on the project and how frisky you are. Where does one find the initial capital? Since banks will not lend to an unproven nonprofit and there is no equivalent of the SBA in the nonprofit world, start-up capital is likely going to come from the following sources: a loan from the founder (this is the most common and easiest path), fund raisers (see Step 2 before you do this), and/or a loan from the nonprofit version of an “angel investor,” although he or she is not really an investor, since nonprofits obviously don’t generate profits. Typically this angel will be either someone with money who loves you and/or someone with money who loves your project idea.

Step 2: If you haven’t done so already, obtain a nonprofit corporation charter in your state and apply for a 501(c)3 Letter of Determination of tax exempt status from the IRS. This is the critical path, as the IRS can take a year or more to issue your letter and, until the letter is issued, donations are not federally tax-exempt. It’ll be a lot easier to find an angel and hold successful fundraisers if you have a Letter of Determination, rather than a story about how you plan to get one. This letter will also help separate you from flakey people who merely have an idea with no ability to execute said idea.

Step 3: While you’re waiting around for the 501(c)3 letter to appear, get the word out about your new organization, gather data, scrounge for low cost office space and castoff office equipment, and, unless you already know how to conduct grant source research and write proposals, find a grant writer. See Step 1, because few, if any, qualified grant writers will work free or on the come—there is no free grant writing lunch. Essentially, you need enough money to hire a grant writer to seek funds so that you can repay any initial loans and cover initial start-up and operating costs.

That’s it. Once again, the secret of most aspects of grant writing is that there are no secrets.

Good luck to Mrs. Smith, Rev. Pasmore and everyone else who is trying to do something positive in these tough times. I noted Friday that the official US unemployment jumped to 9.8% in November; there is an ongoing need for spirited people to start new nonprofits to help their communities.

* One of my favorite forgotten movies is Billy Wilder’s impeccable One, Two, Three, or Eins, Zwei, Drei, auf Deutsch. Stoic and bewildered Horst Buchholz of Magnificent Seven-fame is hilarious playing opposite the always impressive James Cagney. Check it out for a Cold War blast.