Setting Realistic Expectations about Nonprofit Startup Funding
Every day, we work with clients who are in various stages of starting a nonprofit organization. We have watched many succeed and have helped with many problems along the way. In our years of work with nonprofits, we’ve also seen many nonprofits struggle and seen some fail.
One of the root causes of the struggles and failures is unrealistic expectations when it comes to timelines and funding. Over time, founders who began with the best of intentions may realize that the nonprofit is not sustainable in the way they thought.
Our goal is to help nonprofits create long-term success, which includes ensuring that startups have realistic expectations around funding timelines and the day-to-day realities of starting and running a nonprofit. These four areas can help with setting realistic expectations about nonprofit startup funding.
Know the startup costs required
Startup costs go beyond the fees for filing the proper paperwork to become a nonprofit. When planning the first stages of creating your organization, consider all the costs involved. Beyond the filing fees, there are accompanying legal fees and the cost to establish your mission, bylaws, and other governing documents. As a brand new organization, you will need support such as a bookkeeper, CPA to aid with 990s tax returns, marketing campaign, outreach efforts, and anything else necessary to get your name and programming out to the public, plus the funding required to run any programs.
Before you jump into starting an organization, set a realistic budget for all of these items. Be sure you know what to expect from the attorneys, marketing team, or any other professionals with whom you will be working.
Don’t count on grant funding for startup costs
It is tempting for nonprofit startups to assume they can apply for grants and use that money to cover their startup costs. However, that’s often not a feasible plan.
With very few exceptions, most grants are aimed at organizations that are already well into their programming and has a board that has been active for at least two years. Some grants even require demonstrated outcomes from programming in order to receive funds. Startups that do not have programming or are just beginning their programming do not have a track record of outcomes to share.
“While there are some funding opportunities targeted specifically to startups, new organizations will need more than grant funding to survive the first several years.”
While there are some funding opportunities targeted specifically to startups, new organizations will need more than grant funding to survive the first several years.
Develop relationships with donors in advance
Donor relationships develop over time. In most cases, our recommended timeline is to work on donor development for a year before filing for nonprofit status.
Although your donors cannot receive tax benefits for donations before securing nonprofit status, you can secure pledges and donations. Once the application for tax-exempt status has been filed, donations will be exempt back to the date of filing the Certificate (articles) of Incorporation if tax-exempt status is approved.
Both the founder and the founding board members play a key role in securing donors. When forming your founding board, recognize that part of the role of a founding board is to contribute donations and to reach out to their current network to develop donors and help secure the startup funding. In some cases, founding board members of an organization do both.
Be realistic about the timeline
Some nonprofit founders envision becoming the first paid employee of the organization. However, most nonprofits don’t hit the point of hiring employees for at least five years. Prior to that, all work for the nonprofit is on a volunteer basis.
Even when it comes to hiring the first employee, the founder is often not the right person to fulfill the first paid position. Rather than relying on the nonprofit to provide a salary, founders must be realistic about their role as a volunteer for the organization.
If you are thinking about starting a nonprofit, it’s helpful to know the good, bad, and ugly parts of the journey. It’s also helpful to consider if starting a nonprofit is the best way to accomplish the goal. Nonprofits do incredible work in the community, but starting a nonprofit and guiding it through its first five years requires a lot of effort. Being sure that a nonprofit is the way to go and setting realistic expectations is the best way to set yourself up for success.
