Updated: Sep 23, 2020
Creating a non-profit organization is not always the easiest process. In fact, it could be daunting and frustrating. I sat down with Felipe Rivera from Reach Social Services to share his knowledge of opening a non-profit. Here is what he said.
Felipe: So, my name is Felipe Rivera. I am a social worker, and I have been in social services for over 18 years. After 16 years of being employed in social services, I decided to launch a non-profit organization. I launched my organization and got approved during the heart of the COVID-19 lockdown, and that presented other challenges.
But what I will do is explain exactly how to start a non-profit, and talk a little about what a non-profit is, so I will begin.
A non-profit is a charity organization. If you want to start a non-profit, start with something that you are passionate about and a problem you want to solve.
A non-profit operates differently than for profit. With a for-profit corporation, you are privileged to do what you want to do with that profit. That profit could go as far as benefiting you and your family members. Now a non-profit, it is a little bit different. Let me break that down. Let us just say you secure a city, state, or federal contract where you get annual funding. That annual funding is a certain amount of money that they give you to run a program. You may hire staff, rent a space, and have operational costs, and in the end, you are going to have a certain amount of money left.
Now, in theory, that is considered the profit. However, the difference is you cannot take that money and decide to use that money for your personal gain. This is very important to understand! You cannot say, "Okay. We have got $15,000 out of this yearly grant. We have met all our needs. Now this money is here in the pocket". You cannot just sit there and say, "Well, I am going to give myself a bonus." It does not work like that.
You must report all the income that comes to that organization. It is a non-tax deductible, meaning that no money you bring in that organization gets taxed by the federal government, which means that the process, protocols, and policies are very strict. You must go by governmental laws. You cannot do things as if you have your own corporation.
Exxon can do whatever they want. Feed the Children cannot do whatever they want. I am trying to give examples of a big corporation and a big non-profit organization. That's very important to know.
Now, I think the question that people will ask is: Well, why would you start a non-profit? It sounds like an expensive thing. You will not be able to get any money out of it. So, what would be the incentive of starting a non-profit?" You can pay yourself! That is legal. Now that is a different thing. That does not mean that you are raising all this money, and you cannot pay yourself for the work that you do. If you can establish this through the paperwork and through all your tax returns, it is perfectly fine.
So, you want to know if there is a way you can earn a living. Absolutely. People have been doing this for a very long time. I want you guys to know. You could earn a living from a non-profit, and it is perfectly fine.
Now, why is it good to start a non-profit? Why now? Right now, is one of the best times to start a non-profit, and I am going to explain why.
If you are in New York City, non-profit organizations are not going away in our generation. This is a huge culture in a lot of urban cities. So, you do not have to worry about starting a non-profit and somehow you tank because you are not able to get the funds or you are not able to get the resources. With proper knowledge and people who are in your corner, they can be able to direct you. This is a very safe route to go if you are interested in a non-profit.
You should not worry about "Oh, we're going to dry up the funds, and we need to fundraise every year to make a living." No. This is not necessarily how a non-profit operates - and I will get into that.
Because of COVID-19, the government and private foundations and corporations are pouring millions of dollars into non-profit organizations as we speak. Getting money right now could not be any easier! Right now. Where you can start programs, you can hire people. You can even provide services to help rebuild your community - and this is all true.
During this COVID-19, you will find if you have a non-profit, there are so many government opportunities. There are so many corporations out there trying to give money.
And another incentive that you also should know is there is a tax write-off benefit for corporations. Corporations can spend a lot of taxes if they do not properly do the paperwork correctly, but one of the ways that they save lots of money is by giving donations to non-profit organizations and reporting that in their taxes.
This is a huge write-off for people who make a certain amount of money per year. This is a common practice; this has been going on for a very long time and this is something that is a benefit to consider when you're looking for donors.
That is why getting into a non-profit is a good idea during this time, especially if you are coming from urban locations. It could not be any easier right now with the resources that will be coming in over the next couple of years.
The main thing that I think people want to know is: "Okay. How do you start a non-profit? What does that even look like?" Right?
The first thing that you want to do is you want to be able to establish a board of members. This is critical. Usually, in most urban cities, it takes about three board members to recruit and submit to the IRS for your non-profit license.
Usually, a board member will be an organizational secretary, and that person's role would genuinely be taking minutes and doing a lot of secretarial and administrative stuff.
Then you have got the president who is kind of taking the lead and the direction of where the organization is going. Then you have the treasurer, which is a very important person in this process, who is kind of supposed to overlook the money that comes in and gives you the proper consultation on how to use whatever money you bring in effectively.
You start with three members. Keep in mind, whenever you fill in the application - they do a certain background check that can cause you a problem. If you have a member who has issues with IRS taxes, you may not want to include them. That can set your organization back.
You might want to - whenever you're trying to recruit a board - you might want to ask some personal questions regarding something that could pop up in that process, but generally, that is what they only look for. If you do not have tax issues, you probably will be okay.
Once you establish your board, you must create copyright - and that is being able to find a name that you can use legally. There is a whole process for that, that will generate --
Once you do that, you have got to get incorporated - by which you get an EIN number.
Once you get incorporated, after you have got your copyright, you must complete the 501(c) (3) contract paperwork to submit to the IRS. Now, you can do it by yourself if you know enough research. If you do enough research and understand the thinking of how the application should look like, you may score a successful application on your first shot.
My experience in just talking with people, if you do not have that experience, seek professional help. This will about $600 to submit that application.
If you are not sure how to properly complete an IRS 501(c)(3) contract, there are companies that support small businesses that offer affordable resources that can do the paperwork for you and that can save you time, money and would help with starting your organization.
Once you get approved, which can take about 3-6 months, depending on how IRS works, you get an approval. Once you get an approval, you will get a Determination Letter stating that the IRS approves you to have a 501(c)(3).
Felipe Rivera gave a lot of insightful information on starting a 501(c)3 organization. You may watch the full video on our YouTube channel
Or podcast @ https://anchor.fm/drneva