Recap: Tasks Involved in Starting a Non-Profit

We are about to start our lessons back up this coming Monday and we are making steady progress towards making them public in March.

We finally have all our registrations and thought we'd recap on a recommended order of doing things. We didn't do things in this order, but in retrospect, it would have made things easier.

1. Do research on the need you want to address and how you might address it.
2. Create a business plan or something close to one.
3. Write the Articles of Incorporation. Be sure to include the right language to register for 501(c)(3) status.
4. Incorporate with the state. Incorporation differs slightly state to state.
5. Register with the federal government to get an Employer Identification Number (EIN).
6. Create a conflict of interest policy.
7. Write the organizational Bylaws.
8. File for 501(c)(3) status with the federal government.
9. Register to operate in the applicable state and city. This may require a master business application and license applications.
10. Open a bank account.

If you plan to employ people, you will probably have one or two additional steps, though we are not familiar with them as we are an all-volunteer organization. A few others items that can be worked on in parallel and don't really need to be done in any particular order include the following.

• Build a team.
• Recruit a board of directors.
• Create a record-keeping process.
• Create a logo.
• Build a website.

Bylaws Ready

We have completed writing Move with the Music's bylaws. We were able to find ample resources online to determine the what the bylaws should contain, created an outline, and filled the document out from there. The legal aspects of the document were largely modeled off of the of other non-profit organizations that we were able to find. Given the legal pertinence of the document, we still have several questions. Because of this, it appears quite important to seek legal counsel at this point to, at a minimum, have the bylaws reviewed. We really want to ensure that they provide the organization (including its directors, officers, and volunteers) with adequate protection, flexibility, and balance of organizational power.

Our board currently consists of only one individual. However, with the bylaws prepared, we are ready to begin seeking candidates to round out the board.

On another note, we will begin planning our return from Winter break tomorrow. We intend to start our dance lessons back up in February. By March, we want to be ready to open our lessons up to the wider community and to do so, we will need to find low-cost facilities. Our area has decent community centers, so we'll be taking a closer look at those. However, we will need to evaluate the associated costs since to our knowledge, the community centers provide non-profits with a discount rather than a fee waiver.

Move with the Music has 501(c)(3) status!

We just received notice in the mail yesterday that we have been approved for 501(c)(3) status! This is huge and will really help to deliver our programs to the community.

On another note, every year we take a break during December and January, during which we pause dance lessons since attendence dwindles off around this time due to the holidays. This should give us time to focus on preparing for the coming year and delivering bigger and better than ever!

A few first steps we need to take: (1) Expand our board and (2) find a good venue to make our programs available to the public.

Still Waiting for the 1023 Results...

It's been a while now and we're still waiting to get the results of the 1023. Fingers still crossed...

On another note, our weekly dance lessons continue on as strong as ever. Usually around this time of year, participation tapers off as we head into the holiday season. However, we have maintained decent attendance. Regardless, we still intend to take our usual break during December and at least the first half of January. We actually find that after breaks, attendance surges, likely due to a build-up of anticipation.

Finally Have the IRS Form 1023 Ready to File

We finally finished preparing the IRS form 1023 and will be sending it out this week. In part, this took as long as it did because we decided to finish a detailed description of our organization that included research on the benefits of dance and the community need for programs like those we intend to run. In the end, it turned out to be a great document and helped to fill in all of the details requested by the 1023. Hopefully we'll be granted 501(c)(3) status shortly and can tie up the loose ends with our business license application.

Based on questions asked in the 1023, it seems that many people establish non-profits with the intent of making operation of the non-profit their primary employment. For us, we've had to balance the effort required to get all of the registrations together with our professional work, regular operation of the non-profit, and our personal lives. We've realized that after being granted 501(c)(3) status, things will not return to their previous state since continuing the development of the organization and maintaining its 501(c)(3) status will be like having a second job. Interestingly, every time we make progress on developing our organization, parellels between starting a non-profit and a for-profit business become more and more evident. Think, for example, about how a founder of either type of organization must decide whether to quit their current job and focus full-time on their venture or to do both simultaneously.

Something on my mind that I hadn't thought about before is that there must be non-profit "angels" and "venture capitalists" who help finance and advise early-stage non-profits. I wonder how they define and measure "returns"?

Filing for 501(c)(3) Status

To get 501(c)(3) status as a non-profit, you will need to file IRS form 1023. I can break the experience down in two comments: (1) time-consuming and (2) expensive.

I can't remember where, but I recall having read that one should expect this to take over 80 hours. From my experience, this is shaping up to be realistic. The form covers many aspects of your non-profit "business" and almost feels like a mini business plan. As mentioned in a previous post, this kind of requirement is beneficial in that it forces you to think about your business. The information in the 501(c)(3) registration also becomes publicly accessible, which means that it can be used to support various efforts towards building your organization. However, it can also feel like a burden, distracting you from your regular efforts. As you start up your non-profit, be sure to plan around the amount of time it will take to complete this. Be sure to start early and make consistent progress because you don't want to miss a big opportunity to further the purpose of your organization just because you didn't get 501(c)(3) status in time. With this information becoming public after filing, you also need to put the right amont of thought and effort into it to ensure that it is of reasonably high quality.

To share an challenge we've faced, we have found that getting our state and local licenses to conduct our activities as a non-profit requires us to file documentation of our 501(c)(3) status. The licensing office also wanted the documentation within a week. Because of this, we had to call the licensing office and ask for an extension so we have time to get our 501(c)(3) status. Fortunately, they were understanding, but this illustrates some of the potential for trouble when the 501(c)(3) status isn't prepared early on.

One thing you might do to make the filling out and filing the 1023 faster is to create a business plan early on. This is something you should do anyways. A non-profit is a type of business, and all business leaders should know and understand their respective businesses to the degree of intimacy required by the process of creating a business plan. While a business plan is not strictly required, and there are businesses that are successful without such documentation, it is a good practice and will almost certainly be worth the effort.

Regarding the costs of filing for 501(c)(3) status, you will need to pay at least $400. You can find the amount applicable to your situation by going over IRS form 8718, which needs to be filed with your 1023. This may not sound like a lot to everyone, but for us it is a good amount. Add to that the expenses of state and local registrations for incorporation, licensing, etc. It probably won't break the bank, but be sure to plan for these costs ahead of time.

In summary, I would strongly encourage you to really think about the kind of organization you need to create to drive your mission. Before jumping into registrations, think about whether they are required and whether the time, money, and effort needed to complete them is worth the benefit they provide. Ask yourself whether those resources would be better spent on activities that further your mission. If you are getting started, we have the following recommendations:

1. As soon as you become serious about your idea, create a business plan
2. Be sure to think about the best way to achieve your vision
3. Carefully plan a timeline for the registrations you'll need along with the resources they'll require
4. If you are going to apply for 501(c)(3) status, take a look at the IRS's step-by-step guide to get an idea of what is required

Progress To Date

We have made great strides in recent months in terms of developing our organization. As we move forward with becoming an officially recognized entity, there is much to do with respect to registrations, documentation, etc. All in all, the efforts we are making to meet various requirements is positive in that it makes us think deeply about aspects of our "business" that we may not have had to consider previously.

One example is financials. Since we are operating as a group of volunteers, we have had virtually zero costs. However, there are very likely to be expenses involved in expanding our programs. As with for-profit businesses, all financial transactions will need to be closely tracked and reported every year. As our understanding of our financials develops, we are likely to benefit from being able to analyze the data and over time ensure that future programs will be sufficiently funded.

To date, we have registered ourselves in the state of Washington and are currently waiting on our state and city licenses. We are working on forming our bylaws and in the near future will be applying to become a 501(c)(3).