QUESTION: What are the considerations one must address in starting a non-profit business?

ANSWER: The first thing you should do is find out if your business entity qualifies for 501(c)(3) tax-exempt status. Most, but not all, non-profits are formed for religious, charitable, scientific, or educational purposes. You can find this information on the Internal Revenue Service website:
https://www.irs.gov/charities-non-profits/types-of-tax-exempt-organizations 

With a non-profit, versus a for-profit business, all profits generated in excess of operating expenses, goes back into the operation of the organization to benefit the recipients of its services.

Your due-diligence should involve research to find out if other companies or organizations have a similar focus. If so, are they successful or are they facing challenges? The most common problems relate to a lack of funding.

 Choose board members who share your vision and are willing to fund or secure grants to help fulfill your mission. Develop a professional website that is easy for prospective donors to navigate.

Running any business, be it for-profit or not-for-profit, requires the same level of commitment and attention to detail. Consult with an accountant to determine a realistic budget for your company. Develop a written business plan that addresses all the steps necessary to ensure long-term success.

The disadvantages of incorporating a non-profit include a lot of paperwork and legal expenses to prepare your documents. There are also many regulations that you must deal with in order to grow the organization.
(See https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-section-501c3-organizations)

Be mindful of restrictions regarding payment to directors, other than expense reimbursement.

If you decide to go forward, consult with an attorney to make sure all paperwork is filed correctly with the IRS and your state department of taxation. Your checklist should include:

  • Pick and register a Name that relates to your mission statement
  • Prepare Bylaws and sign Articles of Incorporation
  • Choose your board of directors carefully
  • Obtain an Employer Identification (EIN) Number
  • Apply for any necessary business licenses and permits
  • File for Federal and State Tax Exempt Status

Once you are up and running, be sure to keep detailed records of all income and expenses. Your continued tax exempt status depends upon it   

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Gray Poehler is a volunteer with SCORE Naples. Business counseling on this and other business matters is available, without charge, from the Naples Chapter of SCORE. Call (239) 430-0081 or visit https://naples.score.org/mentors .The SCORE business office is located at 900 Goodlette Road North, in the Fifth Third branch bank building. Office hours are 9 a.m. to noon, Monday through Friday.