Top 3 challenges of starting a non-profit
Most people start a non-profit out of a desire to help other individuals. However, starting a non-profit is not without its share of problems and headaches. In addition to the common difficulties that any company has to deal with, such as adapting to ever-changing technology and staying abreast of accounting and regulatory requirements, non-profits have to overcome some additional hurdles that are unique to their service sector.
The most important step to creating a successful non-profit is to clearly define your mission — what are your short term and long term goals and how will you accomplish them? The next step is defining your non-profit programs by coming up with an action plan that includes such things as potential activity milestones, impact goals, budgetary figures, and more.
A well-designed action plan is beneficial because it will highlight 3 important factors that are crucial to the successful outcome of your enterprise:
- IRS compliance
While there are many challenges involved in starting up a non-profit, the top 3 are:
1. Getting Approved
2. Getting Financed
3. Getting Organized
In order to operate a non-profit, you are required to apply for and be awarded tax exempt status by the IRS. Most non-profits are organized as 501(c)(3) corporations and must exist for one or more exclusively charitable purposes.
To receive tax exempt status, your non-profit must file Form 1023, Application for Recognition of Tax Exemption, with the IRS. Once you are granted tax exempt status, your organization must adhere to the operational constraints placed upon it by the IRS.
Funding is a major issue for non-profits. Research has shown that 30% of all non-profits fail within the first 10 years due to inadequate funding. For the majority of organizations, funding comes from a few sources:
- Individual and corporate donors who use their donations as tax deductions
- Grants from government agencies and private corporations
In addition to a lack of financing, non-profits often face organizational challenges that can make or break them, including:
- A lack of a comprehensive business plan
- A lack of strategic goals
- Poor volunteer management.
We can help
Compliance issues, as well as financial and organizational issues, are just some of the challenges of starting a non-profit company. However, with careful financial and organizational planning, your not-for-profit has a better chance of succeeding in its mission.
One of the ways to avoid many of the problems that non-profits face is to enlist the services of an accountant with an in-depth understanding of the regulatory environment in which non-for-profits have to operate.
GYL CPAs and Advisors, not-for-profit accountants, offers a full range of auditing, accounting, tax, and consulting services for non-profits. Our accountants have a thorough understanding of the many factors that are involved in determining the success of your organization including funding from federal and California state agencies to donations and compliance regulations.
Contact our office to set up a free consultation.