Not every passion or purpose project should manifest itself into an organization or a company. In fact, I have many friends who are driven by their life’s purpose and work on projects in a lab, in government, and in large corporations. Here are a couple of things to consider before you decide if this is a project worth building a new organization or company:
- Scope
Start by giving thought to how large the impact is that you would like to have. Begin to think about the number of people you want to impact. Give some thought to how long you want to impact them for and how much that will cost. Ask yourself if you could imagine having several people working on your efforts full time.
If you decide you want to start a volunteer mentoring program between college students and local high school students for one summer, you probably don’t need to start a nonprofit. If you decide you want to provide three-year job training for dozens of formerly incarcerated people, then you should probably incorporate and apply for tax-exempt status.
- Funding
Most of the time, when people ask me if they should incorporate a nonprofit, it is because they want to raise money to support their cause later that week or that summer. They come to me with a sense of urgency. They believe that foundations and individuals won’t fund them until they have a 501(c)(3) status, and once they receive that designation and put in a little bit of work, that funding will start to come in from individuals, foundations, and corporations. It took us over a year to get incorporated and receive our exempt status. That didn’t stop us from soliciting people for support. When you’re starting out, the donations you’re likely to get will be under $500, which for most people doesn’t have a large impact on their taxes.
People will support you because they believe in you and the work you’re trying to carry out, not because of a tax deduction. You won’t get funding from a foundation or a corporation, but most of them won’t give you money immediately after you have your 501(c)(3) either. They care more about your governance and alignment. Those are things you can work on without tax-exempt status.
If urgency of funding is what is driving your desire to get tax-exempt status, consider crowdfunding through a site like Indiegogo, Crowdrise, or GoFundMe. You don’t need to be a tax-exempt organization and you can customize your profile to share your story. I highly encourage crowdfunding or peer-to-peer fundraising if it is going to be a short-term project or eventually become a nonprofit. If you’re on the fence and have an opportunity to collect funding from a foundation or a corporation, consider finding a fiscal sponsor. Organizations like Social Good, Net Roots Foundation, or TSNE allow you to use their tax-exempt status to receive donations and provide your donors or funders with a tax deduction. I encourage most organizations, projects, or nonprofits to seek out fiscal sponsorship during the early stages of their development.