Nonprofit organizations are businesses. Businesses have monthly operational costs. Obtaining tax-exempt status from the IRS does not make those costs go away or place your organization at the head of a line called “Grants to fund your nonprofit!”

In fact, as a start-up, you’re joining a long line of nonprofit organizations with track records of success, essentially placing your organization in a position where it needs to prove to funders why your organization should get the funding these organizations are now receiving—even though you have no proof of impact.

Why am I sharing this information?

Because it costs to start and run a nonprofit. And Founders shoulder those costs until they are able to secure funding to supplant them as the funding source. So, it’s vitally important that Founders understand that they will be covering these costs until they are able to demonstrate to donors that their organization is a viable investment.

With that said, you might be saying, “Ok, so how much am I looking at?” and, if you’re a smart businessperson, “For how long will I have to cover these costs?”

The honest answer is that the costs depend on the state your organization is incorporated and operated in. Filing fees vary, cost of living (rent, gas, materials, and supplies, etc.) varies, so use these numbers as a very loose guide just so you can get a feel for the range. More importantly, understand what type of monthly fees you should expect to cover and for how long. These seem to be the things that blindside most Founders.

Founders need resources to start up and keep the organization operational. Founders should form nonprofits understanding the monthly operational expenses that they will need to cover, as well as annual compliance fees required by compliance-monitoring agencies such as filing fees, business operation fees, and solicitation fees, which are mandatory.

It can take 6-24 months before a start-up nonprofit is eligible for a seed grant ($5,000 - $25,000), with no guarantee of being awarded (don’t forget to include costs for a grant writer! $1,500 - $2,500).  

Go in understanding that a nonprofit is a business. Businesses have monthly operational costs. Without a funding strategy, Founders tend to cover these costs out of pocket. Planning is key to developing a successfully funded nonprofit organization. Below is a high-level breakdown of the approximate cost to start up and run your nonprofit business every month:

Start Up Costs:                            $2,000 - $5,000

State Filing Fees                 $400 - $800  (varies by state/org budget)

Preparer Fees                      $900 - $2,000

Banking Fees                       $200

Accounting Fees $200

Branded Materials              $200-$500 (business cards, logo, email,

business line/phone)

Website                                $300 -$1500

Monthly Operating Costs: $1,200 - $3,500  (unstaffed)

Rent

Utilities

Insurance (D&O/Liability)

Equipment

Business fees (Accounting/IT/

Banking fees

Marketing (social media/email marketing, etc.)

IT (hardware/software/connectivity)

Website (hosting/management)

Supplies (printer ink, paper, etc.)

And there are no grants to help cover these start-up fees. As the Founder, you will not be reimbursed for incurring these or the monthly expenses. Where will that come from? Where will the monthly revenue come from once that grant has been depleted?

I urge you to have the answers to these questions before you start your nonprofit.

The truth about grants is that they require an organization to constantly submit, and even then, they aren’t guaranteed. If you’re not a grant writer, then you have to add in those fees.

I am not sharing this information with you to dampen your enthusiasm and commitment to your cause. I am sharing it because research shows that nearly 40% of start-up nonprofits close their doors within 2 years. That’s about the time Founders realize there is no free-flowing grant money. It’s about the time that they decide they can no longer fund this organization that was supposed to be self-sustaining. It’s the time that they realize that running a nonprofit requires much more than they had realized.

I don’t want you to get to that place. I want you to make informed decisions. I want you to go in strong and stay the course! That can only happen if you understand all that you’re signing up for.

Now that you know . . . the first thing you should do is create a Fund Development Plan. With this plan you are able to map out just how much it will cost to operate your organization annually. From there you can recruit a powerhouse Board of Directors whose primary role is to fundraise. From there, you will be in a stronger position to make an impact in your community because your nonprofit will be powerfully positioned for long-term funding and sustainability.

If after processing this information you’ve decided that you don’t want to go down this path, but would still like to make a difference in your community, check out the other options available to you in this article “Sexy Alternatives to Starting a Nonprofit Organization.” You can still make a huge difference in your community without starting a nonprofit.

The more you know . . .