Episode 80: The Nonprofit Success Roadmap: Stage 1 Pt. 1 - How to Start a Nonprofit “The Legal Entity”

“How to start a nonprofit?” means more than just getting a 501(c)(3) tax exemption. It’s a 2-step process. Step 1 is forming the Legal Entity. Learn what this means and why it’s an important part of the nonprofit success roadmap.

SPONSORS:
WaveApps: https://www.waveapps.com/

Nonprofit Elite: https://nonprofitelite.com/

NONPROFIT SPOTLIGHT:
This episode spotlights the nonprofit "Project Sleep," which helps in finding treatments and ways to ensure individuals sleep well at night.

Check out Project Sleep! 👇🏿👇🏿👇🏿

Website: https://project-sleep.com/

Instagram: https://www.instagram.com/project_sleep/

Facebook: https://www.facebook.com/ProjectSleepAwareness/

YouTube: https://www.youtube.com/user/projectsleepvideos
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Podcast Transcript

Speaker 1 (00:02):

Hey fam, it's your girl, Amber Wynn, Philanthrepreneur and I'm excited about 2024. A lot of changes are in store here on air with Amber Wynn, and as I wrap up with new episodes and some new additions to the format, I wanted to revisit probably the most important episodes on the show, the nonprofit success roadmap, because when you stage your nonprofit, you save yourself hundreds of hours in sweat equity and thousands of dollars out of your pocket because you're not focusing on work, your organization isn't ready for it. Here's the thing, you have to be honest. If you've been self-funding your organization for the past 5, 10, 15, 20 years, don't say, oh, I have an accurate budget, or I have a clear mission. Because if you did, you wouldn't still be self-funding your organization do something different to get a different result. Okay? So take a look at the seven stages of the nonprofit success roadmap to determine where your organization is and work to move toward the next stage and look out for new episodes.

Speaker 2 (01:10):

Welcome to On Air with Amber Wynn, where nonprofit leaders learn to fuse passion and commitment with proven business strategies to create long-term funding impact and sustainability. And now here's your host and resident, Philanthrepreneur, Amber Wynn.

Speaker 3 (01:34):

Welcome everyone. This is Amber Wynn, your host and resident, Philanthrepreneur, and this episode we're going to continue with talking about the nonprofit success roadmap. The nonprofit Success roadmap lays out what it is that I do, which is provide nonprofit founders and executive directors with the roadmap for long-term sustainability and actually consistent funding. So what does the roadmap consist of? It consists of step-by-step instructions on how to build your nonprofit, and we do that by using the nonprofit success roadmap. Last episode we talked about the first stage, which is really zero, right? Stage zero if you were thinking about starting a nonprofit today we're going to jump into actually starting a nonprofit. So stage one, but it's got two parts because people come to me all the time and say, how do I start a nonprofit? And it's a tricky answer because there's two different answers for today's episode.

(02:37):

Part one, how to start a nonprofit. We're going to talk about the first part, which is how to form a nonprofit entity, an actual business. Then the second part, which we'll cover in the next episode, is really how to run it, build the nonprofit infrastructure. So today we're going to talk about how to start a nonprofit, which is actually what does it mean to start a nonprofit? And that means the first part is forming a legal entity. So before we jump into all of that, we're actually going to jump into a commercial. So when we come back, we're going to talk about actually forming a legal entity.

Speaker 4 (03:18):

You are a school, a foundation, a healthcare provider or an environmental group, a museum, a church, a shelter or a community service. You're starting a nonprofit on a startup budget, and you need to get this right the first time, no mistakes, no misunderstandings, and no costly. Do-overs at Nonprofit Elite, we know what you need because we've been there too. Accurate information, mistake free filings and peace of mind assurance that your 501(c)(3) application will be successful. This is what we do and we are very good at it, all backed by our industry leading guarantee and 100% IRS approval rate. But forming your nonprofit and obtaining tax exempt status is just the beginning. Once you're up and running, nonprofit Elite will consolidate the bulk of your operations into one place, including your accounting, compliance, website, fundraising, and more. We do the work of several full-time staff for just a fraction of the cost so that you can remain focused on advancing your mission. Contact nonprofit elite for expert preparation of your formation documents and 501(c)(3) application and for a full range of accounting, fundraising, and administrative solutions.

Speaker 3 (04:39):

Hello and welcome back to On Air with Amber, where we're talking about actually how to start a nonprofit and starting a nonprofit is a two-step process as coming back from the commercial. That is exactly what we're going to be talking about today. Nonprofit Elite really is that first step, which is forming a legal entity. And so let's go ahead and jump into it, how to form a legal entity. It's a two-step process. So what people don't understand when they become a nonprofit is that the first step is to actually become a legal business entity in the state that you're in. When you form your nonprofit, you are actually forming a business. That's why I always say a nonprofit is a business. It's just a business with a philanthropic purpose because the first step in forming your nonprofit is to become a legal entity within your state.

(05:37):

What does that looks like? It looks like you selecting your name. So you've got to go through the domain check and make sure no one else has your name. Once that is decided, then what you're going to do is you're going to incorporate your organization. So when you incorporate, it's the same as basically creating a birth certificate. You're saying to the state that you are a business operating in the state. It also means that depending on your tax designation, you're saying to the state, I'm a business because now you can get taxes from me. That's the whole purpose of forming a business in the state with whatever state that you're in. They want to know that you're operating so that they can tax you, right? So the first thing you're going to do is get your articles of incorporation. Now, when you incorporate, you're basically saying to the state, I'm forming a business.

(06:29):

That's it. At that point, the state issues you, your articles of incorporation. You tell them what type of entity you're going to be, and at that time you say, I'm going to be a nonprofit. Now, what's really important to understand is you can be a nonprofit and not have a 501(c)(3) tax exempt status. You can function as a nonprofit. The 501(c)(3) tax exempt status means that your donors can get a tax write off. If you don't have that tax exempt status, you're still a nonprofit. You just can't offer the benefit to your donors of writing that off. So when you form, you say to the state when I'm a nonprofit, so when you get your articles, you are a nonprofit. The second step is to then become a tax exempt organization. So if I were to give an analogy, I would say when you decide to buy a house, you decide to buy a house.

(07:28):

Now the second step is what kind of house is it? Is it going to be rental property? Is it going to be your primary residence? And so the second part is telling the feds IRS that you want to be a tax exempt organization. Now, there are 23 designations that you can have. It's not just 501(c)(3), there's 501(c)(9), 501(c)(7). You can be an association, you can be a sorority or a fraternity. Your tax exempt status lets the IRS know how they're going to treat you. So if you are a rental property, your tax benefits or the way you file your taxes is going to be different than your primary residence. So that second step when you apply to get your 501(c)(3) tax exempt status is now when you're able to say to a donor, you can write this off, can you function as a nonprofit without getting the tax-exempt status?

(08:27):

You absolutely can. You just can't offer the tax write-offs. So let's recap. Starting a nonprofit is a two-step process. One is actually forming the legal entity, and two is actually building out the infrastructure. Today we're talking about actually forming the organization. So that's number one, becoming a legal entity with the state, and I call that your articles of incorporation, your birth certificate. Hey, I'm alive, I've started this business. Then you want to make sure that you let all of the reporting agencies, so tax franchise board, you have to also file with the city attorney's office, all of these entities that you will have to report to as a business that you are actually forming as a 501(c)(3) tax exempt status. Now, you can do this on your own or you can pay somebody to do it, but this is what happens in the initial step.

(09:33):

When people say, oh, I'm going to charge you $300, or I'm going to charge you $500, this is what they're doing. They're forming a legal entity. You'll have your articles of incorporation, and then you'll have your 501(c)(3) tax exempt status. That first step, it happens at the state level, that second step, it happens at the national level with IRS and the feds. So when you start, you want to make sure that you understand that there's more to starting a nonprofit than just jumping in and getting your 501(c)(3) tax exempt status. And people ask me all the time, how long does it take? It just depends. It depends on the backlog With IRS, how long before you get your tax exempt status? It depends on what's in the queue. When I got mine, it actually took me 45 days and that was pretty awesome.

(10:25):

Sometimes if it's not done correctly, it can take six months, it can take a year, but it shouldn't. If you are working with a professional that knows what they're doing, knows what those questions are all about, it should take anywhere between 45 to 60 days. I've had people who have gotten it done in two weeks and people who've gotten their tax exempt status in 30 days. So it just really depends. It depends on your preparer and it depends on what's already in the queue. Alright, so people ask me all the time, can I do it myself? You can do it yourself, but there's so much information out there that it becomes overwhelming. That's one of the reasons why I put together my workbook, how to start your nonprofit the right way in 90 days, and it's our offer for today. I painstakingly put together all of the steps from thinking about how to start a nonprofit all the way to funding it for long-term sustainability.

(11:30):

And in the beginning of the workbook, you'll see walks you through how to actually form your nonprofit entity. So it gives you the links for how to go identify your name and what to do to get your articles, all of that. And it gets you to the point where you can then go to an actual person to file, because that's not what I do. I stay in my lane, but I do explain the whole entire process so that you have an understanding of what this person is doing and what it is that you're creating. So that's that for how to form a legal entity, it sounds really simple because it's actually really simple. You're forming a business, then you're telling the entities the type of business you're going to form, which is a nonprofit, and then you ask for permission to become a 501(c)(3) tax exempt organization, which is a public charity. That's why you have to ask for permission because they need for you to demonstrate that you're going to be doing things that falls within the parameters of being a public charity. Alright, so we're going to pause right now for another commercial and then we'll be back where we'll take the question of the day.

Speaker 5 (12:39):

This is you and this is your business. From invoicing your first client to your 10th client, to your hundredth client, you'll need to get paid quickly. Pretty soon you'll be ready to hire some help and you'll need to pay them. As your business grows, wave is there to grow with you.

Speaker 3 (13:08):

And we're back. Today we are talking about how to start your nonprofit. And this is being described to you in two episodes because there's two steps. The first step is actually forming the entity, and then the second step is actually designing the infrastructure. And what I want to point out with our sponsors is that these resources are resources for you to use to do exactly what we're talking about, which is to create your entity and to build your infrastructure. Alright, so the question of the day is, should I do the paperwork myself, hire a lawyer or use an online preparer to actually form the entity? And this is a very good question because I have a very definite opinions about it. Number one, don't use a lawyer. Lawyers are very expensive, like they charge you three times the amount that you need to pay in order to form your legal entity.

(14:09):

Number two, I suggest that you don't use an online company. I refer to the prominent online companies as Legal Doom because in my experience with my clients, what's happened is they'll do these promotions where it's like, oh yeah, get your tax exempt status for $49 or $149. But what they fail to explain to you is that it's the two step process. So they get you with that first part, right? Well, we've got your articles of incorporation, now you have to pay us $1,200 to actually get the tax exempt part. Now you're in, right? They've done the first part. You're like, oh, well, I didn't know. Yeah, because it's a two process. But now, so I've had lots of people come back to me and say, well, I started, but I thought it was only going to be $149. Come to find out, after they got my articles, it was $1,200, so I didn't have the money.

(15:06):

So I'm telling you now, stay away from the online prepares. Some people have had success with it. I just find that there are a lot of boilerplate templates that they use, and when the rubber hits the road, there's a lot of amendments that have to happen. So then should you prepare it yourself? If you follow my workbook, how to start your nonprofit the right way in 90 days, then yes, I think you'll be prepared fully to do it your own. But I don't recommend it. I recommend that you actually find an individual who submits for these types of designations all the time because they know what to ask, they know what answers to put, and they can customize your responses. What you don't want are boilerplate responses. And so how do you get those? Well, to me, you ask for referrals. Who in your space has a 501(c)(3) tax exempt status?

(16:04):

Someone had to form it, right? Ask them, how was the process? How much did it cost? Did you have any hiccups along the way? Those are the best ways to get it. We have nonprofit elite that I promote here because they have a hundred percent guarantee, right? If you don't get your 501(c)(3) tax exempt status, then they give you your money back. So I like guarantees. But stay away from the attorneys, stay away from those online prepares. And if you want to take a shot at doing it yourself, I say you get together all of the paperwork and you can just follow my workbook and then be able to submit that on your own. Alright, thank you for joining me today. Our topic has been about the nonprofit success roadmap and we're on stage number one, how to start your nonprofit. One of the things that I do during my time here with you is highlight nonprofits, and today we're going to highlight an amazing nonprofit organization that was founded to talk about, believe it or not, sleep Health and sleep disorders. It's called Project Sleep. Did you know that on average people with narcolepsy experience symptoms for eight to 15 years before receiving proper diagnosis? People with idiopathic hypersomnia sleep normal or long amounts of time each night, but they still feel excessively sleepy during the day. So if you can imagine, you sleep eight to 10 hours and you're still tired, and then imagine not having that diagnosed for eight to 15 years.

(17:57):

That's pretty, I don't know, devastating to me. And so Project Sleep, their purpose is to take that on and to bring awareness and to try and help people identify what they have so that they can get some treatment. So we're going to pause for a minute for a video from Julie Flagger and she's going to talk to you about what they're doing at Project Sleep.

Speaker 6 (18:19):

Hi, I am Julie Flagger and I'm the founder of Project Sleep, a nonprofit organization to raise awareness about sleep, health and sleep disorders. Sleep can be a pretty snoozy topic. Often we think of sleep as inconvenient and getting in the way of our lives. Yet actually research shows that sleep is a dynamic and fascinating process, and it's absolutely vital for our health, our happiness, our safety, and our success. So how do we make sleep? Cool? Well, here at Project Sleep, we aim to make sleep accessible for everyday people, meeting them in their communities and helping them make healthy choices about sleep. We believe that science combined with passion will lead to action and that everyone young and old deserve to feel well rested, energized, and awake so that we are not sleepwalking through our lives, but that we are actually using sleep as a tool to help us maximize our potential and reach for our dreams. Thank you so much for checking out our efforts and connect with us on social media to learn more about our latest programs and events. See you again soon,

Speaker 3 (19:40):

And you can support Project Sleep with a tax tax deductible donation to the organization, or you can support the JAK and Julie Narcolepsy scholarships. They fund college-bound students, exemplifying courage and resilience while living with narcolepsy or idiopathic hypersomnia. You can check them out at www.projectsleep.com or their telephone number is (323) 577-8923 or email info@project-sleep.com. All right, so again, we're here. You're on air with Amber Wynn, and we are going through the nonprofit success roadmap and we're on stage one, which is how to start a nonprofit.

(20:29):

I just want to emphasize that as a founder and as an executive director, but more as a founder, it's important to understand what it means to start and run a nonprofit. And we are going through these different stages to help you, number one, understand what that means, but number two, to help reduce the time spent and the money spent just flailing everywhere. If you know which stage you're in and if you know what you're supposed to be doing in that stage, it's going to help you grow, scale and get momentum. So today we're talking about how to start your nonprofit, and I want to switch to your mindset minute. In this minute we're going to talk about nonprofit. Doesn't mean no profit. A lot of times when people start with their nonprofits, they think, oh, I can't make money. And the reality is, you have to make money.

(21:27):

You have to generate revenue because without revenue, you can't fund your organizations, you can't purchase the software that you need to manage your financials. You can't do anything. So I have worked with clients who rely on donations for everything. They rely on volunteers for everything. And what that does is that prevents you from growing, that prevents you from actually being responsive to your community. So I want you to shift your mind, and I want you to think about the fact that you are starting a business, right? We talked about that earlier in this episode. When you form your entity, you are starting a business and every business has business expenses. Get rid of the thought that a nonprofit means that you have to struggle. Get rid of the thought that a nonprofit means that you don't have money. Go in knowing and understanding that it costs to run a business.

(22:24):

It costs to run a nonprofit because the more revenue you generate, the more money you bring in, the more choices that you have. So for our mindset minute, your focus is, and understanding that nonprofit doesn't mean no profit. Alright, and so that's all we have for today's episode. I want to thank you for joining me. I want you to really think about these stages as we go through them, because I want you to be successful. Being successful means being informed. We'll see you next time where we're going to cover part two of the nonprofit Success roadmap, and we're going to discuss the second part, which is how to actually form or develop your infrastructure. All right, see you next time.

Speaker 2 (23:15):

Thanks for listening. If you enjoyed this episode, subscribe and leave a review on iTunes. Head over to www.amberwynn.net/podcast for the links and resources mentioned in today's podcast. See you next time.