There are many things to consider when it comes to starting a nonprofit, but one of the most common questions asked is how much it really costs. While the answer will vary from organization to organization, there are a few concrete costs that you will need to pay.
You don’t need to be a millionaire to start a nonprofit, but you should take the time to understand the costs of the following before you get started!
In today’s article, we will cover:
Filing fees are unfortunately unavoidable. When you file with the IRS, you are officially registering your nonprofit and applying for tax-exempt status. This is a pretty lengthy process, but there are some tips and tricks that can help you get through it! To take a deeper look into filing with the IRS and its requirements, don’t hesitate to check out their website.
Pro Tip: Be sure to determine which type of nonprofit you are first, as the filing forms change based on this.
Incorporation is another big part of the filing process. It is the process of incorporating into the state your nonprofit will be operating in. This must be done before you file for tax-exempt status with the IRS. Incorporation also has filing fees, however they are usually significantly less than the IRS fees, depending on your state.
Incorporation is the step that needs to be completed before you file with the IRS. It is the process of creating your Articles of Incorporation and submitting them to your state.
Incorporating your nonprofit is important because it secures the name you will choose, limits personal liability, and adds credibility to your nonprofit.
Incorporating is based on which state you are in, so the processes can vary. In most states, the secretary of state oversees this process. Check your state’s websites, as they usually offer articles of incorporation templates and instructions.
The cost can vary from $50 - $400 depending on the state.
For example: Let’s take a look at New York. To incorporate, it costs $75 with an optional expedition fee. Knowing that incorporation takes at least 2 - 4 weeks, and can take longer if your application is rejected and you need to reapply, this is a cost to take into consideration depending on your timeframe. To file with the IRS to be tax exempt, you must file the 1023 form, which costs either $275 or $600 depending on which form you use. This means that filing costs in total will cost at least $350 - $675.
This image gives you a much deeper look at everything that is required to file.
Source: Harbor Compliance
This process will vary depending on your state and type of nonprofit. This is why we suggest taking an in-depth look at all of the costs that come with starting a nonprofit, before you decide if starting a nonprofit is the right decision.
Filing with the IRS
When you file with the IRS, you have to file a Form 1023. This is the most complicated part of the filing process because it requires a lot of paperwork. However, it is absolutely necessary to do it, and once it is done, you are well on your way to establishing your organization!
There are two versions of the 1023 form:
1023 Long: This is the standard 1023 form that organizations must fill out to become tax-exempt. It is 26 pages long, and the user fee is $600. This is where a lot of nonprofits can get stuck as the process can seem overwhelming. Don't worry, we have the instruction sheet for you here.
1023(EZ): This is the shorter, streamlined version of the 1023. It is easier to complete and the user fee for Form 1023-EZ is only $275. However, only certain organizations are eligible to apply with this form. The main requirements are that your projected annual gross receipts will not exceed $50,000 in the next three years, as well as not having assets that exceed $250,000. To see the entire eligibility worksheet, click here.
Aside from just the basic filing fees, many recommend consulting legal counsel to make sure everything is done correctly. A lawyer can assist you in preparing your required legal documents, your Articles of Incorporation, and your IRS application.
CPA’s or attorneys usually charge around $2,000 - $5,000 for the entire process of helping you with the IRS Form 1023. While this will help ensure everything is done correctly, this can be a hefty cost for new nonprofits.
There are also some online services, such as LegalZoom, who charge lower fees, in the range of $200-$600, depending on the service (incorporation or IRS 1023). If you decide to go this route, we suggest you make sure you are reading the fine print to verify that they provide all of the services you need.
We know that not everyone will have the budget for this kind of service. Thankfully, there are pro bono services available that help you get the job done without the hefty legal fees!
Let’s take a look at New York again. If you are in New York City, you can consult Lawyers Alliance, who offers legal assistance to nonprofit organizations. They also have this handy page that gives you a look at pro bono providers nationwide.
We also suggest that you contact any local universities in your area. Many offer law clinics, many that even specialize in nonprofit law! These are much cheaper, and supervised by law professors and professionals.
Administrative costs are another thing to consider when you are planning your budget. Things like:
Although it depends on the size and needs of an organization, many nonprofits need some sort of office space to conduct their daily operations. This is a big cost to take into account!
Even if you do not need one right away, you may decide to get an office space down the road and it is useful to do a cost analysis of what this will look like.
Some things to take into consideration:
- How much space will you need?
- How many computers, desks, printers, and other supplies will you need?
- Do you want to rent the space long-term?
- Would you like to have parking for yourself and your staff?
- Is a kitchen, a meeting space, etc. essential?
- Are there any specific requirements you are looking for?
By taking the time to note your requirements, you will get a better understanding of potential costs.
While it may not be necessary for smaller nonprofits, many organizations need hired staff to help them with their daily operations. The roles and responsibilities, and how many people you may need to hire, will depend on the type of nonprofit you are starting.
Some questions to ask yourself when doing a cost analysis:
- How much can you spend on salaries?
- Will your staff be paid hourly or earn yearly salaries?
- What types of benefits can you offer?
When you have a clear idea of the budget you have for staff, you can make an informed decision on who you should hire.
Aside from the necessary filing and administrative costs, there are some other costs to take into consideration.
Creating a website is essential for a new nonprofit, because it is the launchpad for interacting with the community they serve and getting the word out about their organization. 90% of the U.S. population uses the internet to find information!
To create a website, you have a few options. Please note that we do not recommend doing it yourself! It is very difficult to create and update, and you run the risk of producing a low quality product. Instead, we recommend you choose one of the following options:
Hiring a freelance web designer: A freelancer or someone you know who works specifically with websites can be a good way to go. Since the project is outsourced, you can spend more time focusing on your mission versus learning how to code, but the minimum cost is about $2,000.
Using a web design agency: They will take care of the project from start to finish. You will get a high-quality, professional result. They are specialists, and it shows! However, these agencies usually charge a hefty price. The minimum for a full website begins at $5,500.
Using a Content Management System (CMS): These systems are much cheaper than agencies, and allow you to have full control over the project. With a CMS, you are able to create a fully functioning website, without any serious technical skills! The most popular CMS is Wordpress. AssoConnect also has a CMS that is built specifically for nonprofit organizations.
Purchasing a Domain Name
A domain name is your unique address that will allow users to find and access your website. For example, our domain name at AssoConnect is assoconnect.org
Getting a domain name is an important step when it comes to building a website. According to Hostgator, a domain name will usually cost $10-$12 a year, but prices can vary.
For example, if you are planning on buying a domain name from someone else, it can get much more expensive.
This is why we suggest you try your best to find a domain name that is not already being used. It will save you the hassle!
Having a nonprofit management software (like AssoConnect!) is one of the most useful and important things to implement for your organization. There are many benefits to nonprofit software, like:
- Simple to Use
- Accessible 24/7
- Easy Collaboration
- All Tools in One Place
- Safe and Secure
The cost of nonprofit software varies, but most quality platforms come at a monthly or yearly fee. We believe that implementing a nonprofit software pays for itself in many cases, because of the time and effort it saves you.
If you are interested in trying a nonprofit software program, we suggest you take advantage of free usage periods to try them out. AssoConnect gives you a free 30-day trial to see if our software is right for you!
A strong marketing strategy will be a huge help in the early stages of your nonprofit and beyond. It not only helps you spread the word and advocate for your cause, but it can also help you find donors, members, volunteers, and so on.
If you don’t have a marketing strategy, you run the risk of having an inconsistent public perception of your organization and difficulty to fundraise and recruit volunteers.
This is why we suggest you create a marketing plan from the beginning, usually in your business plan. How do you want to communicate with your audience? How do you want them to perceive you?
It is important to do a cost analysis for your marketing strategy:
- What tools will you use?
- Do they offer discounts for nonprofits?
Marketing comes in all different shapes and sizes, with specific tools to boot. There are blogs, newsletters, social media, websites, and more. Think about what may work for you and give it a try!
Being present on social media platforms is a big part of modern marketing strategies for businesses and nonprofits alike. There are many advantages, including:
- Raise awareness about your nonprofit and its mission
- Connect with your current and potential donors
- Public Relations
- Interact with other nonprofits
Social media can be daunting, and implementing a strategy is important! There are plenty of tools out there for social media management, but most of them come at a cost.
Google Ad Grants
Here is some good news when it comes to cost - Google for Nonprofits created a program that lets nonprofits take advantage of Google Ads - for free! It is called Google Ad Grants, and it is a great way to spread the word about your cause and drive traffic to your website.
With this tool, nonprofits are granted a monthly advertising budget of $10,000 a month, which equals a budget of $329 a day for advertising your nonprofit!
We hope this has been a helpful overview of the costs that come with starting a nonprofit. Before moving on to the next step in creating your nonprofit, be sure you have conducted a needs assessment to determine the quantifiable need for your organization.
AssoConnect is here to answer any of your questions, let us know if you have one in the comments section!
AssoConnect is a software specifically designed with nonprofits in mind.
Try it free for 30 days!