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How to Start a Nonprofit Organization

Posted: 19 May 2019 11:23 AM PDT

When we think of entrepreneurs, we tend to picture big names like Steve Jobs or Elon Musk, who founded major for-profit companies. However, plenty of entrepreneurs fly under the radar by creating nonprofits that benefit society.

Running a nonprofit business offers numerous benefits. In addition to making a meaningful difference in your community, you can receive public and private donations to fund your efforts and gain tax-exempt status if you file for 501(c)(3) status with the IRS. There are similarities between nonprofit incorporation and starting a for-profit business, but incorporating a nonprofit isn't quite the same as launching a for-profit startup, and like any business, it will present some challenges along the way.

The Vision Group, founded by Mike Stickler, is an organization that helps other nonprofits get started. With the help of The Vision Group, pediatric physical therapist Brett Fischer founded Victory Lane Camp, an organization that offers a "vacation with a purpose" for children with disabilities and their families. As successful founders of nonprofits, Stickler and Fischer, along with other experts, shared their experiences and tips to help fellow do-gooders start their own nonprofit organizations. [Related: Why Nonprofits Are Viewed Differently Than For-Profits]

1. Turn your idea into a vision.

As with all startups, the first thing you need for a successful nonprofit business is a great idea. Once you have that idea, you need to figure out how to make it a reality. You'll want to flesh out your idea and start thinking about both the organization's mission, which includes the mission statement, and the vision moving forward.

"When you're starting a nonprofit, you have to move from an idea and a mission to a vision," Stickler told Business News Daily. "Without finances, you can't really get there."

In startup planning, a vision statement is often used to outline a company's long-term future goals, while a business plan describes how the company is going to achieve them. You'll need both to start your nonprofit. 

"Create a compelling vision and mission statement that reflects your desire to serve a particular constituency," said Doug Lind, founding partner at Clearwater Business Advisers. "Keep in mind that the vision and mission will need to stimulate not only funding sources but attract key people."

Finding potential donors and key influencers in the industry will help your nonprofit gain traction. For this to happen, you need a strong mission and vision statement. If you're unsure of where to start, it's never a bad idea to consult business and nonprofit advisors. Find advisors who won't blindly support your ideas. You want to receive constructive criticism throughout the early stages; honest advice and feedback are critical as you learn how to start a nonprofit.

"Recognize and avoid entrepreneurial hubris," Lind said. "That means becoming a bad listener and surrounding yourself with people who always say yes. It is important to have individuals who will be your truth tellers, able to help you stay on track."

2. Apply for nonprofit status as soon as possible.

If you're planning to apply for tax-exempt 501(c)(3) status, Stickler recommended filling out your application as soon as possible, since it can take up to two years to get approved. He also advised seeking legal help, but to be very careful in selecting an attorney to work with.

"Find out how many nonprofits the attorney has helped in the past," Stickler said. "A lot of them have never done it before."

You want to work with qualified advisors and lawyers. Gaining tax-exempt status isn't the simplest process, and it requires a few steps. To receive tax-exempt 501(c)(3) status, you must apply within 27 months of the end of the first month your nonprofit was officially created. This is in addition to other work the IRS requires to apply. The IRS site provides the applications needed to apply for tax-exempt status. There's also an IRS-sanctioned site devoted entirely to staying exempt.

"If you intend to apply to the IRS for recognition of federal tax-exempt status as a charitable organization under section 501(c)(3) of the Internal Revenue Code, your articles of incorporation must contain certain provisions," the IRS webpage says.

Make sure you follow those provisions to ensure you have a chance of being approved for tax-exempt status. It's important that you cover all the legal requirements in the early stages of starting your nonprofit organization. As you form a nonprofit, it's helpful to speak with your board of directors and other advisors when you write your bylaws and navigate legal regulations.

Tax law changes from 2018 also require nonprofits to understand what is and isn't tax-exempt. The National Council of Nonprofits developed a checklist to outline the new rules created by 2018 legislation. This affects quite a few areas of nonprofits, including the following:

  • Fundraising – "Most analysts predict that overall donations to charitable nonprofits will be lower because of four changes in the new tax law: (1) individual income tax rates will be lower, which reduces the value of all deductions; (2) state and local tax deductions are capped at $10,000, which will reduce the number of taxpayers who itemize; (3) the law doubles the standard deduction, which also reduces the number of itemizers; and (4) the new law doubles the exemption on estate taxes, which may make the tax advantages of some bequests less attractive," the organization wrote in the checklist.

  • Remote workers – "Employees (for-profit and nonprofit) will no longer be able to take an individual deduction for home office expenses," the organization wrote.

  • Employees with salaries more than $1 million – "Nonprofits that pay high compensation will pay an excise tax (penalty) of 21% on compensation more than $1 million of the top five highest-paid employees," the organization wrote.

  • Unrelated business activities – "The new tax law will impose a tax on nonprofits at the new corporate rate (21%) on income from each unrelated business activity separately," the organization wrote.

Following regulations goes beyond the federal level, however. Be sure to monitor the state legislation in addition to the rules put in place by the IRS.

"Nonprofits are regulated at the state level, typically by the state attorney general, and at the federal level by the IRS," said Allen Bromberger, nonprofit law expert and partner at Perlman & Perlman. "Each state has a set of rules that govern nonprofits that are formed in that state or operate in that state, including solicitation of charitable contributions – a separate area of regulation that is quite significant. The IRS also has extensive rules, constituting permissible activities, prohibitions on private benefit, reporting, political activity and commercial activity. You need to be familiar with how these operate in order to stay in compliance. States like Delaware, Connecticut and South Carolina are low [in] regulation, among others, and then there are states like Massachusetts, California, New York, Pennsylvania and others that are high-regulatory with more detailed rules and [spend] more time on enforcement than others."

State regulations also require that nonprofit corporations have a registered agent in the states they are registered to do business. With the number of regulations at both the state and federal level, it's a good idea to speak with a lawyer specializing in nonprofits.

3. Develop your brand.

Your nonprofit organization could be the most brilliant, life-changing idea in the world, but unless you take the time to develop a relatable, cohesive brand that people will care about, you won't get very far. The process of laying this foundation was one of Victory Lane Camp's biggest challenges.

"Our concept of incorporating the child's rehab needs and equipping their parents in a camp setting is a new idea," Fischer said. "Helping listeners grasp all the facets of what we are doing is difficult, which is why we have built 'vacation with a purpose' into the camp as our brand."

It's not easy to build a brand, and it helps to connect with influential people in the industry. Building a strong group of connected supporters can help you build your brand quickly. This tends to be a faster solution than trying to build a following through traditional marketing tactics, although it's a good idea to implement digital marketing measures.

For example, creating a web presence can help you spread the word about your organization. Creating social media accounts and a website helps give your brand credibility in addition to providing a medium for you to share elements of your business. Your website can include a page that solicits donations from interested viewers.

"Portray the heart and culture of the organization you want to create," said Lind. "Donors often are motivated by the person as much as the cause."

One of the most consistent issues facing a nonprofit is resources. In a for-profit business, investors will give money because they expect a return. Securing funds for a nonprofit is a bit trickier, but "selling" it the same way as you would a for-profit organization can be helpful. Crafting a strong brand image makes that process easier.

"When you're looking for supporters and major donors, the approach should be similar to investing in a for-profit business," Stickler said. "Their return on investment is changed lives. They'll give readily to your organization if they can see that ROI."

Develop a page devoted to explaining both the mission of the organization and the motives of the founder. Like Lind suggests, potential donors of all sizes will be more willing to donate money if they believe in the founder of the company. You can even include board members on the website if they're OK with that arrangement. Potential donors may respond positively to the connection to well-respected board members. For example, if your nonprofit centers on education, showcasing the bios of your board members with decades of experience in education adds credibility to your organization.

4. Build a great board of directors.

Your board of directors is going to be your team of go-to people for all fundraising, support and outreach efforts for your nonprofit organization. Many nonprofits start off with an incorporator board of the founder's family and friends. As your organization gets off the ground, you may want to turn to some professional contacts who understand entrepreneurship and running a business to serve on your board, said Stickler.

Board members offer advice and insights to help your organization develop. Surround yourself with a knowledge board that will provide a good balance of support and constructive feedback. Running a nonprofit is similar to running a commercial business, and you'll want an intelligent board to guide you through certain points of your journey.

Building a board also means complying with additional IRS regulations. The IRS says, "To guard against insider transactions that could result in misuse of charitable assets, the governing board should include independent members and should not be dominated by employees or others who are not independent because of business or family relationships."

You shouldn't hire a board of predominantly family members, as it can be considered a conflict of interest. Follow the IRS' guidance and look for independent board members who can still help move your nonprofit in a positive direction.

The IRS also states, "Although the IRC does not require charities to have governance and management policies, the IRS does encourage boards of charities to consider whether the implementation of policies relating to executive compensation, conflicts of interest, investments, fundraising, documentation of governance decisions, document retention and whistleblower claims may be necessary and appropriate."

In short, there are rules and standards in place that affect nonprofit boards. Make sure you follow the rules for hiring board members and implementing policies that apply to the board. There's more that goes into hiring a board than just bringing on great people.

5. Don't give up when it gets tough.

Nonprofits face just as many challenges as for-profit businesses, if not more. It's important not to get discouraged if things take longer than expected, or if you don't receive the overwhelming support you hoped for. Starting a nonprofit and building it into a successful organization takes time.

Take the necessary time to organize your plan. You want to check all the boxes, from meeting legal requirements to putting a board together. Taking the time to earn exempt status and thoroughly handle your nonprofit incorporation will be worth it in the end. Starting a nonprofit isn't easy, and people might doubt your mission, but with the right support, the task is achievable.  

"Criticism will come, but do not let anyone's thoughts or impatience in getting off the ground stop you, especially your own," Fischer said. "People of excellence rise to the top and are drawn to great causes, so keep casting your vision and trust that the people will come." 

Additional reporting by Nicole Fallon. Some source interviews were conducted for a previous version of this article.

Talking Shop: What You Need to Get a Small Business Loan

Posted: 19 May 2019 10:00 AM PDT

While some small businesses try to scrape by with what they have, others look to banks, alternative lenders or the government for a quick infusion of cash.

For those looking for added funding, there is no shortage of places to turn. Traditional banks, nontraditional lenders and the Small Business Administration, via its loan program, all offer small businesses access to additional capital. Then you must decipher which lender will serve you best, and which will give you the greatest chance of success. [Looking for a business loan? Check out our reviews and best picks.]

As the head of small business lending and decision sciences at Capital One, Iskender Eguz has a ton of insight into the various loan options and what it takes to secure one.

Eguz has more than 15 years of experience in advanced analytics, strategy development, valuations, marketing and credit risk management. In his current role, he leads all aspects of Capital One's small business and business banking lending, including P&L and credit risk management, valuations and pricing, underwriting and portfolio management, data science, product development, and technology investments.

We recently had the chance to speak with Eguz about the various lending options, the types of loans available, how to apply for one and what mistakes to avoid throughout the process.

Editor's note: Looking for financing for your business? Fill out the below questionnaire to have our vendor partners contact you with free information.

 

Applying for a loan

Q: What should small business owners do to prepare for applying for a loan?

A: As you prepare to apply for a business loan, you should keep the five C's of credit, a common lending framework, in mind. The five C's are capacity, capital, collateral, conditions and character.

  • The underlying business or the business plan should have the capacity to generate enough cash flow to pay back its debt obligations, while absorbing unexpected expenses or changing conditions in the economy or industry.
  • The character, or who the small business owner is, is critical. Not only whether you have the expertise to be successful in your business, but also your personal credit history demonstrating evidence of meeting prior debt obligations is important.
  • Finally, how much personal investment or money you are putting in your business (capital) and whether you would offer anything as security for the loan (collateral) shows your commitment to the business and can influence ability to get approved.

It's important you know your business well and are ready to have an open discussion about your business's circumstances along these dimensions so that the banker can structure the best products for your needs.

Q: When applying for a loan, do lenders consider your business's financial status, your personal financial status or both?

A: Lenders typically consider the five C's of credit for both the business and the owner, though the emphasis on different aspects may change based on the purpose, size, term and structure of the loan. Every case is unique, and lenders often price and structure loans on an individual basis – taking into account the business's circumstances, as well as our relationship with and knowledge of the business.

Q: What are the most common mistakes small business owners make when applying for a small business loan, and how can they avoid them?

A: A common mistake we see is business owners not partnering with their banker. It's important to openly discuss your plans, opportunities and risks you see so they can help you structure what product or products would best meet your needs.

A lot of business owners either under- or overestimate how much borrowing they will need. Business owners might need a mix of term loans for investment, as well as lines of credit that support their ongoing growth.

Sometimes, Small Business Administration (SBA) loans might be the right answer, giving customers extended terms they need that they might not otherwise qualify for. Having an open dialogue about where the company is going can help you understand what makes the most sense for your business.

Q: What are the pros and cons of applying for loans from traditional banks versus alternative lenders?

A: Alternative lenders have gained popularity in the marketplace but are not transparent on the total cost of the loan. When you factor in payback schedules and fixed versus variable interest rates, we've found that most small business owners end up paying considerably more for a nontraditional loan then a traditional bank loan.

Types of small business loans

Q: How do you know if your business is best suited for a term loan versus a line of credit?

A: In general, term loans are best suited for specific investments a business is considering, while lines of credit are helpful with managing the cash flow cycle. Of course, each business has a unique situation, and we work closely with our customers to understand all of their capital and financing needs so we can respond efficiently and help structure what product or products would best meet their needs.

Q: Do all loans require you to put up collateral? What are some examples of collateral that a business can put up?

A: Not all loans require collateral. It depends on the size of the request and the financial strength of the business. Loans under $100,000 can be unsecured (without collateral), but larger loans are typically secured by some type of collateral.

The type of collateral varies depending on the purpose of the loan. For example, if the loan is to finance real estate or machinery, the collateral would be the subject asset.

The most common collateral for lines of credit and term loan is a UCC lien on all business assets. Other types of collateral can be cash or marketable securities held in the financial institution, investment real estate, and other types of tangible assets. 

When a customer does not have collateral needed to secure a loan, SBA loans can be a great alternative. Our bankers help our customers determine the best loan structures based on their unique situation and goals.

Q: How should you best determine if the loan terms make fiscal sense for your business?

A: Like most other business decisions, business owners should consider the cost of the debt against the returns they expect from investing that money in their business. They should also ensure that they have sufficient cash flow or other financial buffer[s] that will allow them to service their debt payments through the ups and downs that naturally occur in a business cycle, without putting extra burden on the business.

As mentioned previously, it's important that business owners meet with their bankers to discuss their plans, opportunities and risks. Our bankers help our customers structure a loan that makes the most sense for their business, looking at their revenue and expenses in the past and present, as well as what is expected in the future.

Rapid-fire questions

Q: What piece of technology could you not live without?

A: Who lives without their smartphones these days? I am also amazed how many more things I am starting to ask Alexa at home these days.  

Q: What is the best piece of career advice you have ever been given?

A: No work is worth doing if you are not excited about it. Also, make sure you are working with people that you believe in and that believe in you.

Q: What's the best book or blog you've read recently?

A: It's a couple years old now, but Homo Deus: A Brief History of Tomorrow, by Yuval Noah Harari, was a cool sequel to Sapiens: A Brief History of Humankind. Both books have an engaging flow, looking back at the history of humans, and the second book adds trends in technology and conjectures of future that is cool.

I am a big follower of tech blogs, with Engadget and TechCrunch being my top daily stops. The merging of tech trends with history is probably what made Homo Deus a fun read for me. 

Q: What's the biggest risk you've taken professionally? Did it pay off?

A: I have never been afraid to try something new and speak my truth wherever I go. At Capital One, I have worked in various roles, many times switching to doing things in which I have no prior experience. It absolutely has paid off. The humility and learning mindset that comes with it is unparalleled and frankly addictive. You find more doors open than not, if you are willing to look for them and step through. 

Top Ways To Convert Subprime Leads Into Customers

Posted: 19 May 2019 06:00 AM PDT

You would be amazed to know that the subprime leads in America alone, is worth more than $1 trillion. Thus, it is necessary to understand how to convert these subprime leads to profits. 

What are subprime loans?

A subprime loan is a kind of personal loan, which is provided to a borrower that reluctantly applies for a subprime loan because of being rejected by the bank or private lender due to poor credit score. When banks and lenders do not facilitate people with a loan due to their highly risked income ratio, they look for the alternative and end up with money lenders and become high-risk borrowers.

What is a low personal loan interest rate?

The interest rate of a personal loan is between 8 and 34%. Usually, banks and credit unions offer personal loans at 20% interest rate. However, some private lenders can provide subprime loans at minimum 10% interest rate. Variations in the interest rate depend on the lender. With the enhanced competition and high expenditure ratio of the population, these lenders widen up the gate of opportunities to borrow money other than official financial institutions and sustain.

How are personal loans used?

A personal loan is a facilitation of money to the borrower depending on their income level. Sometimes, personal loans can be as simple as signature loans or credit loans, which can go through banks or private lenders. Personal loans include credit cards and signature loans from the bank. Loans from online lenders and peer-to-peer lenders often are personal loans.

Editor's Note: Looking for a business loan? Fill out the below questionnaire to be connected with vendors that can help.

 


How to convert your subprime leads into your customers

It is evident that subprime leads are the best option marketers have to connect with customers who are looking for a personal loan. Sometimes, customers are hard to bring to the table.

You cannot blame them. Probably, a poor credit rating is the root cause. Alternatively, maybe they are facing foreclosure with a credit score of 500. They do not want to go for another loan. As a result, you being a marketer will want to make yourself the master of closing subprime leads.

The best possible way is where one can communicate with lenders who deal with foreclosures and clients with poor credit. You can also contact bank loan agents handling customers with bankruptcy.

Consider these points for converting the subprime leads into customers.

1. Make hesitant clients come your way

Low credit score of the customer may flag them with a high credit risk and fewer chances of loan approval from banks, which in turn makes them try for a subprime loan. Thus, the priority should be to work with a particular target to bail these customers out of the dark circle. The feeling of poor credit score often leads people into the impression of negativity that they will never be able to fulfill the dream of their own house.

Moreover, the highly reputed banks have high expectations to meet before they grant any loan; it becomes nearly impossible for the majority of middle-class people to face this challenging situation.

2. Over-communicate throughout the lending process and continue to send updates

Money lenders are required to be informative when planning to convert subprime leads into customers. This interests borrowers to read about significant developments and guidelines in the mortgage industry.

For instance, in 2017, TD Bank conducted a survey to evaluate the performance of the real estate agents valued in a mortgage loan officer. And the result was positive showing 80% received a response due to effective communication than other concerns.

The best possible way is to outreach subprime leads with weekly updates. Which not only keeps them informed but also helps them acknowledge that you are taking care of your borrowers and that makes a big deal!

3.  Post an FAQ page on your website

An FAQ plays a vital role in any online business. For instance, when a client has never been in contact with you, the website is the link between prospective clients and your business. Hence, a professionally designed website, with an FAQ page is crucial.

List out all the pointers in there that can help clients get a better understanding of your product or service. This will be done through your esteemed associates who share a thorough knowledge of the industry and understand what the customers would want to know. Once done, compile a message for your leads, and share them using our ringless voicemail service, introducing yourself, and taking them to your website.

If you wish to share specific information, you can use the rich text messaging service to deliver a message with a link preview to land directly on your website. This will also allow you to track them, and study the audience you could successfully convert. This study can help you retarget more efficiently.

While these methods of closing your leads sound appealing and innovative, at the same time, you require marketing assistance to carry them out. Thus, the service suggestion feature stand here to meet your direct marketing needs, which helps businesses connect with their leads effectively, at the right time, with the right message.

The cloud-based predictive dialer services, for instance, can be used to follow up your leads. It runs a follow-up campaign with your message, including the rich text messaging service, you deliver your message loud and clear.

The industries we serve sums up a different way in which the favorite direct marketing tools can be used. Alongside this, LeadsRain introduces the Umbrella Approach, that collaborates the best of several services, to help you reach your end-goal strategically.
 
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