Is it difficult to run a non-profit organization?

James,

I'm not a Tax Attorney... nor do I play one on TV.

One thing to consider is all of your financials are "public record." See this for more details.

All The Best,

Rich Beck BCIP, MCSD, MCIS

Some good friends of mine started a non-profit several years back, and from what I heard, yes, it's a lot more complicated than a regular business. You'll need to get an accountant and lawyer to help you properly set up a non-profit that meets state and federal guidelines.

I believe non-profits are required to have a board, with a minimum number of people on the board. The board meeting minutes are an official legal record and there needs to be so many board meetings per year.

I don't know about sending tax statements to donors or anything. And you can have a salary, but if it's too high, donors might start wondering exactly why they're donating - to support you, or support your non-profit's mission.

In the end my friend merged his non-profit with a larger one that had the same mission. It was too time consuming for him to run his own, even with a board helping. Fundraising is A LOT harder than it sounds and it's a constant worry. And with so many non-profits out there asking for money, the competition is fierce for donors.

I'd definitely get the advice of an accountant and a lawyer before jumping in. Maybe consider getting involved in an established non-profit first to see how things are run.

A for-profit business, on the other hand is a little easier because there are several business structures you can choose from. The easiest is a simple sole proprietorship. I set up my business as an LLC to limit my liability (ie. if someone sues, they can't go after my personal assets). I had a lawyer help me and I use an accountant for doing the business taxes.

There's still a lot to learn, so do your research first. It also helps to write a business plan to help you focus your business more, and act as a guide along the way.

Good luck!

As someone who has run, been on the board of, or been employed by nonprofits, let me say there is little or no difference between a non-profit and a for-profit business. I am not an attorney or accountant, but let me explain from my experience.

Most people think that since they are a nonprofit that they do not need to show a "profit" at the end of the year. False. You need to take in more money than you spend. They think that people will give them things for free since they are non-profit. There is no "free"-- people who give things are most often looking for a tax write-off, which you can provide if you are properly registered with the IRS in the US. There is a thing called giving products "in kind," but no one can legally provide services and get an IRS-approved receipt for their time. Nonprofits that issue receipts for services run the risk of losing their nonprofit status.

Another common error--nonprofits must pay most taxes. For example, workers are not exempt from any payroll tax. If you have a business associated with your nonprofit, you are not exempt from sales taxes. Also, you must pay taxes on business profits. A common example is a church that owns a bookstore. The church is tax exempt, the bookstore pays taxes like all other bookstores. In most places in the US, nonprofits do not pay property tax on property they own, but that varies widely. If they rent the property to others, they pay taxes on any profit they may make.

The IRS watches the income/expense ratio very carefully. Nonprofits are required to file an informational return every year. They want to make sure that if you issued receipts for $100,000 in deductible gifts that you did not spend $90,000 on salaries. They expect most money to go for the cause for which the non-profit was formed. By the way, raising money is not easy. It takes as much effort to get donors to give--if not more--as it does to market a product or service.

Nonprofits are a different animal. Most people are better off running a for-profit and making sure that expenses equal income so they have no tax liability. That way, they don't have anyone looking over their shoulder as long as expenses are legitimate. As always, check with a lawyer and an accountant before getting involved in a nonprofit.