Entrepreneurship can happen in many ways. Developing an effective product or service and a sustainable company can definitely be considered art. Like an artist, entrepreneurs have different options to consider when choosing how their company will share the service or product. One of the first things you should be very clear about when setting the foundations for your business is, why you are doing it in the first place.
The motive behind your entrepreneurship journey will determine what type of corporation you need. If you want to start a business because you have a solution to a problem and want to share it with others, your approach will be very different compared to someone who is doing it to be their own boss and achieve higher income payments. Either choice is fine, but if you are looking to share your ideas while generating profit, you should form a for-profit corporation. If you have decided you want to share your idea simply for the benefit of others and your satisfaction, then a nonprofit organization might be your best path.
The idea of a nonprofit organization is that any generated profit has to be reinvested in favor of the growth and improvement of the organization. This does not mean yourself or your employees can’t be fairly compensated, it means that they should not become millionaires by working in your organization because all of the extra money is pre-destined to serve the community. So before starting your venture, make sure a nonprofit is what you need to help you meet your business goals.
Through this blog, we hope to share useful tips and lessons that we have experienced first hand in the process of starting a nonprofit organization in Puerto Rico.
Lessons Learned in the Process of Creating a Nonprofit Organization
1. Align your goals with the type of corporation you create
If you’ve discovered your service or product and your motives are in line with the purpose of a nonprofit system, then you are already off to a good start. Understanding why you have a nonprofit is essential for developing and communicating an organization’s mission, vision, strategies and more.
2. Practice your pitch!
It is important to have your pitch ready at all times. You can even have it posted on your bedroom door: “Practice your pitch!”. For your pitch it is vital to determine what are the organization’s activities and how they interact with stakeholders. While we may think we have a clear idea in our heads, accurately communicating it with others is the true challenge.
Practice your pitch whenever you can, practice while walking, driving, getting ready in the morning, or while doing the dishes. Try different words, tones, examples, order of saying things, until you develop the winning 30 second pitch that helps people understand the organization’s goals and activities to meet those goals. Every time you meet someone new, they will ask: “what do you do?”, and you need to take advantage of that opportunity to practice your pitch.
Also, pay attention to how people respond to your practice pitches. Where do you think they get lost? Which words or phrases do you think helped them understand best?
3. Building relationships is key
Nonprofit organizations don’t belong to the founders or the Board of Directors, they belong to the people they serve. Even though you might feel very passionate and confident about your efforts to help, it is important to remember that we need others for support and feedback. Try to get your audience and your team to know you, trust you and be able to reach you
Hemant Taneja mentions in the start of his book Intended Consequences that a company or organization exists because society allows them to exist. This means a responsible relationship with society will give your organization a greater chance of endurance. Everywhere you go, there is the possibility of meeting a potential stakeholder, whether it’s a volunteer, donor, collaborator, or participant. So be prepared to be friendly and give your pitch, anytime, anywhere and as many times as needed.
4. Incorporating and applying for tax exemptions
Before we even think about tax exemptions, we must incorporate the nonprofit organization in Puerto Rico’s Department of State and with the IRS. Once you complete your state registry you will receive a Certificate of Incorporations and by registering with the IRS, you will be assigned an EIN ID number. These two documents are of utmost importance to validate the organization as a nonprofit and apply for tax exemptions.
Tax exemptions are surely one of the most attractive reasons for setting up a nonprofit corporation. Without the exemptions, the organization has to pay taxes for the money received or generated, so even though they come with several responsibilities, maintaining a tax exempt status is nothing a dedicated administration can’t handle.
In Puerto Rico, nonprofits can apply for their federal tax exemption with the IRS, which enables them the well-known 501 (c) (3) status. And they can also apply for the state tax exemption through Suri, which enables them a 1101.01 status with the Department of Treasury (or as well known in Puerto Rico, Hacienda)
Apart from avoiding income taxes, states and governments generally incentivize donors to support nonprofit organizations operating in their regions. In Puerto Rico, for example, anyone who holds an Act 22 or Act 60 decree must annually donate at least $5,000 or $10,000 respectively, to nonprofit organizations certified under Section 1101.01 (a) (2) of the Internal Revenue Code of Puerto Rico.
5. Follow the steps, but don’t think they can’t be rearranged
There are several free guidelines and resources for incorporating nonprofits available online. These are great to help us get started, but we should be careful to reach out and ask our own questions, sometimes there are other things we work ahead. The best way to learn is by talking to others who have been through the process themselves.
So when you find yourself stuck in a particular step, reach out to young nonprofits and ask them what their process was like. This can help you identify how to solve your problem and other tasks to work on. Our PG mentors are also a great resource to help you maintain momentum and make sure you are using your time and efforts wisely.
6. Find a trustworthy accountant or lawyer
More specifically, find an accountant/lawyer with experience helping nonprofits. While there are several advantages for registering a nonprofit corporation and filing taxes, there are many processes and documents to keep track of. There are filings that have to be completed every month, there are annual federal and state reports, it can easily get overwhelming when you read all about it.
Having a handy, trustworthy professional that can answer your questions, instead of doing the job themselves, can save you some money and give you the chance to learn more about business administration. The process of getting the tax exemptions can be tricky and costly. It is crucial to accurately fill out the applications and gather the necessary paperwork if you want to save time and avoid having to pay any application fee again.
7. You need a strategy for everything
Strategic and design thinking are great ways to approach problem solving. Think of strategies as ways to achieve specific goals. You will eventually use strategies for marketing, outreach, fundraising, managing volunteers and teams, business development, and others, so practice developing strategies that support the organization’s goals.
8. Ignore negative feelings of competition and do not compare yourself
There are many nonprofit organizations in Puerto Rico. Knowing other nonprofits helps identify the gaps we want to target and figure out how you can contribute something valuable to the community and even to other organizations. If we want to be effective with our efforts we must know where our help is needed. A comprehensive understanding of the whole scenario can help you decide where your organization will be positioned
Nonprofit organizations, like all companies, tend to struggle to achieve financial stability and growth. Their main sources of funding are grants, donations, and other fundraising activities. All this leads to inevitable competition for money, which may, in turn, cause us to disregard the importance of supporting and collaborating with other organizations.
When you learn about all the cool things others are working on, it is probable you will feel threatened or scared for the success of your organization, but do not pay attention to those negative feelings, instead use the information to figure out how you can set yourself apart and work with others to make sure the needs of the communities you most care about, are met.
9. Identify free nonprofit resources
Here are just some essential management and marketing tools that offer nonprofit discounts, some of them are completely free: Google Workspace, Canva, Hootsuite, Slack, Mailchimp, Adobe, Zoom, and other useful software. Many products or service companies have different pricing plans for nonprofit organizations. Before you pay for a tool, contact the company to find out if they have any offers your nonprofit organization can benefit from.
10. Prioritize
These can vary depending on what the organization does, but every organization should have a clear idea of their guiding priorities.
Sustainable, effective nonprofits:Revise their mission vision, and pitch consistently
– Align their activities and goals with their mission and vision.
– Identify stable funding sources
– Gather the appropriate permits
– Maintain their tax exemption
– Know and understand their scenario
– Explore strategic thinking
– Save important documents
– Build strong relationships with stakeholders
– Promote transparency and communication within the organization
The startup process is not too different from what every startup goes through and there is so much we can learn from exchanging experiences with others, networking must not get left behind. Once we create a business, networking becomes one of the most essential tools. Keeping a flexible mindset will help us learn from different sources, but the key is in finding a balance between being open to different things, and being assertive of what truly aligns with the goals you’ve established.
Deciding to create and maintain a nonprofit is just one of the many ways we can become entrepreneurs and achieve great life satisfaction. Like with any decision, there are pros and cons when considering a not for profit corporation. Make sure you are aware of your alternatives so you can make the best choice for yourself and your goals.
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