Starting a foundation especially starting a service based foundation is not supposed to be as expensive as starting a business venture. Basically what is needed to start a foundation is an office facility, office furniture and equipment, and the money needed for incorporating the business, opening a website, producing publicity materials, and of course the money needed for overhead and running the office at least for a period of time before donations or grants starts coming in.

This industry has a low level of capital intensity which is similar to other service industries. The cost analysis as it relates to starting a non-profit organization in the united states of America, Canada, United Kingdom and Australia can be said to be almost the same except for few variations.

For example, the cost of setting up a full functional non-profit office with the required furniture and gadgets (telephone, printing machines, computers, tables and chairs, book shelves, cabins, standard library, photocopier, fax machine, amongst others) are same especially when bench–marked against the US Dollars.

Other factors that may be slightly different in terms of costing when it comes to starting a non-profit organization in any of the countries listed above are cost of labor, cost of transportation and logistics, local tax, business incorporation fee, rent/leasing amongst other factors.

Over and above, when it comes to starting a medium scale non-profit organization, you should be prepared to either rent or lease a standard and centralized facility in a business district; this is going to be one of the areas where you are expected to spend the bulk of your start–up capital.

In essence, the amount required to start a foundation should be scaled down to the barest minimum except in cases where they can’t do otherwise. It is important to note that the amount needed to start a foundation is different from the amount needed to execute projects.

For instance; if a foundation decided to build and donate a hospital to a community, they don’t have to raise the money needed to execute the project before the foundation is registered, all they need to do is to incorporate the foundation, get an office facility and then set up a corporate structure et al. Thereafter, the fund raising for any project can then follow suit.

Estimated Cost Breakdown for Starting a Non-Profit Business in 2021

These are the key expenses you are expected to make when starting a medium scale standard non-profit organization in the United States of America;

  1. The total fee for registering the non-profit organization in the United States of America – $750.
  2. The amount required for obtaining licenses and permits as well as accounting services (software, P.O.S machines and other software) – $3,300.
  3. Marketing promotion expenses for the grand opening of the non-profit organization in the amount of $3,500 and as well as flyer printing (2,000 flyers at $0.04 per copy) for the total amount of $3,580.
  4. The cost for hiring business consultant (including writing business plan) – $2,500.
  5. The cost for insurance (general liability, workers’ compensation and property casualty) coverage at a total premium – $2,400.
  6. The cost for leasing a standard office facility in good location/business district – $150,000
  7. The cost for remodeling the facility – $5,000.
  8. Other start-up expenses including stationery ($500), phone and utility deposits ($2,500).
  9. The operational cost for the first 3 months (salaries of employees, payments of bills et al) – $60,000.
  10. The cost for start-up inventory (printing papers, printing ink/cartridges, pen and stencil et al) – $2,500.
  11. The cost for cash register, security, ventilation, signage – $3,750.
  12. The cost for the purchase of furniture and gadgets (telephone, printing machines, computers, tables and chairs, book shelves, cabins, standard library, photocopier, fax machine, amongst others): $4,000.
  13. The cost for building and hosting a website: $600.
  14. The cost for opening party: $5,000.
  15. Miscellaneous: $5,000.

You will need an estimate of five hundred thousand dollars ($500,000) to successfully set up a medium scale non-profit organization in the United States of America. Please note that this amount includes the salaries of all the full– time staff for the first 3 months of operation.

Starting a small scale but standard non-profit organization that can only carry out basic social work within a community in the United States of America will cost about twenty thousand dollars to fifty thousand dollars ($20,000 to $50,000). Please note that just like most service based businesses, it is cost effective to start a small scale non-profit organization and you can afford to operate your office from your home if it is legal to do so in your state or country.

When it comes to starting a standard and large scale non-profit organization with several offices in key cities in the United States of America and perhaps other part of the world, a non-profit organization with over 20 full–time employees excluding volunteers and handling various projects, then you should look towards budgeting well over three million, five hundred thousand dollars ($3.5 million).

12 Factors That Determine the Cost of Opening a Non-Profit Business

  1. The Type of Non-profit Organization

A major factor that will determine the overall cost of opening a non-profit organization in the United States of America is the type of non-profit in question. There are many types of nonprofit organizations. These nonprofits are usually tax-exempt because they work toward public interest.

All assets and income from the nonprofit are reinvested into the organization or donated. Depending on the nonprofit’s membership, mission, and structure, different classifications will apply.

For example, Social advocacy groups are classified under 501(c)(4). Social advocacy groups lobby or promote some sort of social or political effort. Funds typically come from donations or membership dues. Examples of social advocacy groups include Greenpeace, NAACP, ACLU, and the National Organization for Women.

We also have 501(c)(3) – Charitable Organizations. Most nonprofit organizations fall under 501(c)(3). This includes religious, educational, charities, scientific, and literary organizations. Donations made to 501(c)(3) groups are tax deductible. Public charities are the largest type of 501(c)(3) with nearly 1 million registered in the United States.

Some examples include food banks, museums, art groups, amateur sports, colleges, low-income housing organizations, and animal welfare organizations. Charities are typically funded through donations, government grants, or membership dues. All income for 501(c)(3) groups is tax exempt. You will quite agree that the cost implications of starting these different types of non – profit firms may vary.

  1. The Choice of Location

A major factor that will determine the cost of opening a non-profit firm in the United States of America is location. In business, location is key part of what determines the success of the business. There are business consultants cum realtors who are specialized in helping people choose an ideal location for their business; a location that will guarantee them to profitability. So, you will now agree that location can influence the cost of starting a non-profit firm not just in the United States of America but anywhere in the world.

  1. The Required Licenses and Permits

In the United States of America, you cannot open a non-profit firm without first applying for the mandatory licenses and permits. You would need building license, zonal permits, and signage permits amongst others. For example, in California nonprofit veterans’ organizations that sell merchandise generally must hold a seller’s permit.

These licenses and permits cost money and it will influence the overall cost of opening a non-profit firm in the United States of America. In order to get the overall cost of licensing and permits associated with opening a new non-profit firm in the United States, we will advise that you reach out to your city government. You also need to consider state and federal requirements.

  1. The Type of Facility

The type of facility you want to run your non-profit firm from is also a major factor that will determine the overall cost of opening a non-profit firm in the United States of America. You have the options of renting, leasing or constructing your own office facility from the scratch.

With renting and leasing, you might just have to spend extra to modify the facility to fit into what you have in mind, but there is a limit to how far you can go and it will be dependent on what the landlord of the facility wants. Let us assume that you want to construct your office facility from the scratch.

It means that you will buy the land or a property, construct and equip the office facility to fit into what you have in mind. You will agree that you are going to spend way more when compared to people that rent or lease a facility. This indeed will greatly influence the overall cost of opening your non – profit firm.

  1. The Number of Offices they Want to Start With

Another very important factor that determine the cost of opening a non-profit firm in the United States of America is the number of offices they intend starting with. No doubt, there are new businesses that start big with two or more offices in different locations at the same time or within a short interval. Aside from the cost of renting or leasing the office facilities in such situation, it will also cost you more to furnish the offices, and the more locations you have, the more money you are expected to spend.

  1. The Cost of Hiring and Paying a Business Consultant and Attorney

If you want to get your business started on the right foundation, it will be a wise decision to hire the services of a competent business consultant and perhaps an attorney. A business consultant will help with drafting a workable business plan document, a marketing plan and strategy, comprehensive SWOT analysis, and other advisory services.

Also, an attorney will help you with registering the business, drafting contract documents and offer you all the legal expertise that will help you start the non-profit firm on the right foundation. Of course, you will agree that these services will cost you money and it will indeed influence the overall cost of opening a non-profit firm in the United States of America.

  1. The Cost for Branding, Promotion and Marketing of the Non – Profit Firm

The cost for branding, promoting and marketing the non-profit firm is yet another key factor that will determine the overall cost of opening a non-profit firm in the United States of America. If you need massive results as it relates to winning a fair share of the available market in your city, then you must be willing to pay for effective branding, promotion and marketing.

As a matter of fact, it is not cheap to come by an expert in branding, promotion and marketing that will help you compete with brands that are already determining the market direction in your city. So, if you add the cost of paying a branding and marketing expert, it will sure increase the cost of opening your non-profit firm.

  1. The Cost for Furnishing and Equipping the Office

Another factor that will determine the cost of opening a non-profit firm is the cost of furnishing the office facility. You will quite agree that aside from the basic facilities that are expected to be found in an office, an investor may decide to spend more than expected to furnish the office to look unique.

Before you can open a non-profit firm, you should budget and buy chairs and tables, projectors, computers, laptops, printers, flat screen TVs, sound system, DVD players, office furniture (table, stools and sofas), telephones, filing cabinets), office equipment (cash register, security and fire alarm and protection gadgets, CCTV, ventilation, signage), software apps amongst others. All these will cost money and it will influence the overall cost of opening a non-profit firm.

  1. The Cost for Insurance

Paying for tax and insurance policy cover is yet another important factor that will determine the overall cost of opening a non-profit firm in the United States of America.

In the United States, you can’t operate a business without having some of the basic insurance policy cover that are required by the industry you want to operate from. Thus, it is imperative to create a budget for insurance policy cover and perhaps consult an insurance broker to guide you in choosing the best and most appropriate insurance policies for your own non – profit firm.

  1. The Cost for Registering the Non – Profits Firm

The cost for registering a non-profit firm is yet another cost that will influence the overall cost of opening a non-profit firm in the United States of America. Although, the cost of registering a business is affordable, it will no doubt add to the overall cost of opening a non – profit firm in the United States of America.

  1. Cost of Recruiting and Training Your Staff and Volunteers

The fact that you are opening your non-profit firm means that you are expected to recruit and train your staff and volunteers. The training will help you sell the corporate culture of your organization to the new employees. As expected, it will cost you money to hire trainers that will help you bring your new hires up to speed and that will add to the overall cost of opening a non-profit firm.

  1. Purchase and Customizing of Uniforms for Employees and Volunteers

Another factor that will determine the overall cost of opening a non-profit firm in the United States is the purchase and customizing of uniforms for your staff members and employees. Your employees and volunteers should all have different uniforms and they are expected to put on these uniforms when they are on duty. All these uniforms will cost you money which is why it must be part of your budget if you are looking towards opening a non-profit firm in the United States of America.

In Conclusion,

These are some of the factors that will determine the overall cost of opening a non-profit firm in the United States of America. Please note that there are other factors not listed above that will sure influence the overall cost of opening your non-profit firm which is why we advise that you work with a result driven business consultant in your city to give you the needed guide and the overall cost of opening your firm in the United States of America.

Frequently Asked Questions

  1. Can You Make Money From A Non-profit Organization?

Yes, although a non-profit organization itself cannot earn a taxable profit, the people who run it can receive a taxable salary.

  1. What Is The Difference Between A Foundation And A Non-profit?

Non-profit is simply a charitable organization with a specific social goal that uses its revenues and surplus to fund its operations rather than benefitting the organizations’ members, shareholders, employees or leaders. These establishments derive their funds from the government, foundations, institutions, and individuals, and do not make grants to other charities.

Meanwhile, a foundation refers to a charitable organization that sources funds from its founders, which could be a corporate entity or a family. These organizations may derive their funding from private foundations, corporations and the government or an individual, corporation or family. Both, however, remain important charitable organizations in societies.

  1. What Is The Difference Between A Business And A Pure Charity?

A business is more or less an entity that acquires capital from the marketplace. It leverages those funds to purchase buildings, land, and equipment. It creates goods or services from those assets in order to sell them for a profit. Meanwhile, a pure charity offers free services in exchange for contributions to fund those services.

  1. How Much Does It Cost To Start A Non-profit Organization?

Every non-profit is different and will have a wide range of start-up costs. However, some costs are relatively universal when starting a non-profit.

  • Incorporation costs: Expect to spend anywhere from $100 to $1,000 on incorporation costs.
  • Applying for tax exemptions: If you plan to raise less than $50,000 and you are a charitable organization, school, or church, your organization can probably file the 1023 EZ form online. The process usually takes less than 20 hours in total and costs about $275. The more complicated Form 1023 takes much longer to complete and usually has a fee of about $600.
  • Insurance coverage: Almost all businesses and nonprofits need some kind of insurance. At the very least, you’ll probably need general liability insurance, which can cost anywhere from a few hundred dollars to a few thousand dollars. Additionally, board of directors insurance can be important, too.
  • Domain name and website: It costs between $10 and $50 to register your website’s domain name, and a basic website costs about $10 to host (though many hosting plans are annual, so you may have to pay for the entire year upfront).
  1. What Are The Alternatives To Starting A Non-profit?

Serving the greater good can be achieved in numerous ways. And most don’t require setting up an IRS approved charity (501c3), a complicated task that many people underestimate. Here are several alternatives to consider.

  • Seek Fiscal Sponsorship
  • Start a Local Chapter of a National Non-profit
  • Set up an Unincorporated Non-profit Association
  • Form or Join a Giving Circle
  • Set up a Donor-Advised Fund
  • Become a Social Entrepreneur
  • Become a Peer-to-Peer Fundraiser
  1. How Much Money Do You Need To Launch A Non-profit?

If you want to launch a non-profit, it may cost anywhere from $283 to over $700. Costs may include incorporation fees, branding, office space, and more.

  1. How Much Money Do You Need To Start A Non-profit?

Generally, you need an investment of $500 at a bare minimum, but costs can be as high as $1,000 or more.

  1. How Do You Supplement The Non Profit Fees You Receive From The Benefits Program?

Whether you need to plan a quick event or brainstorm a creative way to virtually engage your supporters, here are event fundraising ideas to help you get started.

  • Bake Sale Fundraising Event
  • Afternoon Tea Time
  • Cooking Competition
  • Recipe Books
  • Board Game Night
  • Ice Cream Social
  • Movie Night
  • Scavenger Hunt
  • Talent Show
  • Tie-Dye Party
  • Yard Sale Fundraiser
  • Donate a Drink For A Cause
  • Art Show
  • Video Game Fundraising Event
  • Fashion Show
  • Film Fundraising
  1. What Sort of People Join or Support Non Profits?

The foremost reason people pursue any kind of charity work is about making a difference. Often this very personal “calling” comes from a moral, social, cultural, political or even religious motivation, rather than the typical appeals for business or commercial pursuits.

  1. What Are The Internal Strengths And Weaknesses Of A Non Profit Organization?

Internal strengths for the non-profit are those advantages that give it an edge toward fulfilling its mission. Strengths could be an internal donation source, strong funding, great leadership or such a strong message that people are inspired to help.

Have it in mind that a non-profit internal strength might also turn out to be a weakness. Ideally, weaknesses addressed properly can become strengths. For instance, an organization might boost a strong volunteer base and inspiring leadership but lacks someone who can effectively budget operational funds to maximize monies used to help the community. This is a weakness.

  1. How Can You Provide Government Funders With Evidence That Your Program Works?

Non-profit monthly and annual reports are an in-depth and comprehensive reporting of an NGO’s activities. The following is how you can convince government funders that your program works via your annual reports;

  • Outcome measurement chart: Note that this tool will allow your funder to see the progression of your plan, activities and outcomes at a glance. So make sure you keep it updated throughout the lifetime of the project to ensure you don’t miss any valuable lessons learned by your project.
  • Testimonials: Have it in mind that Funders love testimonials. So if you can get written testimonials from clients who have participated in the project and felt their lives were impacted in a positive way, this is probably one of the greatest marketing tools that you and your funder could have.
  • Lessons learned: It is very important for a funder to know that their investment left some kind of a lasting impact. So if you include lessons learned, it means that you have learned valuable information that both you and your funder can share with others who may hope to try to implement the same type of project that you have done.
  • Financial Report: Every report to a funder must include a financial report and in many cases must be accompanied by copies of receipts. Your financial report becomes a part of your funders accounting system and is an important piece in them being able to meet their financial accountabilities to their contributors, government and consumers of the grants they provide.
  1. What Do You Think Are The Characteristics Of A Great Board Member?

Here are the ideal characteristics of a great board member:

  • Pre-existing passion for the cause
  • Eagerness to participate at every meeting
  • Willing to prepare ahead for meetings
  • Anxious to serve on committees
  • Ability and propensity to give above average financially
  • Strong desire for stewardship to others
  • Supportive, but willing to express their own opinion
  • Strives to learn as much as possible
Ajaero Tony Martins