How to Create a Non Profit Foundation

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You hear the word "foundation" a lot, but few people know the extent to which foundations are established to meet charitable goals. Some, like the MacArthur Foundation, give grant money to individuals. Others support only institutions. The Taproot Foundation gives volunteer talent to successful grant applicants. What foundations have in common is underwriting the ideas and dreams of others.

Step 1

Articulate your goal and ambitions. Write a paragraph describing the foundation you’re looking to start. Use this mission statement to formulate a business plan (see links below) that outlines your objectives, operational goals, outreach strategies and target audience. Apply for a small loan--perhaps $20,000--to cover legal and accounting fees and system set-ups, furnish and equip an office and pay salaries until donations begin to come in.

Step 2

Analyze competitor foundations supporting similar causes. Obtain copies of their brochures, fundraising appeal pieces, annual reports, donor lists, grant giving guidelines and other documentation to get a bird’s eye view of how these nonprofits operate so you can emulate some of their systems and practices.

Step 3

Complete paperwork required to establish your Section 501(c)3 charitable organization status. Examine IRS guides to learn how foundations may receive and disburse funds within federal tax code law. Hire an attorney to incorporate your nonprofit or tap an Internet legal service (see link) for guidance. Call the IRS if you have any questions about your foundation’s start-up: (800) 829-4933.

Step 4

Register your nonprofit foundation with your state's secretary of state, and obtain federal and state tax ID numbers. Draft by-laws so anyone dealing with, working for or contributing to the organization understands your foundation’s guidelines for donations. Prepare a template for a donor contribution statement as well as a standard application for funds and accompanying guidelines to help those seeking grant funds provide the right qualifications and forms for consideration.

Step 5

Appoint a board of directors to govern your foundation. Choose people with a vested interest in the organization’s mission plus community leaders, celebrities, business professionals and community members. Make clear to each board candidate what the foundation expects in return for their name on your letterhead, be it a specific amount of time and effort, money or both.

Step 6

Hire staff with foundation, nonprofit and fundraising experience--many start-ups operate efficiently with a director, fundraiser, marketing communications professional and clerical help. Buy or rent offices and obtain furnishings and equipment. Charge staff with responsibility for finding volunteers, setting up office systems and instituting fundraising campaigns.

Step 7

Monitor the foundation’s first year of operation so it doesn’t fall victim to pitfalls like overextending the organization’s giving budget or spending too much on administrative expenses. Expect your accountant to track this when he or she conduct quarterly audits. Aim for a 30/70 goal, allocating 30 percent of foundation funds for operational expenses and 70 percent of donations to help grant applicants, so you’ll be around for the long haul.