A museum doesn't have to be nonprofit, though most are. As a nonprofit, your museum can accept tax-deductible donations from corporate sponsors or the public. The museum can still earn money, but can't share any profits with owners or donors. The first step in starting a museum is to form a corporation, trust or similar organization, then register with your state government as a nonprofit. You also have to find directors, raise money and choose a location for your museum.
When you file the state paperwork for your nonprofit, you have to name a board of directors to help you run a museum. It can include yourself. The board manages the museum's operations and money for the good of the institution, rather than personal gain.
Some states allow one-person boards, but many states require a minimum of three directors. Check your state's guidelines to determine the number of board members required. Established museums have formal procedures for nominating board members, but when you're starting out, you can recruit them yourself. Look for potential directors you think will have passion for the job, skills to help manage museum funds and the time for regular meetings.
For many donors, being able to write off donations is an incentive to write checks or donate exhibits. After you incorporate as a non-profit you have to apply to the IRS for 501(c)3 charitable-organization status to make donations deductible. Qualifying as a 501(c)3 requires you to organize and operate your museum for specific purposes in the public interest — scientific, religious or educational, for instance. The IRS lets you file online.
Donations are the biggest source of money for museums — over a third of museum income — which is why becoming 501(c)3 is so important. Donors range from individuals to corporations and foundations. A quarter of the typical museum's income comes from government support, mostly donations or grants from state and local government. Museums also earn income from admission fees, gift shops, and renting space for events. Museums with endowments invest the money to generate added revenue; endowments account for 12% of museums' income on average.
An endowment is a pool of money reserved for investing. The return on investments can provide a steady stream of financing long into the future, instead of relying just on donors. Committing money to investments can reduce the amount you have to spend on regular operations or expansion. The standard in the museum world is to tap 5% of the endowment for spending each year and save the rest. Raising money outside an endowment gives you greater flexibility, and many non-profits manage without one.
Some founders start work on fundraising before the museum is even open. For a local history museum, you may be able to draw donations from long-time residents in the community, particularly if you have really worthwhile exhibits. The larger your war chest, the easier it will be to promote the museum and find a suitable location. This is the point at which your tax-exempt status comes in handy. After the museum is open, you can charge admission, or set up a gift shop or cafeteria on site.
To serve the community, your museum needs somewhere to exhibit its collection. When it comes to museum planning and design, it has to be big enough to house the exhibits, show them off well and have space for visitors. You need somewhere where the future costs — mortgage or lease payments, utilities, security — won't outrun your future donations. It's important you find a location where volunteers and visitors can reach it easily. You also want somewhere you can stay long-term without worrying about having to relocate.