Is it a good time to start a nonprofit?

In my role as an educational programming manager at Candid, I hear this question nearly every day: “Is it a good time to start a nonprofit?” I hear it from people who are passionate and committed about a certain issue in their community or in the world. They see a problem and are certain no solution is being provided—and they want to be that solution. 

I want to be as excited as they are, but I often feel like a wet blanket. Why? Because there are so many factors to understand when considering whether or not to start a nonprofit. I can’t tell you for certain whether you should or not. But I can offer essential information and resources to help you decide. 

Will you be able to secure funding?

Is it a good time to start a nonprofit? Well, the current world of giving can make it difficult for any nonprofit to survive—but especially a new one without a track record. The National Center for Charitable Statistics reports a steady growth in the numbers of registered nonprofits over the past 20 years, with a current total of over 1.8 million active nonprofits. The number of donors to those nonprofits, however, has been falling following a surge in 2020 and 2021 in response to the COVID-19 pandemic. With emergency funds at foundations, and some federal assistance programs created in the wake of that crisis being phased out, a growing number of nonprofits are competing for fewer dollars than expected.  

New organizations can’t expect to receive large gifts from megadonors like MacKenzie Scott. They rely more on smaller individual donors, whose numbers are dwindling: According to the Fundraising Effectiveness Project, in the first quarter of 2024, the number of donors who gave less than $100 dropped 10.4%, more than any other donor category. Though the same report suggests that funding from foundations and other sources are expected to grow, that support is less likely to be directed to new nonprofits. 

What legal requirements will you have to meet?

The reality of starting any business—and a nonprofit is definitely a business—is that some difficulties are always going to be present. Any nonprofit faces initial costs of upwards of a thousand dollars in state and federal application fees just to become a legal entity. Many nonprofits find that, without already established programs, they can’t get the grants or donations needed to hire staff and start delivering their programs—the solutions they created the nonprofit to provide. So the good will and wallets of the founders and board members are stretched thin until other donations begin to flow in, which could take years.  

In addition to program delivery, there are reporting requirements. All nonprofits are required to file annual tax forms with the IRS and to register as fundraisers in every state they intend to fundraise from. In addition, institutional and governmental donors often require a report on how grant money was spent. New nonprofits cannot always count on having volunteer financial, legal, and development staff to do it all.  

So is it a good time to start a nonprofit? Well, all of these above concerns might not dissuade someone with the true fire to make change, to respond to a need they can’t ignore. But if you are that person, you need to go into it with your eyes open. 

What resources can help you decide?

Before you take that first step, consider everything that goes into starting a nonprofit—not just the legal steps but also the logistical steps of creating a business plan, securing enough funding to get going (and keep going), and deciding how the work will get done without a miracle windfall. Candid offers several free resources that can help you think through the steps, including our Nonprofit Startup Assessment Tool and our free class Is Starting a Nonprofit Right for You?  

We also recommend that you talk to experts. For example, SCORE provides free mentoring services for any kind of business creation. You may also want to check with your local bar association to see if they can connect you with a lawyer with expertise in helping nonprofits—and who may be able to offer their services pro bono.  

And you might ask yourself again: Is there any other way to channel your passion and sense of urgency into an existing nonprofit? Knowing who’s already working in your city and how you can complement or assist them is essential. You might join their board, their staff, or their volunteer corps. Maybe you can be the vital force that doesn’t start a nonprofit, but makes an existing one stronger and more effective. 

Photo credit: SDI Productions via Getty Images