If you’re looking to start a nonprofit organization, it is by no means an easy ordeal.
Just like with anything that’s worthwhile, starting a nonprofit requires critical thinking, commitment, patience, and a lot of hard work.
While the process itself can be quite intimidating, tedious, and at times overwhelming in its complexity, a methodical step-by-step approach can help ensure success.
We’re aware that starting a nonprofit organization takes courage, so we definitely applaud your commitment to doing good!
To help you out, we’ve written up a detailed guide containing the key steps you need to take to start a nonprofit organization in a systematic, organized, and stress-free way.
A nonprofit organization is a type of business organization that must operate and provides its services without the primary goal of making money. Nonprofit organizations serve the public interest and are mostly categorized as tax-exempt by the IRS.
Generally, public charities are the largest type of 501(c)(3) with nearly 1 million registered in the United States.
Nonprofit organizations that do not come under 501(c)(3) are classified into many categories such as: 501(c)(4) social welfare groups, 501(c)(5) labor and agricultural organizations, 501(c)(6), 501(c)(7) recreational clubs and more.
Before we dive into how to start a nonprofit, make sure you read this in-depth checklist while starting a nonprofit. Now that we have a better understanding of what a nonprofit organization is, it’s time to start the ride. Buckle Up!
Here’s a short video on Starting a Nonprofit Organization in 10 Steps:
Now, this might seem like an odd thing to start the process with – but asking yourself this question at the very start will be essential to your success.
Firstly, according to the National Center for Charitable Statistics (NCCS), more than 1.5 million nonprofit organizations are registered in the U.S alone.
While this number is encouraging and hopeful for the progress of the world, it does mean that there are probably plenty of other nonprofit organizations doing similar work to the one you’re planning to do.
This doesn’t necessarily have to be an issue.
However, if your organization is in no way differentiating itself and clearly positioning a solution to an existing problem – funding will be hard to come by. Essentially, it will be harder to get support if you are simply duplicating existing services rather than improving or adding to them in a meaningful way.
There are also different ways to serve a mission you care about. Starting a 501(c)(3) registered nonprofit organization is a complicated process, and alternatives might be easier. Plus, estimates vary, but most experts agree that less than half of nonprofit startups survive beyond five years. Of those that survive, perhaps one-third are in financial distress.
Think about your intended demographic/ the population you wish to serve. You don’t necessarily have to go into too many details just yet. Make sure to establish what needs of that population you are hoping to service. Think about your intended solution and whether you’ll truly be adding value.
Find demographic or population data that shows a need for your services, and confirm if and how that need is not being met.
Identify nonprofit or for-profit organizations that are already serving the same needs or population(s) that you wish to serve.
Consider other alternatives to creating your own nonprofit organization: joining an existing organization in some capacity, becoming a consultant, starting a donor-advised fund, or seeking fiscal sponsorship.
Triple-check with yourself and any others you’re working with. Reflect on the following questions:
Pro tip 1: To help you out, you could also perform a Nonprofit Needs Assessment with the population in question.
Pro tip 2: Throughout the research process, be sure to save all of the qualitative and quantitative data you accumulate. It will come in handy as your “base data” when you get into monitoring and evaluating your organization’s work in the future.
Your nonprofit needs to be built on a solid foundation and clarity. A clear vision and value make for a strong and well-run organization. Here is what you will need to take up:
In the beginning, you’ll also need to choose a name for your nonprofit. There are many ways in which you could go about naming your nonprofit organization. However, it’s safe to say you should select a name that’s unique and somehow related to the main activities of your nonprofit. This decision will set the tone and influence your nonprofit’s brand for years to come, so it’s smart to take some time to think through this decision.
Note: It might be a good idea to check the availability of web domains since that may impact the name you decide on.
Many states require that nonprofits have a corporate designator, such as Incorporated, Corporation, Company, Limited, or their abbreviations (Inc., Corp., Co., and Ltd respectively). Check your state’s incorporation web page to see if a corporate designator is required for your nonprofit.
When you have selected your name, you need to check with your Secretary of State to see if it is available and the U.S. Department of Commerce website to be sure the name you want is not trademarked.
As mentioned previously, in order to attract funding, you will need to demonstrate that there is sufficient need for your organization’s services and that your organization is equipped to address that need.
Once you’ve pinpointed the need, the solution, and the population (this is likely to have happened in Step 1 already), it’s time to transcribe those into a clear and powerful mission statement.
A good mission statement is very important. It can help your nonprofit further clarify your purpose and can be very motivating for staff and volunteers. It sends out a powerful message about what you stand for, and if clearly written and communicated – it focuses your energy and attention and helps you make decisions further down the line.
We’ve written an entire article about how to write an awesome nonprofit mission statement, but here are a few key guidelines to follow:
A good mission statement helps you build a solid foundation upon which you can create a plan and is your guiding light attracting the right people to your organization.
Your vision is the future you intend to create; your grand plan—how you’re going to change the world.
Here are some examples of great nonprofit vision statements:
Nonprofit organizational values are the highest values that guide an organization’s actions, unite its employees, and define its brand. They are abstract ideas that guide organizational thinking and actions.
According to SHRM, “values state what is important to you as an individual and to your organization. In other words, values are what you stand for. They reflect who you are, which in turn affects what you do and how you do it, which is your culture.”
We treat all people with dignity and respect.
We honor our heritage by being socially, financially, and environmentally responsible.
We strive to meet the highest ethical standards.
We challenge each other to strive for excellence and to continually learn.
We embrace continuous improvement, bold creativity, and change.
Some nonprofit founders choose to hire or recruit volunteers before writing up a plan, but we’d recommend going the other way around. Only when you will have created a plan will you be able to estimate income, costs, and the talent that you will need and can afford.
Moreover, once the plan is created, excerpts can be pulled from it to insert into the federal Form 1023 application for tax-exempt status.
Accordingly, invest time upfront into developing a detailed plan. Such a plan will provide the structure and the discipline to think through the critically important strategic and operational issues.
Before starting to write your nonprofit business plan, it’s smart to do some more market research (additional to the one you’ve already done in your needs analysis and when determining your target population). For example, if you’re opening a literacy-focused nonprofit that you believe will address the need of local young people, you’ll want to understand how many schools are in the area, how many families are in your community, and how many of them have access to a computer at home.
A good nonprofit business plan sets up a roadmap for the next three to five years of your work. Regardless of your size or financial status, your nonprofit business plan will effectively create a blueprint for how your nonprofit will be run, who will be responsible for what, and how you plan to achieve your goals. Here are the main building blocks of a nonprofit business plan:
This should be the first section of your business plan but written last. It should describe your nonprofit’s mission and purpose, summarize your market analysis (that proves an identifiable need), and explain how your nonprofit will meet that need.
Before you describe any of your programs and services, write about your mission, vision, and values.
Use this section to describe, in-depth, the products, and/or services your nonprofit will offer. Who are your beneficiaries? What are your impact-based goals, and how will you achieve them? How do your programs and services create a positive change?
Explain the trends in your market and the need for your nonprofit’s services. How will you get the word out about your work? How will you communicate your message? What channels will you use?
What will your day-to-day operations look like? Define your organizational structure. As you structure your organization, establish what each role will accomplish. And, where will you be located?
Describe the change you’re wishing to create. What are the specific objectives you’re seeking to accomplish? How are you going to measure the change you’re creating? How will you use what you learn and share it with others?
What is your financial status? Include any cash flow statements, balance sheets, income statements (if applicable). Write up a budget. What income is confirmed? What are the potential revenue streams? How much money do you need to start, and how much do you need to operate? What startup costs are there? Are there any gaps?
Read more about how to write a rock-solid nonprofit business plan in our article here.
Good people are key to running a successful nonprofit organization.
You’ll need to find partners who share the zest for your mission. Creating a reliable leadership structure and a network composed of passionate, committed individuals is the only way to ensure that your nonprofit organization will thrive.
Let’s look at three key groups of people for any nonprofit.
Hiring great Board members is one of the most important processes for a new nonprofit. Your Board will ultimately be responsible for regulatory compliance, strategic decision-making, supporting everyday operations, making hires, and a wide range of similar tasks.
Think about what knowledge, skills, abilities, and other characteristics must a candidate have to be the ideal executive director for your nonprofit, and which of those characteristics matter most to you?
Anyone you ask to be part of the Board will want to know what’s expected of them from the start, so you should begin by deciding whether you want your Board to be a hands-on supporting group that guides your organization (i.e. a working Board), or do you want the board to more consult and advise (i.e. a governing Board).
Note: Board members cannot be paid. You will be required to declare this in your bylaws and 1023 Application. A founder can get paid if acting in a staff role, such as Director or President. If they are on paid staff, they can only be on the board as a non-voting member.
Some of the roles nonprofits usually hire for at the start are Membership Manager, Communications Manager, Fundraising Manager, or Events Manager.
Which roles you choose to hire for will very much depend on your operational plan and the type of your nonprofit. If one of your main activities is organizing events, then an Event Manager is a role you should consider hiring for. Likewise, if your nonprofit is a club or a society, a Membership Manager might be a necessary role to hire for.
Staff members are usually paid, unlike the Board and the volunteers. Because of that, you’ll have to determine how much you can spend on salaries. Think of different benefits you can offer to your staff.
To hire the best team, write up clear job descriptions with outlined measures of success, key responsibilities, and key learnings/growth path. Your mission should be embedded throughout so that you hire team members who are truly passionate about your work.
Many nonprofit organizations rely on volunteers to run their operations. Before recruiting volunteers, think about:
All these questions will help you create volunteer role descriptions and start promoting the opportunities. Don’t forget to share your mission with volunteers and make the sign-up easy!
Read more about how to recruit and keep great volunteers.
Pro tip: Before officially hiring (and even if you don’t hire), your nonprofit needs to get an EIN, or Employer Identification Number. You will also need EIN to open a bank account in your organization’s name and fill out many of the necessary registration forms that the local government requires. To apply for an EIN, you can visit the IRS website and complete it online, or download the form they provide and mail it in.
Note: You can also do this in Step 2 if it works better for you – right after you’ve pinpointed your mission, vision, and values.
When you have your mission, vision, and values, you’ll need to develop strategies that communicate those outwardly. Internally, it’s also important that everyone has a clear understanding of what your organization stands for and why. Everyone should be on the same page about your goals and priorities so they can portray a consistent brand identity.
For a deep dive into how to execute a branding strategy as a nonprofit, check out this article we wrote.
Good nonprofit branding helps unite all of your nonprofit stakeholders, helps you stand out and get your message across, and increases the trust of your audience. Furthermore, it’s essential to successful fundraising and increased engagement.
A brand is more than its visual identity: the name, the logo, and graphic design. A brand is a construct held in the minds of those aware of it. And brand management is the work of managing those associations.
When building a brand, it’s very important to refer back to your demographics – so you can tailor your communication to meet their exact needs.
Come up with an outstanding logo for your organization – simple but compelling, moving and relatable, memorable, and communicating who you are.
Pro tip: To help with consistency, create a simple nonprofit branding guide that outlines your main design elements, the typography, the logo, and other elements of the brand. Make sure the guide includes rules for what’s allowed and what isn’t when it comes to using those elements online and offline. For example, you could make it clear that your logo is not to be stretched or used on specific backgrounds or contexts.
Legally incorporating your nonprofit organization is actually a multi-step process that consists of:
We’ve written in-depth about registering and starting a 501(c) (3) organization in the United States. Please refer to this article for more details.
In general, the 501(c)(3) label is applied to charitable bodies, but organizations with this exemption are limited in how much lobbying they can engage in and are prohibited from functioning for the benefit of private interests. No portion of earnings can be used to benefit a private shareholder.
Appointing a board, which we briefly touched upon in the step above, is one of the most important formalities of incorporation.
There are also various types of nonprofits (e.g. trusts, associations, corporations, etc.) – and their structures can differ from one state to another. Typically, state law will provide specific guidelines as to what is necessary for each designation. Make sure you explore state regulations to get your legal structure right.
You’ll also need to consider how those specifics of your structure will impact your tax status. When different types of nonprofits file for tax exemption, they need to ensure that the way they operate aligns with the tax designation they receive.
The main form you will use to register for tax-exempt status is IRS Form 1023 (the long-form). The IRS uses this as their standard form. However, there is another form called the IRS Form 1023EZ (the short form) that is much more simple and shorter in length. If you can qualify for this form you’ll be saving yourself time and money. Check with these qualifying factors to see if you apply.
Pro tip: Do some research on permit requirements that you may need to apply for. Consider visiting your local town or city hall to check in on them.
For nonprofit professionals, identifying funding sources and deciding on a funding model for their organization can be one of the most challenging tasks at hand.
A nonprofit with weak funding at the beginning is unlikely to sustain itself long enough to get a robust fundraising program going.
The most common way to secure startup funding for nonprofits is by applying for grants.
Grants are typically awarded to a nonprofit organization for a distinct program or purpose. A grantmaker generally focuses its giving on a specific population, certain types of nonprofits, or particular types of support (operating support, capital support, or program development).
While grants can fuel you at the start more easily than many other funding sources, applying for them can be very time-consuming. It first takes time to develop grant-writing skills that actually win grant proposals, then it takes time to write a winning application, and then it can take quite a while for you to see the funds in your bank account.
Here are our top tips, and you can read more over here:
Securing some initial funding early on is the best way for your nonprofit to start pursuing its mission, whatever funding model you choose later on. There are many startup accelerators for nonprofits that can help in investing, in-kind sponsorship, and more.
Once you are all official, you get to start doing the work you’re passionate about. This passion led you through a tedious process of starting a nonprofit, but you made it to the other side—congratulations! It’s time to move into early operations:
Building a professional network for your nonprofit can have some major benefits early on. Networking will help to increase visibility for your work, attract new donors, staff, and volunteers, and connect your nonprofit with the essential resources it needs to get started.
You might want to start connecting with other nonprofits in your area or with nonprofits in the wider region with missions similar to yours, with multiple digital outlets, such as blogs or news channels, and other relevant media outlets.
If you haven’t already, now is the time to create a website. Keep your website updated frequently with new blog articles, pages, photos, and updates.
If you’re interested in how to start blogging, we’ve written an article about how to start a successful nonprofit blog.
There are many website builders out there — from options like WordPress, Wix, Weebly, and Squarespace — to custom builders.
Pro tip: While an online donation page shouldn’t be your only path to accepting donations, it’s a crucial element of a holistic fundraising strategy of a modern nonprofit. Online giving has grown over the years, and it keeps growing. Unlike many other forms of donating (via a phone call, mail, or at a fundraiser event), donation pages are highly shareable. This makes them ideal for increasing your reach, and therefore the number of donations.
Furthermore, donation pages allow you to collect and track data that can inform your fundraising strategy (e.g. donation size, when the donation was made, who donated, how much, how they came to your website, etc.)
Finally, donation pages make it convenient and simple for your donors to give!
It can be tempting to let your marketing develop organically, but doing so presents more problems than benefits. If you don’t have a strong marketing strategy early on in developing your nonprofit, you can find yourself constantly dealing with an inconsistent and inaccurate public perception of your nonprofit, difficulty when fundraising, and a lot of wasted time and effort.
Create a marketing and content plan. Consider how you will communicate with your audiences (emails, newspapers, letters, social media, etc). If you’ve done this while creating your nonprofit business plan, add in more details now.
Social media is free! So, it’s ideal for a new startup nonprofit to use it to convey their mission and talk about their work. Share relevant content, let people know about your events, share fundraising initiatives, and direct followers to your online donation page.
You could also consider running an email campaign with regular newsletters that let your readers know about the great work you’re doing. Be sure to collect email addresses and other relevant data in a proper way from the beginning.
If you haven’t tackled hiring and onboarding yet, no worries; now is the time. Draft job ads that clearly and concisely describe what you’re looking for in employees, and start promoting them. In addition, create volunteer applications, employee onboarding manuals, and similar documents to onboard staff and volunteers.
Start thinking about your organizational culture. Ensure you’re complying with human resources best practices.
Pro tip: Once you have a team in place, your job is not done! You also need to make sure the team you put so much effort into recruiting stays with your organization. For that, develop a retention strategy. However, the document does not have to be elaborate. Simply write down the nonprofit’s employee retention goals, strategies, and activities for the year.
Familiarize yourself with the vast array of systems and tools at your disposal – from fundraising platforms to CRMs to task managers and more. But don’t get too far down the rabbit hole – all of this can be overwhelming at the start. You don’t need every tool on the face of Earth to do good work, but investing in a key few can help you hit the ground running.
Although there are many powerful technologies and tools out there, make sure you keep subscriptions manageable to avoid unexpectedly high costs.
If you haven’t already (and if you need/want to have a physical space), now is the time to find one. It’s likely that you’ll need to have some form of physical presence in the form of an office space or service area where volunteers or staff members can work. At the very least, you’ll need a P.O. box so you can receive mail.
There is a multitude of funding models to choose from – which can create some confusion. Even then, some nonprofits can feel ‘stuck’ and limited in their options.
Online fundraising is one of the easiest and fastest ways to start bringing in funds.
There are many donation software out there, and not using one can make online fundraising quite inefficient or even impossible. It’s important to choose one that is simple for you to set up and manage, is within your budget, and offers a smooth donation experience to your donors.
Donorbox is the most affordable donation platform out there, charging a small platform fee of 1.5% for the month’s donations. Donorbox is trusted by more than 35,000 nonprofits around 38+ countries.
Here’s how a nonprofit used Donorbox to run their campaign and get donations with a simple yet well-branded page, optimized for desktop and mobile.
Deciding on a funding model is crucial when starting a nonprofit. It depends on the nature of the nonprofit. Below are the different types of funding you might want to consider.
Individual donors can make one-time or recurring donations. They also give in a variety of ways: online and offline, through events, auctions, planned giving, peer-to-peer fundraising, and more.
Here’s a good example of a recurring donation form.
Grants are usually given by the government at local, state, and federal levels as well as private and public foundations. Generally, you are not required to repay any money awarded to you through a grant.
Usually, Corporate sponsorships come in three major forms: philanthropic – no-strings-attached donation, similar to individual giving; event sponsorship – episodic or short-term support, typically event-based, and cause marketing – longer-term thematic engagement. There is also donor matching – when corporations match donations made by their employees.
In essence, membership programs ask individuals to contribute something — usually money or time – to an organization. As a result, they become somehow affiliated with it for a set period of time (usually a year) and receive certain benefits.
(not applicable for every nonprofit) Funding can come in through selling branded goods to bring revenue to your organization (e.g. t-shirts, tote bags, mugs, cookies) or charging fees for services (e.g. hospitals bill patients, museums ask for admissions fees, theatres sell tickets, civic organizations charge dues, colleges require tuition and so on).
Examples of in-kind donations include food, clothing, and medicine. For example, if your organization seeks to bring food and water into areas struck by natural disasters, for example, getting in-kind supplies like food, clothes, and water can be very useful.
Each of the funding sources has different possibilities and challenges, as well as advantages and drawbacks. Regardless of which one(s) you choose, they all take effort and focus.
To learn more, check out our article that speaks more in-depth about the main nonprofit funding sources.
Crowdfunding has become one of the important ways to fundraise in 2021. As a result, nonprofit crowdfunding is grabbing the eyeballs these days. It can be used for specific programs within the organization or a general donation to the cause. For example, if you have a specific time-sensitive campaign, crowdfunding can work wonders.
We here at Donorbox recently released a crowdfunding feature for nonprofits.
With Donorbox Crowdfunding, nonprofits will be able to:
Refer to this ideal example of a crowdfunding campaign run by Wingren Study Center for Lake Charles Hurricane Relief.
Pro tip: Donor retention matters. Moreover, regaining lapsed donors is more cost-effective than acquiring new ones. It can take 18-24 months for nonprofits to recoup the amount of money they spend to attract a first-time donor, as most gifts are generally 2 to 3 times less than the marketing/recruiting cost. As a result, it’s essential to invest time in working on a donor retention strategy as donations start coming in!
Although starting a nonprofit is a complex endeavor that already includes lots of work and moving parts, there’s something to say about laying a foundation for the future in these early days.
For example, consider how your staffing and leadership strategies will adapt to your growth. Have strategic plans in place for officially growing your board, recruiting more volunteers, instituting membership programs, as well as creating new staff positions.
First of all, however, you need to make sure you’re aware of everything you need to do to maintain compliance.
You will also need to align with external regulations that impact your industry. If you handle personal health data, you’ll need to consider HIPAA compliance. And, if you process payments with credit or debit cards, you’ll need to think about PCI compliance.
Moreover, if your nonprofit works with children, consider criminal record checks for any individuals who frequently interact with children and comply with all standards for storing those records. Further, for your content, connect with a copyright expert and ensure your use of music, video, or other media is in line with best practices.
During this step, you might want to think about milestones that will indicate an opportunity to scale your nonprofit. Once you’ve operated for a bit, it’s important to take some time to think about concrete growth goals.
Pro tip: If you haven’t already created them during your planning, create a set of key performance indicators and milestones for your nonprofit. These will provide important performance information that will enable you to have a clear picture of where you’re at. Without them, it will be hard to evaluate and track progress later on – as you will have nothing to measure your results against and you won’t know what ‘successful’ is to your nonprofit.
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You can start a nonprofit organization with an investment of $750 at a bare minimum and it can go as high as $2000. Generally, your expenses will be divided into these categories:
Nonprofit salary is considered a part of the operating expenses of the organization. You must raise funds through fundraisers or by applying for grants. Your nonprofit can also earn money through other business ventures and by coming up with income generators like fundraiser auctions of donated items, renting a property, selling donated merchandise, making investments, etc.
Depending on the state that you’re in, having Articles of Incorporation approved by the state government may take up to a few weeks. Once that’s done, you’ll have to apply for recognition of its 501(c)(3) status by the Internal Revenue Service. If you file Form 1023, the average IRS processing time is 3-6 months, it can also take up to 12 months in some cases. Although with the 1023-EZ form, the processing time is typically 2-3 weeks.
LLC can exist as a nonprofit limited liability company, however, it should be completely owned by a single tax-exempt nonprofit organization. Thee LLC should also meet the requirements as per the IRS mandate for Limited Liability Companies as Exempt Organization Update.
Foundations are typically funded by a family or a corporate entity, but nonprofits are funded through their revenues and fundraising. Foundations usually take the money they started out with, invest it, and then distribute the money made from those investments. Foundations will also donate these funds to other nonprofits in the form of gifts or grants. Whereas, the extra money a nonprofit makes are used as operating costs to fund the organization’s mission. However, this isn’t necessarily true in the case of a foundation.
A nonprofit is a business, but starting it can be quite intense, requiring time, clarity, and money. However, it’s not hard to start a nonprofit. Although there are several steps to start a nonprofit, the barriers to entry are relatively few.
Nonprofits are exempt from federal income taxes under section 501(C) of the IRS. However, there are certain circumstances where they may need to make payments. For instance, if your nonprofit earns any income from unrelated activities, it will owe income taxes on that amount. Also, any nonprofit that hires employees will need to pay employee taxes like Social Security, Medicare, and, in some cases, Unemployment Taxes.
With many of the basic starting up questions dealt with, you’re now ready to embark on your path toward growth and long-term operations.
Don’t forget to keep your mission at the forefront of every conversation you have around services, finances, and hiring.
Keep reviewing your business plan, especially the financials, regularly. Keep an eye out on your milestones so you know you’re on track, and recalibrate if you ever find that you’re not meeting your goals.
The role of a nonprofit organization has always been to create social change and lead the way to a better world.
You’re a pioneer of social change – you can do this!
At Donorbox, we prioritize solutions that help our nonprofits increase their donations. We know that funding is key when starting a nonprofit. Also, that effective donation forms are a vital part of nonprofit sustainability.
Therefore, Donorbox is built to address the exact need by providing a simple and affordable solution and ensuring a no-hassle process for everyone involved!
And check out our Nonprofit Blog for more free resources.