The phases of the nonprofit lifecycle, what each one demands, and how to navigate it well
Before we start, we have some exciting news: we’re adding fiscal sponsorship to our programs! Our goal is to combine incubation, fiscal management, and infrastructure development to increase impact.
One of the most common questions I get from new nonprofit leaders is, “I’m ready to start my nonprofit, but I don’t know what to do next.” So here’s a guide to the phases of nonprofit development, and what to expect in each phase. I’ve included sections about what artifacts you’ll need to create, common mistakes, and tips for success. Where applicable, I’ve also indicated where we can help support you. Most of our programs were developed in reaction to a need we saw.
Phase 1: Inception
You have an idea. You know the change you want to see in the world. You see a problem, you see a pathway to fix it, and you have plans to change the world. At this phase, you’ll want to focus on storytelling—making your mission and vision clear, articulated well, and supported with data and concrete plans to give form to your vision. In this phase, you’re also pre-funding, and part of acquiring funding is making sure you have a plan your funders can buy into and a budget that supports it well.
Artifacts you’ll need to create:
Mission statement
Theory of change
Annual plan with OKRs (objectives and key results)
Data points to indicate success
Preliminary budget
Business plan
Common mistakes:
Not adding enough money in the budget for overhead costs (like payroll, fiscal sponsorship, insurance, etc.)
Assuming that funders will have faith in your plan on the strength of your vision
Not thinking through how you’re going to accomplish your mission well. I want a step-by-step flow of what you’re planning on doing, with whom, and how. This will inform budget and metrics, and give your funders more confidence in your plan.
Not evaluating the landscape. Are there others already doing similar work? What makes you different? Sometimes it’s more effective to add your program to an existing org, not create a new one.
Some general tips:
Be clear. The curse of the expert will follow you around. Use simple and concise language to describe your impact and plans so that an average middle school student can understand it. Keep asking, “why?” If you haven’t seen it, refer to Simon Sinek’s TED Talk on “Start with Why.”
Avoid heavy LLM (AI tools like Claude and ChatGPT) usage. LLMs are really good thought partners, but your funders want to see your plans, not Claude’s. I also find that overreliance on LLMs means people don’t present concrete plans well, since those need to be developed by you.
Get feedback early. Talk to potential partners: people in the field, similar orgs, etc. Keep a learning mindset and adapt to what the feedback indicates.
Start small and large. Practically, you want to start off with a pilot or beta version of your full programming. That’s the small part. What can you implement now, with little or no support? It’s the MVP (minimum viable product). But also think big. What’s your objective? What can you achieve if you get your aspirational funding? That’s your ask.
You have all your materials ready. You have a great plan, and hopefully some data to back you up. This is the part where you’re speaking to potential funders to gauge interest in supporting your mission and submitting grant applications.
Artifacts you’ll need to create:
Grant application template: Once you have a template, the next applications will be much easier.
One-pager LOI: Tell your story in 1 page (max 2) so funders can quickly review your plans and evaluate alignment.
Common mistakes:
Don’t assume grant funding is easy to get. It takes strategy and time. You’ll want to find a personal backer for the first couple of years. Yes, that means talking to people and selling them on your mission.
Be thorough about producing the documents mentioned above in phase 1. Yes, you do need them, and they are important, and you’re more likely to get funding if you’re presenting your organization as professional and well run.
Some general tips:
It’s hard to get that initial funding. Outside of the EA community, most funders won’t touch orgs that have been around for less than 2-3 years. It’s risky. Try to find people who believe in your mission, or bootstrap a pilot to prove success, which will in turn make you more fundable. Another option is to work with partners that have a proven track record.
If you do get seed funding, don’t assume that it will be renewed. Many seed funders don’t continue support past the first year. It’ll be up to you to prove your worth and diversify your fundraising early on.
Maintain the perspective that you’re offering potential funders the opportunity to support a cause that’s important to them. That changes the fundraising conversations to be one of partnership, not of begging.
Funders are looking at you as an investment. How likely is it that you’ll be able to realize the impact they want to see? In all, your conversations and presentations show them why they should have confidence in you. As much as you can, point to past performance and indicators that validate that claim.
Congratulations! If you’re at this point, it means you’ve either received funding and now need to put it somewhere, or you don’t need it to start and are doing good work.
This is where you need to make a decision: how are you planning on setting up your entity?
The ideal setup is for your organization to be established as a registered nonprofit (501c3 or equivalent). This means that the IRS has evaluated your organization and determined that it meets the criteria of serving the public good. It means that your entity is owned by the public and exists to serve the public interest. To do this, you need to (1) incorporate as an entity, (2) get an EIN, and (3) get 501c3 approval. There are 2 ways to get 501c3 approval:
File Form 1023-EZ: This is a good fit if you’re new and have acquired less than 50k in funding so far. It’s an easy form, and current turnaround times are approximately 1 month to approval.
File Form 1023: If you’ve secured funding for more than 50k, or are reasonably certain you’re going to (as in funders have indicated a promise to give), you need to do the long application. You can do it on your own (that’s what I did, although I probably should have done the 1023 EZ), or you can hire a law firm to help you with this. Expect to pay 3-6k in legal fees and a turnaround time of 6-12 months.
Now, while this is the ideal setup, there are often bottlenecks to getting there. The most common are:
You have funds granted now, but you haven’t gotten 501c3 approval yet.
You don’t know how to set up the financial systems to maintain compliance.
You’re not sure if you’ll get funding or survive past year 1, so you want to start the project under a different organization’s umbrella.
You already have a for-profit but want to accept funds for a specific charitable project.
This is where fiscal sponsorship comes in. Fiscal sponsorship means that a “parent” nonprofit incubates and/or houses your organization within it. You’re essentially a part of that parent nonprofit but running your own program within it. The fiscal sponsor will take care of all the financial, legal, and HR responsibilities, leaving you with just the running of your programs. Fiscal sponsorship fees vary, but they’re all based on a percentage of donations received. Different fiscal sponsors have varying levels of involvement and insight into your daily operations. On one end of the spectrum are sponsors like BERI, Sparkwell, PPF, and ASHGRO who provide fiscal management but not operational support. On the other end sits Rethink Priorities, who handles everything operationally for you. Our program adds incubation to the mix so that the organizations we sponsor get the support they need to become healthy and independent organizations with a strong operational infrastructure (yes, we also offer that incubation support for organizations who don’t need a fiscal sponsor).
In most cases (not for for-profit projects), fiscal sponsorship should be treated as a temporary measure on your way towards independence. If you start off sponsored, add another phase onto your journey for incorporation.
If you’re in the situation where you’ve gotten the approval but don’t have the infrastructure, we also work with orgs to set up their operational infrastructure so that they can operate independently.
Artifacts you’ll need to create:
Incorporation documents
Nonprofit approval status
State registrations
Bylaws
Common mistakes:
Assuming you need to be fiscally sponsored. As I mentioned before, it’s not the ideal scenario. In my experience, people default to it because they don’t know how to get started on their own. Fiscal sponsorship is an excellent resource, but make sure you need it.
Some general tips:
When incorporating, you’ll need to select 3 board members. At this point, just choose 3 people (1 can be you) that support your cause. They don’t need to do anything except potentially sign documents and provide their address. Later on, when you’re up and running, you can (and should) revise your board members.
I can’t stress how important it is to have a lawyer that you like to work with. They’ll guide you through the right processes to start with, what makes sense for you right now, and be your partner as you grow.
Be thoughtful about what type of entity you create. For example, if you’re doing a lot of lobbying (>20%), you want to incorporate as a 501c4, not c3.
This is the phase where all the hard setup work is behind you. Now it’s time to focus on your mission and maintaining your status as a nonprofit. Maintaining compliance with nonprofit requirements isn’t intuitive or easy. Every state and country has its own rules and guidelines, and the infrastructure load becomes more important and more time-consuming as you grow.
Here’s what you need to be thinking about:
State compliance: Make sure you’re registered in every state that you operate in, solicit funds from, or employ someone in. You’ll have to register with the secretary of state, and if you’re employing someone, there are 2-3 more registrations you’ll need to file.
Maintaining a state of audit-readiness. This means that your finances are ready to be audited at any time. Your expenses need to be allocated to line items that will be reported on the 990 at the end of the year, and you need documentation to support all your expenses and that they’re all in line with charitable expense policies.
When you’ll need an audit. Different states have different thresholds for when a financial review or an audit is triggered. You need to look at the thresholds for each state that you operate in to determine when you’ll need one. The threshold will be anywhere between 250k and $2 million.
Travel and expense policies. This is where you establish what is and isn’t considered a part of supporting your charitable purpose. I usually recommend reimbursing people for travel at GSA per diem rates, using GSA for guidance on max spending for hotels, and flying in the lowest class available. You can change that if your board and your funders agree to the increased spend.
Reporting and metrics: From the beginning, funders will want numbers. What is their investment providing? For some nonprofits, the number is easy: “we served 350 homeless in March.” For others, it’s harder. How do you quantify the effect of political advocacy or communications efforts? Implement some type of system to capture the numbers in advance. It’ll make it much easier to report later. I sometimes joke (but kind of seriously) that funders should pay the nonprofits for all the reporting requirements they impose…
Operations infrastructure: Just because you have a good idea doesn’t mean you’re going to be able to implement it well. If you aren’t a strong project manager, find one to bring on your team. This is the most common point of failure for nonprofits—having a strong mission and vision but lacking the operational strengths to execute on it. You don’t want to wait until your funders give you poor feedback. At that point, you’re not likely to see renewed funding until you get your act together. No, you can’t just figure it out on your own and expect to succeed. You will make mistakes. You need a team, and a team specifically with relevant project, program, or nonprofit management experience. Experience is not easily acquired. It takes time, effort, and mistakes to gain the relevant experience. Learn from the experts. Apply industry norms and best practices. Don’t assume that you’re different.
Use project management best practices. Everything that you’re producing is some form of project. Treat it like that. Have clear phases of how you do your work, and track it in a project management system. That will make it much easier to execute and stay on top of everything you’re working on.
Hire the right people for the right jobs. It’s really costly to hire and then fire someone, and it’s even more expensive to not have the right people for the job to begin with. You want to make sure you know:
What are the gaps in your organization that you need more capacity to fill?
What kind of personality, talents and strengths (see Gallup Strengthfinders for more details about how that works) does that candidate need to have?
How you can assess the candidate’s ability to do a great job before committing.
How to onboard and train them properly so your new hire does well.
Your mission deserves the thoughtfulness and support it needs to thrive. Be deliberate, and take action to make sure you’re set up for success. We at WorkStream Nonprofit are here to help you. That’s our mission: to remove operations bottlenecks to impact. And whether that’s in the ideation, incubation, or implementation phase, we want to be your partners in impact. Let’s chat!
The Nonprofit Lifecycle, from Idea to Operating + NEW! Fiscal Sponsorship & Incubation
The phases of the nonprofit lifecycle, what each one demands, and how to navigate it well
Before we start, we have some exciting news: we’re adding fiscal sponsorship to our programs! Our goal is to combine incubation, fiscal management, and infrastructure development to increase impact.
One of the most common questions I get from new nonprofit leaders is, “I’m ready to start my nonprofit, but I don’t know what to do next.” So here’s a guide to the phases of nonprofit development, and what to expect in each phase. I’ve included sections about what artifacts you’ll need to create, common mistakes, and tips for success. Where applicable, I’ve also indicated where we can help support you. Most of our programs were developed in reaction to a need we saw.
Phase 1: Inception
You have an idea. You know the change you want to see in the world. You see a problem, you see a pathway to fix it, and you have plans to change the world. At this phase, you’ll want to focus on storytelling—making your mission and vision clear, articulated well, and supported with data and concrete plans to give form to your vision. In this phase, you’re also pre-funding, and part of acquiring funding is making sure you have a plan your funders can buy into and a budget that supports it well.
Artifacts you’ll need to create:
Mission statement
Theory of change
Annual plan with OKRs (objectives and key results)
Data points to indicate success
Preliminary budget
Business plan
Common mistakes:
Not adding enough money in the budget for overhead costs (like payroll, fiscal sponsorship, insurance, etc.)
Assuming that funders will have faith in your plan on the strength of your vision
Not thinking through how you’re going to accomplish your mission well. I want a step-by-step flow of what you’re planning on doing, with whom, and how. This will inform budget and metrics, and give your funders more confidence in your plan.
Not evaluating the landscape. Are there others already doing similar work? What makes you different? Sometimes it’s more effective to add your program to an existing org, not create a new one.
Some general tips:
Be clear. The curse of the expert will follow you around. Use simple and concise language to describe your impact and plans so that an average middle school student can understand it. Keep asking, “why?” If you haven’t seen it, refer to Simon Sinek’s TED Talk on “Start with Why.”
Avoid heavy LLM (AI tools like Claude and ChatGPT) usage. LLMs are really good thought partners, but your funders want to see your plans, not Claude’s. I also find that overreliance on LLMs means people don’t present concrete plans well, since those need to be developed by you.
Get feedback early. Talk to potential partners: people in the field, similar orgs, etc. Keep a learning mindset and adapt to what the feedback indicates.
Start small and large. Practically, you want to start off with a pilot or beta version of your full programming. That’s the small part. What can you implement now, with little or no support? It’s the MVP (minimum viable product). But also think big. What’s your objective? What can you achieve if you get your aspirational funding? That’s your ask.
Resources we offer to support you:
Built to be funded foundational course
Incubation coaching
Phase 2: Fundraising
You have all your materials ready. You have a great plan, and hopefully some data to back you up. This is the part where you’re speaking to potential funders to gauge interest in supporting your mission and submitting grant applications.
Artifacts you’ll need to create:
Grant application template: Once you have a template, the next applications will be much easier.
One-pager LOI: Tell your story in 1 page (max 2) so funders can quickly review your plans and evaluate alignment.
Common mistakes:
Don’t assume grant funding is easy to get. It takes strategy and time. You’ll want to find a personal backer for the first couple of years. Yes, that means talking to people and selling them on your mission.
Be thorough about producing the documents mentioned above in phase 1. Yes, you do need them, and they are important, and you’re more likely to get funding if you’re presenting your organization as professional and well run.
Some general tips:
It’s hard to get that initial funding. Outside of the EA community, most funders won’t touch orgs that have been around for less than 2-3 years. It’s risky. Try to find people who believe in your mission, or bootstrap a pilot to prove success, which will in turn make you more fundable. Another option is to work with partners that have a proven track record.
If you do get seed funding, don’t assume that it will be renewed. Many seed funders don’t continue support past the first year. It’ll be up to you to prove your worth and diversify your fundraising early on.
Maintain the perspective that you’re offering potential funders the opportunity to support a cause that’s important to them. That changes the fundraising conversations to be one of partnership, not of begging.
Funders are looking at you as an investment. How likely is it that you’ll be able to realize the impact they want to see? In all, your conversations and presentations show them why they should have confidence in you. As much as you can, point to past performance and indicators that validate that claim.
Resources we offer to support you:
Webinars (this year)
Past webinars on our YouTube channel
Grant writing support
Incubation coaching
Phase 3: Entity Startup
Congratulations! If you’re at this point, it means you’ve either received funding and now need to put it somewhere, or you don’t need it to start and are doing good work.
This is where you need to make a decision: how are you planning on setting up your entity?
The ideal setup is for your organization to be established as a registered nonprofit (501c3 or equivalent). This means that the IRS has evaluated your organization and determined that it meets the criteria of serving the public good. It means that your entity is owned by the public and exists to serve the public interest. To do this, you need to (1) incorporate as an entity, (2) get an EIN, and (3) get 501c3 approval. There are 2 ways to get 501c3 approval:
File Form 1023-EZ: This is a good fit if you’re new and have acquired less than 50k in funding so far. It’s an easy form, and current turnaround times are approximately 1 month to approval.
File Form 1023: If you’ve secured funding for more than 50k, or are reasonably certain you’re going to (as in funders have indicated a promise to give), you need to do the long application. You can do it on your own (that’s what I did, although I probably should have done the 1023 EZ), or you can hire a law firm to help you with this. Expect to pay 3-6k in legal fees and a turnaround time of 6-12 months.
Now, while this is the ideal setup, there are often bottlenecks to getting there. The most common are:
You have funds granted now, but you haven’t gotten 501c3 approval yet.
You don’t know how to set up the financial systems to maintain compliance.
You’re not sure if you’ll get funding or survive past year 1, so you want to start the project under a different organization’s umbrella.
You already have a for-profit but want to accept funds for a specific charitable project.
This is where fiscal sponsorship comes in. Fiscal sponsorship means that a “parent” nonprofit incubates and/or houses your organization within it. You’re essentially a part of that parent nonprofit but running your own program within it. The fiscal sponsor will take care of all the financial, legal, and HR responsibilities, leaving you with just the running of your programs. Fiscal sponsorship fees vary, but they’re all based on a percentage of donations received. Different fiscal sponsors have varying levels of involvement and insight into your daily operations. On one end of the spectrum are sponsors like BERI, Sparkwell, PPF, and ASHGRO who provide fiscal management but not operational support. On the other end sits Rethink Priorities, who handles everything operationally for you. Our program adds incubation to the mix so that the organizations we sponsor get the support they need to become healthy and independent organizations with a strong operational infrastructure (yes, we also offer that incubation support for organizations who don’t need a fiscal sponsor).
In most cases (not for for-profit projects), fiscal sponsorship should be treated as a temporary measure on your way towards independence. If you start off sponsored, add another phase onto your journey for incorporation.
If you’re in the situation where you’ve gotten the approval but don’t have the infrastructure, we also work with orgs to set up their operational infrastructure so that they can operate independently.
Artifacts you’ll need to create:
Incorporation documents
Nonprofit approval status
State registrations
Bylaws
Common mistakes:
Assuming you need to be fiscally sponsored. As I mentioned before, it’s not the ideal scenario. In my experience, people default to it because they don’t know how to get started on their own. Fiscal sponsorship is an excellent resource, but make sure you need it.
Some general tips:
When incorporating, you’ll need to select 3 board members. At this point, just choose 3 people (1 can be you) that support your cause. They don’t need to do anything except potentially sign documents and provide their address. Later on, when you’re up and running, you can (and should) revise your board members.
I can’t stress how important it is to have a lawyer that you like to work with. They’ll guide you through the right processes to start with, what makes sense for you right now, and be your partner as you grow.
Be thoughtful about what type of entity you create. For example, if you’re doing a lot of lobbying (>20%), you want to incorporate as a 501c4, not c3.
Resources we offer to support you:
Built to be funded foundational course
Fiscal sponsorship
Entity setup support
Network of lawyers
Financial and operating infrastructure setup
Phase 4: Operating
This is the phase where all the hard setup work is behind you. Now it’s time to focus on your mission and maintaining your status as a nonprofit. Maintaining compliance with nonprofit requirements isn’t intuitive or easy. Every state and country has its own rules and guidelines, and the infrastructure load becomes more important and more time-consuming as you grow.
Here’s what you need to be thinking about:
State compliance: Make sure you’re registered in every state that you operate in, solicit funds from, or employ someone in. You’ll have to register with the secretary of state, and if you’re employing someone, there are 2-3 more registrations you’ll need to file.
Maintaining a state of audit-readiness. This means that your finances are ready to be audited at any time. Your expenses need to be allocated to line items that will be reported on the 990 at the end of the year, and you need documentation to support all your expenses and that they’re all in line with charitable expense policies.
When you’ll need an audit. Different states have different thresholds for when a financial review or an audit is triggered. You need to look at the thresholds for each state that you operate in to determine when you’ll need one. The threshold will be anywhere between 250k and $2 million.
Travel and expense policies. This is where you establish what is and isn’t considered a part of supporting your charitable purpose. I usually recommend reimbursing people for travel at GSA per diem rates, using GSA for guidance on max spending for hotels, and flying in the lowest class available. You can change that if your board and your funders agree to the increased spend.
Reporting and metrics: From the beginning, funders will want numbers. What is their investment providing? For some nonprofits, the number is easy: “we served 350 homeless in March.” For others, it’s harder. How do you quantify the effect of political advocacy or communications efforts? Implement some type of system to capture the numbers in advance. It’ll make it much easier to report later. I sometimes joke (but kind of seriously) that funders should pay the nonprofits for all the reporting requirements they impose…
Operations infrastructure: Just because you have a good idea doesn’t mean you’re going to be able to implement it well. If you aren’t a strong project manager, find one to bring on your team. This is the most common point of failure for nonprofits—having a strong mission and vision but lacking the operational strengths to execute on it. You don’t want to wait until your funders give you poor feedback. At that point, you’re not likely to see renewed funding until you get your act together. No, you can’t just figure it out on your own and expect to succeed. You will make mistakes. You need a team, and a team specifically with relevant project, program, or nonprofit management experience. Experience is not easily acquired. It takes time, effort, and mistakes to gain the relevant experience. Learn from the experts. Apply industry norms and best practices. Don’t assume that you’re different.
Use project management best practices. Everything that you’re producing is some form of project. Treat it like that. Have clear phases of how you do your work, and track it in a project management system. That will make it much easier to execute and stay on top of everything you’re working on.
Hire the right people for the right jobs. It’s really costly to hire and then fire someone, and it’s even more expensive to not have the right people for the job to begin with. You want to make sure you know:
What are the gaps in your organization that you need more capacity to fill?
What kind of personality, talents and strengths (see Gallup Strengthfinders for more details about how that works) does that candidate need to have?
How you can assess the candidate’s ability to do a great job before committing.
How to onboard and train them properly so your new hire does well.
Resources we offer to support you:
Operations Bootcamp
Fractional operations support (finance, compliance, administration, grants, and more)
Hiring and recruiting
Operations coaching
Fractional COO + operations team
Referral partner network
Financial management
Coming soon: 10 steps to effective hiring
Webinars (this year)
Past webinars on our YouTube channel
To wrap it up:
Your mission deserves the thoughtfulness and support it needs to thrive. Be deliberate, and take action to make sure you’re set up for success. We at WorkStream Nonprofit are here to help you. That’s our mission: to remove operations bottlenecks to impact. And whether that’s in the ideation, incubation, or implementation phase, we want to be your partners in impact. Let’s chat!