Shownotes
Managing a nonprofit is a very noble move, but materializing it can be a daunting process even when you have billions of cash waiting to be used for a wonderful cause. In this episode, we learn from the knowledge bank of Christian LeFer who is the CEO and Founder of InstantNonprofit.com as he walks us through the steps of starting a nonprofit, including dealing with the IRS and lawyers. He also presents how he and his team can help anyone aiming to start a foundation or charity and presents them their 501(c)(3) package.
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The Basics Of Starting A Nonprofit with Christian LeFer
We have Christian Lefer. He’s the founder and CEO of InstantNonprofit.com. Christian, welcome.
Good to see you again, Bob.
Christian has been a previous guest and we’re going to talk about InstantNonprofit.com. Christian, tell us about your business and who you serve.
I had volunteered to start a nonprofit with some friends around 2008, 2009. I completed the application, which I figured how hard can this be. I sent it in. A few weeks already, I received a letter with an agent’s name on it and a phone number. I couldn’t seem to get ahold of that person. When I did get ahold of somebody in the front desk, they told me it was going to probably be about twelve months and I could sit back and cool my heels a little bit because that’s how long they take to approve on a 501(c)(3). I thought, “How ridiculous.” I grew up with my little sister being developmentally disabled. I had experience with her running in Special Olympics. People don’t even realize how much they count on nonprofits as part of our fabric of society, whether it’s PTA or local little league or whatever. I was pissed and morally outraged. I decided to call about twenty extensions north and south of that agent’s phone number and whoever I could get ahold of, I would beg, plead and cajole them to give me the information about why this was such a nightmare.
What separated a good file? What gave them a good day at their desk versus a bad day? The IRS has made this process very Byzantine and very confusing. There’s no real source of information that says, “This is exactly what you need to do.” They’ve only layered more and more anti-fraud Band-Aids on top of their process over the years, so it’s only become more complex. I put together what I called a love letter to a bureaucrat based on grilling all of those agents. I edit the application and I got an approval in about 45 days. I tried this again with my little formula. A couple of other people in town heard that I can do this. I had a school with a billionaire donor. The school needed to get their approval in time to admit kids into the school and the billionaire donor would match all of that donations. I said, “I think I can get this done.” I had no idea, but I got it done and I went from blogger to businessman at that point.
You hear many stories where people get motivated for one reason or another and typically, it’s a significant frustration. That’s your significant frustration. What does your ideal client look like?
There are probably three different types of ideal clients. One is this successful entrepreneur or successful person or even corporate. Something where there’s already success, there’s already somewhat of a framework in things like generating revenue and building teams and those kinds of things. They’ll come to us and say, “We’ve got this idea. We know we want to do this, but we don’t want to wait forever for this paperwork or slog through a bunch of delays and back and forth.” The other would be what I would call hyper-local organizations that have a single founder. It’s a woman in the inner city who is a retired teacher and she got these kids on her back porch not getting shot up out in the neighborhood and running around with the wrong people. She’s needing to feed them and provide games and activities. The third is like a civic group type of thing. I have some masons who are building a park. They’re not business owners. They’re not the corporate funding source, but they know that they’ve got this network in the community. They’ve got these projects that they want to do and they’ve come together as a board or a group and wanting to do that. Those are the three primary types of founders that we run into.
For those various groups prior to InstantNonprofit, what’s the typical road or path that those groups had to travel down to try to form their nonprofits? What’s the typical timeframe for them to try to get that done? What did that look like?
Traditionally, there would probably be two paths. Hiring a lawyer or try and do it yourself. I had a quote of $3,200 on the low-end from customer. I’ve seen $5,000 and $10,000 to set up a 501(c)(3). There are different levels. There are two different paths for the application process itself. That does make some difference. There are about 26 different discrete steps in the process and any one of those can be a failure. You have to incorporate it and get the EIN. You have to provide the correct purpose and dissolution clause in your corporate paperwork or the state will be fined with it. Later you’ll have to go amend your articles when you get to the IRS and they say, “Sorry, there are nested problems that can occur inside this process.”
I’m the local attorney in Lick Skillet, Tennessee and you show up in my office and let’s say I have either done one or two or never done one, then I’ll go, “I’ll do it for you.”
If you don’t try doing it yourself and get sidetracked by some $50 loss leader for a document on online search, which doesn’t get you to 501(c)(3) and you go to an attorney, very few attorneys in the entire country do only nonprofit work. You’re probably going to get sandwiched in between a divorce and a real estate deal. You’ll pay several thousand dollars for someone who is doing what is not quite legal work. If you don’t know exactly what the IRS is looking for because you’ve done thousands of these and you’ve done them this month when they decided to change some guideline, it’s very likely that the lawyer is going to bill you for their time, slug through whatever, back and forth there is and deal with delays or deal with having to resubmit some paperwork, etc. You’re going to end up with that result of the typical average IRS time of twelve to fourteen months for an approval if you have any substantial budget.
Starting A Nonprofit: When starting a nonprofit, you have to provide the correct purpose and dissolution clause in your corporate paperwork.
I’m the prototypical 501(c)(3) person and I find you online and I reach out to you. Walk me through the steps. What does that look like?
If you were to be a customer, Bob, you’d go through three steps. In step one, you’d get a welcome email with a link. That link would go to a simple forum where we’ve translated all of these IRS government languages into English. You should be able to get through that form in about fifteen to twenty minutes. That’s where we get most of the information we need. We’ll feed that back to you in a document. That document also gets the proper power of attorney, etc. Once that’s signed, we front ended 90% of the process. We’re going to deliver nothing but good news to your email and documents to your shared secure folder on the cloud. In step two and step one also, we do the initial steps of incorporating and getting your EIN. Those things are what’s going to allow you to go to the bank and start operating in the community as a full-fledged nonprofit corporation. 501(c)(3) is a tax status that follows. As we move into step two, we provide you a corporate governance package. We iron out all the speed bumps that you’re going to run into as a founder that are separate from the 501(c)(3) and incorporation process. Bob, you’ve been around the block a little bit, but are you a professional? Do you run board meetings as a regular rule?
No, I don’t.
It would probably be helpful if you had a “How to run your board meeting in 30 minutes or less” video and matching downloadable board agenda.
Your board members would appreciate that too.
They sure would because board meetings are one of the primary reasons that people end up losing their passion for nonprofits. Whether they’re just your friend who are serving on board or if it’s you having to run that meeting and herd the cats. We help you not only with the exact nine-step process to go through that, but we helped set up some mindset too because it’s your job to run that board meeting efficiently and help manage the board members into an efficient process so that you can focus on your mission. Our number one mission as a company is to help you focus on your mission. As we move out of step two and into step three, we’ve now provided you with all the background things that you need to run the nonprofit and also all of the required documents and package ingredients that you’ll need for your 501(c)(3) applications such as your conflict of interest policy, bylaws, compensation policy, etc.
You got all of that and we have now populated your 501(c)(3) application. In step three, we simply submit. Most files get approved on what’s called merit clause at the IRS. That means just like when you submit a mortgage and everything is absolutely perfect and the money shows up, a merit clause is no interaction with that IRS agent. Even if they decide to pull you out of line for the TSA extra inspection, it’s the same thing here. They might pull one out of 25 or 30 files to run the traps and ask them additional questions. If they do, that’s not something you should have to survive on your own. We’re going to help format your answers because it’s like being a witness on the stand. You want to answer the question that was asked and no more. You don’t want to open up additional lines of questioning. We shut them down in one round that way.
I’m back to my prototypical form of 501(c)(3). I’ve gone through the process and we got a merit clause. I’ve got all of the things I want to do in the community or do some fundraising before you’re in for tax purposes and so on. How should I try to budget my time expectations? How long does it take?
Let me tell you what the ranges can be. The IRS is average for what we call an enterprise file, which is above $50,000 in likely receipts per year in the first three years. The IRS average has wavered over the past few years, from eight to ten months to twelve to fourteen months. They lost a lot of experienced agents during the government shut down, for example. That tends to slow things down. We can provide some value there because you’re looking at probably about three to six months average turnaround for our files. We like to build a little bit of a buffer end. I wouldn’t want to represent that you’d get this result. Our record is nine days for what we call an express file, from call to receiving the letter and about 45 days for a full-blown enterprise file, which is a big fat 60-page PDF printed out on dead trees and shipped to the IRS.
I think about the experience of doing it. I got my attorney. I’ve known Bill Smith forever and he’s taking care of my family a lot. I trust him, but Bill says, “I don’t do this all the time. I’ll see what I can do to help.” How many of these have you done? How many applications for 501(c)(3)s?
We’re probably close to 3,000 at this point.
Do not denigrate from your nonprofit’s mission by trying to struggle through all the paperwork.
Do you think there’s anything you haven’t seen?
Probably not. I think we have a little bit of a screening process on the front end. There are occasionally people who come to us with an idea that isn’t going to be acceptable for a 501(c)(3) charity. For example, sometimes it’s a 501(c)(4) and they want to change something and lobby the federal government. We do that as well but that comprise a very small percentage of nonprofits. You might have a Chamber of Commerce type of nonprofit. That’s a 501(c)(6). We can do that, but a lot of times when people come to us, they don’t realize that they are falling outside of what is typically that public charity. Maybe they want to start a private foundation for example. We’re able to qualify them and steer them in the right direction. There are a small handful that are only suited to being a for-profit business. We’re honest and we tell you upfront. That way we can guide you into either the right package that we offer or make a recommendation of how you can get done exactly what you want to get done by some other means. Through that screening process, we’ve been able to maintain a 100% IRS approval rate. We’ve never lost one.
For many people out there that go, “What’s your time for it if you’re trying to accomplish a mission in the nonprofit space?” If you want to get to it quickly, it would be useful to use someone that has a bit of experience. Inaccurate advice is quite expensive when the day is all said and done. As you look back over this journey, starting back in ‘08, ‘09 and where are you are now. You’re obviously a veteran now, back then you were a rookie. What advice would you, the veteran, offer to you back then, the rookie, that would maybe help the reader understand?
Besides eating a ketogenic diet, I would recommend to my 25-year-old self to keep it simple. I have managed to complicate things for myself and my life by trying to be too clever, but sometimes you manage it. Making an idea that you have work on the most simple level now and then putting in the next fence post after this one is fully cemented in is probably some of the best. Brendon Burchard puts it that way. Make sure this fence post is 100% solid before you put up the next one because otherwise, the wind is going to come along and everything you built is going to go down. Go horizontal as they say.
Looking over the influences in your life for the nonprofit space, is there a book that comes to mind that was influential on your thought process?
I’m going to name two books by the same author. It shows an archive of his as well is maturing and that’s Tim Ferriss. I read The 4-Hour Workweek. Even if one doesn’t want to get to a four-hour workweek or it’s not feasible in your life for some reason, The 4-Hour Workweek talks about that very simplicity that I referred to. The central premise of the book and the idea of The 4-Hour Workweek is to build something that provides value to people at its simplest, most basic level and let that pay your bills. Let that be what he calls your muse, and then you have the free space and the clear mind and the time to think about what that big thing that you wanted. That doesn’t need to be a different business or a different life. It can be the same, but if you keep it simple at the beginning, your life will be uncomplicated or at least your work-life will be uncomplicated enough to allow you that free space to go, “This is where this can go.”
A case in point for you. You do the formation paperwork and get it done, but you also have the ability for that 501(c)(3) to train the board. You have number of other modules as well, which I would put in that category that you just mentioned. They’re not the primary thing that you do, but they are also additional needs within the industry.
The 25-year-old me would try to roll out eight products at once, probably not serving as fully as I could on any of them. We’ve adjusted our approach here. We’ve ruled some things out. We were successful and we’ve delivered value to people, but it wasn’t worth running around for the volume. We’re driving ourselves crazy trying to manage different things that aren’t scaled. What we’ve done is we’ve pulled back to our central core value proposition, which is starting the 501(c)(3) very much hands off. We’re very much doing it for the person as much as possible and then rolling out to things like the board training. We have an annual maintenance program at this point, so you can truly put your hands-free 501(c)(3). You can put this thing on autopilot from a compliance and maintenance standpoint, but we thought very hard about when to do that and how to do it versus trying to be all things to all people. I won’t mention any competitors by name, but there are some companies out there that purport to do 501(c)(3) and nonprofits, but their main line of business is for profits. This is such an afterthought to them. They have terrible reviews and we focus on getting good reviews by giving people what they need.
You’re serving the niche and I interrupted you in the middle of two books. You got one of them.
The other book is Tools of Titans by Tim Ferriss. You have a guy who now has earned the respect of everything from billionaires to the top keto doctors and scientists in the world, for example, and has been able to tap into the minds of the most brilliant people in medicine, science, wealth building, business building, etc. That is the tone for the ages I think is this Tools of Titans. He talks about everything in there from psychedelics being used among Silicon Valley and others for exploration of the mind space to business models that are coming. They are starting to take fire across the world that are very different than what it used to be here. I think we have so many things that are going to change radically in the next few years. It would be a great read for anyone to take a look into the future and also into the past and things like stoicism.
I’ve read both of those as well. If you could take for your company to put an ad on page one of the local business paper, sharing the message of InstantNonprofit.com, what would it say and why?
Starting A Nonprofit: To get good reviews, get people what they need.
It would probably say, “Whether you’ve already made it and you want to give back or you want to make it by giving back, whichever end of that spectrum you’re on, make it easy on yourself for the things that don’t serve other people.” You have a very unique vision for whatever you want to do to help the community, people, animals or the planet. Only you can serve that...
