How to Fund a Nonprofit Startup and Pay Yourself the Right Way as a Nonprofit Founder

Quick answer:

Nonprofit founders need to fund the nonprofit startup before they can possibly pay themselves. Nonprofits must generate revenue intentionally and treat finances like a business, not a passion project.

Key takeaways:

• Nonprofits are businesses - but with extra rules and regulations!
• Founders can be paid by the nonprofit but in limited circumstances
• Funding does not appear automatically after IRS approval
• Executive compensation for founders must be "reasonable" and approved by the board
• Financial planning must start before launch

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Funding a New Nonprofit Startup

Nonprofit founders are my kind of people. You've got a clear vision and you're ready to make a real difference. But starting a nonprofit isn't easy, and there are some tough questions about funding and nonprofit founder salaries that can take the wind out of your sails.

• Can I get paid for my work at the nonprofit?
• How is a nonprofit supposed to make money in the first place?
• How do I do this AND follow all the rules?

These aren’t the kinds of questions that a simple Google search can answer. There are a lot of rules and regulations nonprofits need to follow and how they handle their money. Those rules tell you what NOT to do (which is important), but that doesn’t help you figure out a plan. So, let’s talk about it!

The Big Reality Check: Nonprofits are Businesses

Here’s a myth I see all the time:

“We don’t need to do ______ BECAUSE we’re a nonprofit.”

There’s this belief that BECAUSE you’re starting a nonprofit (and therefore trying to do something good) you don’t need to do all the kinds of things for-profit businesses do, like:

• Pay any kind of taxes
• Create a business plan, including budget projections
• Follow your state laws for businesses, like employment laws
• Spend money on professionals like lawyers, bookkeepers, and accountants
• Care about the “bottom line” so the organization is financially stable

There’s this enduring belief that because you care SO MUCH about the mission, everything else will fall into place. People will see your passion and hard work, and you won’t have to worry about the “running a business” side of things.

Here’s the truth: Nonprofits are businesses. And they have even more rules, regulations, and expectations for-profit businesses – especially when it comes to paying yourself as the founder!

The only way for your nonprofit idea to succeed is to treat it like a serious business. Yes, it will be driven by your mission and have a special IRS status, but it is still a business.

So How Do Nonprofit Startups Make Money?

Understanding how nonprofits make money is crucial. Different nonprofits get their funding in different ways depending on what work they do, what it costs to run their program, the community they serve, etc. A church is going to bring in revenue in different ways than a youth soccer league.

Here are the most common ways for nonprofits to make money:

Individual donations. This is when a person cuts you a check, whether it’s for $5 or $5 million.

Grants. These are competitive programs that provide funding for specific purposes or programs.

Fee-for-service programs. This is when a nonprofit charges for their services and activities.

For a deeper dive into nonprofit revenue models, see How Nonprofits Actually Make Money.

The key? Have a plan. Decide where your funding will come from NOW. Sustainable organizations don’t rely on an imaginary pot of money that will be delivered once you get your IRS status. Learn more about the different ways of funding your nonprofit here.

The Elephant in the Room: How Will YOU Make Money?

So far, we've talked about funding the nonprofit. But what about you as the founder? Starting a nonprofit takes enormous time and energy, and passion alone won't pay your bills.

Now’s the time to think critically about your financial stability. How are you going to make ends meet while you’re pouring your heart and soul into this idea? While some founders can afford to volunteer their time, most need income.

Lots of founders I speak with want to turn their nonprofit work into a full-time job. So, can a nonprofit founder take a salary from the nonprofit they start?

This decision is explored further in Can You Take a Salary as a Nonprofit Founder?.

The answer is yes, but with some serious caveats. To understand why, let’s talk about what role a nonprofit founder plays in a new and growing organization.

Deciding Your Role with the Nonprofit as the Founder

Most founders end up in one of two places:

Path 1: Volunteer Board Leadership.

You serve as Board President or Director. You have a vote on the governing board, and you volunteer for this unpaid position. (Why? Learn more about that here.)  You do nonprofit work on evenings and weekends and the board oversees volunteers or staff to run the organization.

Path 2: Paid Staff Position.

You're hired as Executive Director or another similar role. You are an employee, and the board has the power to hire you, set your salary, evaluate your performance, and even fire you. You do not have a vote on the governing board, but you do have a job with a real salary.

If you’re thinking, “I don’t want either of these options!” – I understand. This is the tricky part about starting a nonprofit instead of a for-profit: you have to give up some control.

You’ll need to choose between retaining your decision-making power with your board vote and getting a salary from the nonprofit. But no matter what you choose, it needs to make sense for your mission, programs, and budget. Learn more about how to make that decision here.

How Much Can You Make as a Nonprofit Staff Member?

If you choose Path #2 and become a paid staff member, we need to be realistic about what your salary.

The IRS has one big rule about nonprofit salaries: compensation must be reasonable.

“Reasonable" means that your salary makes sense for the org’s budget and mission AND is comparable to what other similar organizations pay their people. In practice, setting a reasonable salary can look like this:

You research what similar-sized nonprofits in your area pay for similar jobs.

The board reviews the budget to see what they can afford.

The board votes on your salary (without you present!) and documents the decision.

It’s more complicated than just choosing the salary you need. In the nonprofit world, the IRS has to make sure that the nonprofit is set up to benefit the public – not just to exist to pay founder salaries.

Your Next Steps: Build a Sustainable Foundation

I know you didn't start a nonprofit to get rich. If you wanted to make millions, you'd be in a different line of work. But that doesn't mean we can ignore the question of money.

The most successful nonprofits I work with understand this balance from day one. They treat their organization like the business it is. They develop clear funding strategies before they launch. They make thoughtful decisions about executive compensation that align with their mission and budget. And they document everything properly to stay on the right side of the law.

Starting a nonprofit is one of the most challenging yet rewarding paths you can take. You're building something that matters, something that will create real change in your community. But to make that vision a reality, you need more than passion -- you need a solid financial foundation.

I don’t say all this to discourage you. Just the opposite! With the right planning and guidance, you can build an organization that both fulfills its mission and, if needed, provides sustainable employment for those who make it happen.

Ready to take the next step? Start by creating a realistic budget that includes both your organization's expenses and reasonable compensation for key positions. Research what similar nonprofits in your area are doing. And most importantly, don't try to figure it all out alone -- get professional guidance to ensure you're setting up your nonprofit for long-term success.