Category: red mountain makers

Starting a nonprofit in Birmingham, AL

A couple of people have asked me what one must do to start a nonprofit in Birmingham, AL. This post documents what we learned (and did) during the Red Mountain Maker startup. The snarky answer is $150/hour. There are many steps to the process – and costs and complexity will vary depending on the municipality in which you are incorporating. 

All costs mentioned are as of 2013 & 2014, when the Red Mountain Makers filed our applications. I will update this guide as I confirm additional details. If you have additional information you would like to share, please email me at shirley at velochicdesign dot com.

Questions you should ask yourself before starting a new nonprofit

You have a mission, an objective. The first question to ask (and research): is someone else in the community already doing this? If they are, great!

Joining and expanding an existing program is going to take far less effort (and resources) than growing a new one from scratch. Economies of scale (spreading overhead costs over more deliverable things, whether programs, goods, or social outreach) apply to nonprofit organizations as much as for-profits.

Contact the existing organization and find out if they are interested (or open) in expanding into your neighborhood and how you can help them do so. The help required may range from fundraising to grant-writing, to organization of volunteers or program development within your local neighborhood.

Any existing organization is going to already be stretched, so you need to be prepared to do this. The work required will be as intensive as starting your own nonprofit – but you will likely be able to get results sooner. I strongly encourage you to take this approach. Birmingham has many, many small nonprofits in operation, that could be more effective as larger coalitions with more communication across the city. Overhead, fundraising and administration absorb smaller portions of operational costs in larger organizations. Starting a nonprofit is a lot of work – and not to be undertaken lightly. I’m organizationally agnostic at this point – organization counts whether for profit or non-profit – what changes is a part of your regulatory environment – but less than you would think.

Incorporation

Nonprofits must be incorporated. Surprised? Don’t be. The only real difference between for-profit businesses and nonprofits is what you do with the difference between your income and expenses. Businesses have to either reinvest the profits, build cash reserves or split them between the business owners or shareholders. Nonprofits retain their excess income and either use it to build reserves, reinvest for equipment replacement or expansion of programs. No money is paid out to ownership.

The purpose of incorporation is to isolate the organization from the organizers’ personal assets – and to create it as a specific legal entity. There are two ways to do this – pay someone (usually a lawyer) to handle your incorporation, or do it yourself. A lawyer will get it done quickly and correctly. Costs will run around $800 US to register (and incorporate) the organization. You will receive guidance and checklists as to what you must do during your first years of existence. (Keeping yourself in legal compliance with tax and reporting requirements is a good thing!)

You can also do it yourself. This will take longer – and you may make some mistakes along the way. Use a nonprofit startup guide. We used the Everything Guide to Starting and Running a Nonprofit (getting a little old now), or Nonprofit Businesses for Dummies, one of many available guides. Harbor Compliance has put together an excellent state level guide with all the steps required. The nonprofit startup guide should contain instructions and model documents for the following:

  • Articles of Incorporation
  • Governing bylaws
  • Board of directors – you’ll need to gather names and addresses, along with social security and driver’s licenses for your founding board
  • Guides to governance, budgets, business plans, staffing, bank accounts, insurance and personnel issues

You will also need to develop (much of this after the incorporation is filed):

  • A mission statement
  • Policies for document retention, anti-harassment, and anti-discrimination (last two required by your insurance company as part of risk reduction)
  • Record-keeping systems
  • Budgets
  • Business and marketing or outreach plans

Once you have your model documents written, vetted and you are happy with them, you can file for state incorporation at the Jefferson County Courthouse.

Once you exist as a legal entity at the state level, you may apply for recognition as a nonprofit by the IRS.
The Alabama Association of NonProfits is a good resource*, as is the local Small Business Administration. Many of the issues for small business and nonprofits are the same – revenue must be more than expenditure if one’s mission is to be served in the long term. The excess goes into cash reserves to smooth up the bumps in income and need. Good bookkeeping is important, and careful husbandry of resources is necessary.

You will want to develop a business/operations plan in order to identify needs, risks to the mission, resources, and strengths. (SWOT analysis).
It took me about two months to research and write a first draft of the Red Mountain Makers business plan, which we then revised with a more accurate market assessment one year in.

Be prepared to revise your business plan on an ongoing basis. The Red Mountain Makers is doing so annually. Depending on your scale of operations, you may do so every six months. Your predictions as to expenses and income will become more accurate with time. This is because as your organization develops, you have more expense data for historical reference. If your predictions match outcome within 10% +/-, you’re doing really well.

Budget for 2% cost increases per year (standard allowance for inflation), and build them into your approval processes so as to lessen approval hassle for your organization, boards and management.

For cash reserve modeling purposes, the standard expected return on managed investments (your future reserves) has historically been 8%. Given current low interest rates, when you have reserves and require some short-term liquidity, you should conservatively model an expected rate of 3 – 5%, and 1 – 2% for short term certificates of deposit (CDs). Better to be safe regarding these income projections!

If you know your local needs and risks well, you can write a much shorter plan. The point of the business plan is not to create paper, but to do the research necessary to reduce the risk of failure. Your research may show you that you don’t know local needs as well as you think you do, or that there are local obstacles to service delivery that need to be dealt with before you can be effective. These are all good reasons to write that plan before you begin to commit money and resources to action.

Get a website up (start with a Wix or WordPress site) to tell your story, and to start looking for your community partners. If you can do it yourself – awesome! Otherwise, you will need to budget $400 – $1500 for an initial website, donation/payment system, and mailing list framework.

As in business, for nonprofits, scale counts. It’s hard getting things going, but as you grow a service base, things get easier. While you are establishing yourself, set up a fiscal sponsorship with another nonprofit or umbrella organization to manage donation collection, grants, bookkeeping and tax reporting. Woodlawn United is the example that I know – a good local one. They will handle this for a small service fee, which will range from 10% of incoming grants and donations to 1%. Look for one in the 1 – 2 % range – they’re handling your money, not getting it for you.

Things you need to do at state, city and county levels:

Please note that the following is specific to Alabama, Jefferson County and the City of Birmingham. Requirements at the county and municipal level will vary depending on where you live in the state.

State:

Register your nonprofit at your local county courthouse. For us, this was the Jefferson County Courthouse. Our cost was $142 and took take 10 – 14 business days. You can pay a premium to get things done faster (we opted to do so as we needed our status established to move forward on finding a rental space). You will be given a state Entity Identification Number (EID). The EID is required for all tax reporting. The process is complete when your organization is listed at the Alabama Secretary of State site.

Be aware that as your organization grows older, your board will change. Members come and go. You are required to keep this information current. You must file each change at the local courthouse. Processing fees are $44 per change. If you have frequent board changes, this can become expensive. Our practice (so far) is to file for the change prior to when we need to file additional documentation. We’ll likely do it every few years going forward.

Sales tax exemption – the State of Alabama has a list of nonprofits who are eligible for sales tax exemptions. As per new rules that became effective August 2015, K-12 educational organizations, universities, nonprofits which are members of the local United Way, and nonprofits with a specific legislative waiver are exempt from paying sales taxes. All other nonprofits not exempt. (updated April 2016.)

Federal:

Once your nonprofit is a recognized entity, you can apply for charitable status with the Internal Revenue Service (IRS) at the federal level. If your expected revenues are less than $50,000/year, you can use the 1023-EZ. This is a shorter form which requires you to provide less initial documentation. The understanding in the submission is that you will complete all the documentation (as required by the longer form) and hold it for review – if requested. You’ll want to write the documentation eventually – it’s regarded as good governance by outside organizations to whom you may be applying for grants.

If your expected revenues will be more than $50,000/year, you need to use the 1023 proper with significant documentation. The IRS estimates that this will take 16 hours to prepare – but in my experience (especially if you are new to this and need to create some of the required documents) it will take much longer. The IRS wants to know that you are “for realz”. If using this longer process, I recommend purchasing access to a step-by-step guide. Google has a good initial guide. Legal Zoom has also created an automated process (Wasn’t available when the Red Mountain Makers incorporated. Would be interested in hearing from people who’ve used it.)

Our 1023-EZ was processed within one month of filing. The standard form is supposed to take four to six months.  We had to apply separately to get a copy of our 501(c)3 letter. You must include the letter (once received) with all grant applications, applications for sales tax exemptions, applications for reduced service fees with businesses, state, local and county filings.

Jefferson County:

If you are employing staff, Jefferson County requires you to report salaries paid and collect an occupational tax. You will need to set up an account with them and get a taxpayer ID number. If you are running solely on volunteer labor and aren’t selling anything on which sales tax revenue is collected, you don’t need to register.

City of Birmingham:

If you have a physical address in the city of Birmingham, you need to apply for a business license. This will cost $200 annually, and must be applied for in the same year that you start operations. The city will issue you a taxpayer ID, and will require you to report salaries and sales revenue monthly on the 20th of the month – and to submit the payments due to the city. There is a $50 penalty for each month that you fail to do so – even if you have no paid staff and no sales! In our experience, this is the most difficult part of regional compliance as it can’t be automated through and application programming interface (API) or bank payment – and someone has to actually log on to the site to do so. This has been the Red Mountain Makers’ most troublesome and persnicketty administrative task.

I’ve been told that it’s possible to arrange quarterly reporting – but that wasn’t pointed out to us at City Hall when we renewed our business license and I’ve had trouble getting an answer from City Hall regarding how to make this change. I’ll update this post when I have more information.

*Alabama Association of Nonprofits updated their website by February 2016. The new site is easier to navigate — but I haven’t yet found model documents specific to Alabama – updated April 2016.

Case study – the Red Mountain Makers startup

Have finally summarized the Red Mountain Makers startup into a case study. You can find it here.

Making a makerspace – part 2

I’m one of the founding members at Red Mountain Makers. This series of blog posts details our startup process over the past eighteen months.

We had early media coverage (WBHM and the local paper, the Birmingham News) but other than that, have stayed out of the spotlight while building out  infrastructure.  Establishing our permanent workshop has been delayed because of the requirement for structural repairs to the floor over the old coal cellar at the back of the space. The break our landlord gave us regarding rent also means that the space isn’t high on his priority list for repairs.  It’s a significant handicap – and one which we can’t control easily.

There is pent-up regional demand for kid’s and teen’s tech classes, but we are no where near ready to provide them. In the space we are renting, there is unencased lead paint on doors and trim, and we haven’t yet installed a ventilation system. We don’t consider the space suitable or safe for younger children at this time. We have started building email lists, are looking for grants for a mobile class kit, and we are looking for community partners with whom to schedule local classes.

“Stuff” has been a problem at the space – as in old computers and equipment that need to be repaired or parted out, but which, in the meantime, is taking up too much room. We recently purchased racking and are now holding regular parting out work parties to break down the non-working computer towers and other donated electronics into usable parts. It’s much easier to use the hardware hoard when you can actually find a specific part. 9-volt power supply, anyone?

We’re lagging in detailing our safety protocols – and in doing a formal equipment inventory. Both are big jobs, and not easy to do. We are detailing the individual pieces of equipment with their manuals in the wiki, and as demand rises, are beginning to schedule tool use classes for the shop equipment. So far, we’ve found it easiest to simply train on demand as individual members need to learn to use tools for specific projects. Most members have been very good about only using tools with which they are familiar.

Our long-term intent is to be the fun, helpful and curious part of regional tech education. With that in mind, we are establishing relationships with our local high school and middle school,  the City of Birmingham school system, the University of Alabama at Birmingham’s art department and engineering school, and are establishing sponsored teacher memberships at the space. This is so that area teachers can come, learn and tap into member knowledge as to where to find appropriate inexpensive resources and tools.

Securing 501(c)3 status

Last November, we were _finally_ at a point where we felt ready to start the 501(c)3 application process. The IRS’s documentation requirements for a regular application are extensive – and I was two weeks into preparing them when one of members, John Rhymes, pointed out that the IRS had implemented a simplified process for smaller organizations during July 2014 – and that we qualified. With a great sigh of relief, I filled out the paperwork and popped it in the mail with a check. We were actually provisionally certified as a 501(c)3 last December, but our listing at the IRS website didn’t show up until late February. We requested our authorization letter mid-March and as of last Monday, have it in hand. We’re currently in the middle of updating our information on Guidestar, an independent nonprofit governance evaluation and ranking site.

Preparing for growth

For the next while, we’re focusing on group activities, running classes, and growing membership. We still have quite a bit of infrastructure work to do, but it’s getting easier as our supporting membership grows. We have assembled three movable circuits workstations with parts storage. Smoke detectors are going in this week. We have bio and photo labs due to be completed by May, and as soon as surplus equipment is parted out or racked, a room in which to set up the circuits lab. Next,  sturdier workbenches and storage within the existing temporary workshop will be built in preparation for being moved into the permanent workshop, and we will begin fundraising for CNC (computer numeric controlled) laser cutting and routing equipment, a set of classroom laptops, Arduinos and Raspberry Pis. We will be working with UAB to start a guest lecturer series on DIY computing topics.

We are aiming for 75% growth in membership this year, and the same increase in our operating budget. I personally want to start introductory and short topic-focused programming classes for non-traditional students; these won’t necessarily be held at the space, but they will be under the Red Mountain Makers banner.

Our goal is to attain a makerspace of 100+ makers and members within the next two years.

Making a makerspace – part 1

I’m one of the founding members at Red Mountain Makers. This series of blog posts details our startup process over the past eighteen months.

When I finished my information systems degree a year ago last December, I had planned to take three months to help get the Red Mountain Makers space launched. Fifteen months later, the end of the launch is in sight – it has been a lot of work.

Starting a non-profit (and doing it well) takes as much planning and organization as a for-profit business. Don’t let anyone tell you otherwise.  You need financial reserves to invest in necessary equipment and infrastructure, and if you don’t have cash, you need lots of willing knowledgeable volunteers to get the work done. The core group launching the Red Mountain Makers has been willing to do both, and as a result, while we’ve had a few stumbles along the way, we’re now off to a good start.

A few of us had held leadership positions in non-profits elsewhere, elsewhen and else-country, but none of us had ever started a non-profit from scratch.

The following information is specific to our city, Birmingham AL, within the United States. These were some of the tools we used during the process.

Books:

Using sample language from the guide and incorporating some basics from other makerspaces around the United States, we (well, one guy, Seth Lewis, who had purchased the first group copy of the guide) wrote an initial set of bylaws. We then elected our first officers. At the same time, the founding seventeen members agreed to an initial dues payment of $20/month to build up some cash reserves. Our treasurer, Dalorion Johnson, collected and tracked the cash payments. This was Fall 2012, six months after our first coffee shop meeting at Birmingham’s Rogue Tavern. We also had to decide what to call ourselves, and design an initial logo.

Final version of the Red Mountain Makers logo.

Final version of the Red Mountain Makers logo.

As a name, Red Mountain Makers had a reasonable combination of regional sense of place and seeming friendly. (we’re really a hackerspace, but we can’t say that in Alabama, which is a notoriously conservative state.) The logo is meant to reference the region’s mountains and it’s mining history as well as electronics. The circuit diagram is functional.

Once we had a name, I registered domain names for the group, and set up an initial WordPress website and wiki within my DreamHost account. We now had a web presence. We copied our bylaws to the wiki, and set up member and project pages. Since I was one of the members with some business school training, I also agreed to write the business plan.

Incorporation

It took a few months after we selected our first set of officers to work out how to incorporate. None of us had done one before, and we had to read up on the process and discuss how it was going to work with our particular group.

In Alabama, a central registry of all business entities (for-profit and non-profit) is maintained by the Secretary of State. We had to collect addresses and contact information from all of our initial officers and then register our non-profit at the Jefferson County courthouse. Finally, in February 2013, We used first chair’s home address as our mailing address, paid an administrative fee of $150 (plus a bit more to expedite filing), and voila, we were a state-incorporated nonprofit, albeit one with very few assets. As part of our initial standing rules, we specified that we would increase our membership dues when we found a rental location to cover rent and utilities. Three members agreed to cover any shortfalls for the first six months. We considered applying for our 501(c)3 status, but after reading the IRS rules, decided that we needed to file our first 990N (a nonprofit income reporting form) before we could apply. The documentation requirements were also a bit daunting.

Finding a location

Our next step, in between group meetings, was to find a location we could afford to rent. None of us knew what commercial rents were in the city. (We have since learned that most space the size we want lease runs $1,000 – $3,000/month, depending on location and condition.) We thought that we could afford initially afford up to $700/month plus utilities. We preferred less. We toyed around with acquiring a shipping container and making a movable workshop.  We considered subletting basement space from one of our members. One of our members, Trae Watson, spent a lot of time checking out properties.  We looked at one property beside Tom’s Sound that had been flooded, but decided that between limited parking and lack of local flood remediation (at that date) that we didn’t want to be there for the next one.

4023 1st Avenue North, beside Tom's Sound. Busy road, traffic moves fast.

4023 1st Avenue North, beside Tom’s Sound. Busy road, traffic moves fast.

MakeBhm's prospective space in a former factory complex.

MakeBhm’s prospective space in a former factory complex.

We considered sharing a space with another makerspace startup (MakeBhm, incorporated as a for profit, focused on more traditional shop skills). Then, Trae met Andrew Morrow, of Community Properties LLC, who had some space available in Birmingham’s Woodlawn neighborhood, a former medical clinic, available in Woodrow Hall, at a price we could afford. (DISCO, the community non-profit creative writing center, is next door.) Andrew agreed to let us use the space as it was. He gave us a break for the first few months.  We got the keys at the end of September 2013.

View of the former Woodrow Masonic Lodge from the west.

View of the former Woodrow Masonic Lodge from the west.

View of the former Woodrow Masonic Lodge from the east.

View of the former Woodrow Masonic Lodge from the east.

Fixing and adapting the space

There was a lot of work to do. Woodrow Hall was a former Masonic lodge, built in 1914. The construction is solid, but showing it’s age. Most of the first floor was concrete or tile on concrete, with about 10% of the floor being wood on joists over a former coal cellar.

The medical clinic had been built in the late fifties, with drop ceilings to reduce the volume of air that required air-conditioning. There was a four and half foot attic between the false ceiling and the true ceiling, filled with mouse droppings, dust, and some remaining old furniture and files.  The left half of the clinic hadn’t been used for the previous six years – and the lights didn’t work. Nor did the air conditioning. There was a large dead 60’s Westinghouse HVAC unit in the left rear, and former x-ray film darkroom still reeking of film developer. The light fixtures in the right half of the clinic had seen better days. All the electrical outlets were two-prong – and not grounded. There were still some old medical records from the sixties scattered at the back of the space.  On the other hand, the bathrooms were functional, and although we didn’t have hot water (the clinic owner appeared to have removed the hot water heater), the exam room sinks meant that water was available in most of the rooms.

Our first job was to trace and check the wiring in the left half of the clinic, and then if it was good, to replace the old light fixtures with new ones. A few trips to Home Depot later, we had an adequate supply of replacement light fixtures. After two working weekends by five of our members under the supervision of a certified electrician, we had working lights in that side of the space. Next, we reconfigured an office area and three exam rooms into one long room to use as a first workshop. (demolition and reconstruction!) We were careful to preserve materials for reuse.

Our landlord came in with his work crew, took out the old carpet and cleaned up the floors in the front waiting rooms to serve as our first meeting room. One member brought in a fridge and we set up an improvised kitchen in one of the exam rooms. Four members rented out private work spaces from the group to augment our cash flow. That was it for a few months, while we focused on our first group project build, making an LED light matrix to light up the glass blocks above the front windows in the space meeting room.

Group meeting in the front meeting room.

Group meeting in the front meeting room.

Administrivia

As a group, now that we were in a space, and before we started to run classes, we needed to find liability insurance. None of us had done this before. It took a few calls to friends in the insurance business to learn that we needed to talk to a commercial insurer. Most insurance brokers didn’t want to touch us as they had no idea what makerspaces did. As soon as we mentioned “power tools” and “workshop”, they all ran screaming. Eventually, we were directed to commercial insurer, McGriff, Seibel & Williams. It took a few weeks, but our agent, Blake Helveston, eventually found an insurer who had written a few policies and who was familiar with makerspace risk assessment. We obtained not only our policy, but were able to help the Mobile Makerspace and Foomatic in Montgomery obtain their first liability policies. Start to finish, finding an insurer and securing coverage took two and a half months.

We also needed a business plan, to help us prioritize where to spend our energy and resources. Originally, I had planned to write this in the fall of 2013 as part of my capstone class at UAB’s Collat School of Business. But it wasn’t possible within the class format. I did a first round of market research and wrote a first draft during the following January, had a consult with the local Small Business Administration office at the beginning of February, and had a close-to-final draft written by the end of February. Our business plan stayed in that form for most of the following year, until we had more accurate data regarding utilities and who was doing what with regards to shop skills and electronics in the greater Birmingham area. (This information isn’t readily available.) We finally finalized the plan this past February. It currently lays out our plans for the next three years. We will plan to extend that to five years by fall 2015.

We tracked our membership’s dues payments via a spreadsheet and PayPal for most of the first three years. We didn’t have any money to pay for a commercial online CRM (customer relationship management) package — and none of us had experience selecting one for non-profit use. This created a lot of work for the treasurer, and quite a bit of confusion as to how many members we actually had. Neither of our first two treasurers had time for this (our first was managing a new full-time software development job and helping out with a city high school robotics group, our second was writing his PhD thesis) – or to do the research. In August, I designed some paper enrollment forms to standardize the membership information we collected, and to give our volunteers an enrollment checklist to help ensure good new member orientation. Looking back, finding a CRM was of the first things we should have done. We’re resolving that now, and it looks like Wild Apricot will be our final choice. They have a free version with advertising for use by small organizations (less than 50 members), with a website framework, an event management system and calendar, and email list, membership and donor management. The paid version (no advertising) starts at $25/month for up to 50 members, and $50/month for 50 – 200 members, plus access to the API (application programming interface). This is the level we will be paying for, both because of member numbers (a good thing!) and API access. We will use the framework to pull in member information into security access, library loan, and workshop, tool access and training databases. Two of our members are starting the development work later this month.

Building code issues

When we moved into the space and began adapting it to our needs, some of our members were a little lax about finishing renovations completely. They did them sufficiently well for safety and function, but were not thorough about putting switch plates over switches and outlets, patching holes in walls or to trimming out new door frames. It was good enough for their home workshops, why wasn’t it good enough at the makerspace?

This proved to be an issue when we had our required insurance and fire inspections. The local fire code requires that walls be completely finished and gaping holes (such as those where light switches, power outlets and pipes come out) in walls to be completely covered. This is so that if a fire occurs, it is more difficult for the flame to spread into the interior of walls, where it is more difficult for fire fighters to extinguish.

When we had our initial insurance inspection, we were told that we were lacking appropriate exit signage and emergency lighting  (it had never been installed at the medical clinic – they had simply slapped signs on the doors) – and that this would have to be installed in order to maintain the policy. We didn’t have much money to work with. So, once again, volunteers did the work under the supervision of a certified electrician. The signage kits, a new circuit box, conduit and wire came to around $800. The time required was much longer, as two members did the work in and around their day jobs.

We also had to go back through the space, patching walls, reinstalling some trim and installing new switch and electrical outlet plates. We passed our insurance inspection in August, and our city fire inspection in October. Now that we know the reasons for the finishing to this level, it is being done going forward.

In addition, with much enthusiasm, we had started to demolish a portion of the space at the back to open up an area for a larger workshop. Due to finding asbestos (common in old buildings in Birmingham), and needing to remove the Westinghouse HVAC unit, we had to stop for a couple of months, while our landlord’s crew dealt with that between other work assignments. When we were able to resume demolition in May (around our day jobs), we were now working around donated and salvaged equipment that we wanted to keep (that we had stashed into any available space) that made the job more difficult. (Lesson – don’t bring anything not required into your makerspace until you have a place to put it!) During demolition, we realized that we would also need to reroute existing electrical out of where it had been framed over ceilings and in walls up onto structural walls. Again, this took a significant amount of time. The demolition and reconfiguration of the rear space through to what our landlord had requested before his crews came in took nine months.

In order to comply with fire code, this area is now boarded up and isolated from the rest of the space, while we await approval from our landlord on submitted estimates for the cost of finishing the work.

How all this affected membership growth

During this time, we had several waves of enthusiastic new members joining, only to decide that they didn’t want to spend their time building the space instead of their projects. We also had some join who saw the reality, and were willing to accept that it was going to take us time, money and significant effort to build out the group’s infrastructure. Those folks are still with us (we were 38 at the end 2014), and have contributed much time, money and sweat equity.

Making a makerspace – part 2

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