Nonprofit Finances in Annual Reports: What You Should Know

Wednesday, January 8, 2025

As a nonprofit professional, it’s easy to get caught up in the nitty-gritty of developing programming, managing donor relationships, and mobilizing your volunteer base. While it’s important to pay attention to the finer details of your day-to-day activities, you should also zoom out and take the time to evaluate your organization as a whole.

Your annual report presents a chance for your team to reflect on the work you’ve done, the milestones you’ve reached, and the goals you’ve accomplished over the past year. Additionally, this document allows you to address any challenges you’ve encountered and how your organization will overcome them.

One of the most important components of an annual report is financial information. In this guide, we’ll explore why it’s important to incorporate financial data into your annual report, which financial components to include, and how to display this information effectively.

Why Is It Important to Include Financial Information in Your Annual Report?

Some nonprofits may be hesitant to list financial information in a report that showcases the year's successes, concerned that donors or funders may not agree with how they’ve allocated funds or nervous about exposing their financial struggles.

However, it’s important to include pertinent financial data in your annual report to:

Build stakeholder trust. Studies show that 67% of donors want to know all the details about how nonprofits use their funds. Sharing financial information in your annual report demonstrates your commitment to financial transparency and accountability with stakeholders. This transparency builds trust with donors, sponsors, funders, grantmakers, and other stakeholders by revealing responsible resource allocation.
Demonstrate financial health. Showing your organization is financially stable and sustainable encourages stakeholders to continue contributing to your nonprofit. Additionally, some grantmakers may require you to submit an annual report when you apply for funding so they can assess your organization’s financial health.
Maintain compliance. Some state governments require nonprofits to submit their annual reports to maintain their incorporation, tax-exempt status, and/or charitable solicitation registration in the state, and they’ll expect to see financial information that confirms organizations are using funds to support their missions. Check your state’s requirements to remain compliant.
Illustrate impact. When you attach financial metrics to your impact statements, you can draw the connection between your financial resources and your effect on the community. Understanding the concrete impact of their contributions will push donors to give again in the future.
Celebrate accomplishments. Whether you had a record-breaking peer-to-peer fundraising campaign, scored a new long-term partnership with a local business, or exceeded your fundraising goals, your annual report allows you to celebrate your financial successes and what they’ve allowed you to accomplish for your mission.

Including financial data in your annual report makes this document more comprehensive and transparent, allowing stakeholders to get a full picture of your nonprofit’s year and excite them about what’s to come.

Key Financial Elements to Include in Your Annual Report

You may be wondering what financial information you should actually include in your annual report. While you want to be transparent, you also don’t want to overwhelm stakeholders with excessive financial data. We recommend incorporating the following elements into your annual report:

Financial overview. Start with a brief overview of this year’s finances, including any major accomplishments and challenges. Give stakeholders an idea of how your fiscal year went by listing your total income, expenses, and net assets at the beginning and end of the year.
Revenue breakdown. Next, illustrate where your nonprofit’s revenue came from this year. List sources like individual contributions, grants, sponsorships, fundraising event revenue, program fees, and investment income.
Expense allocation. Let stakeholders know which areas their funds support by detailing your expenses. You’ll sort them into three main categories: program, administrative, and fundraising expenses. Together, administrative and fundraising expenses make up your nonprofit's overhead costs.
Financial statements. Attach your nonprofit financial statements to give interested readers a more in-depth look at your organization’s financial health. These statements include your statement of financial position, statement of activities, statement of cash flows, and statement of functional expenses.
Audit information. If you had an external party audit your nonprofit's finances this year, include this information to demonstrate accountability. You may note any significant findings and how you’ve incorporated the auditor’s recommendations into your financial practices.

In addition to this financial data, add a section acknowledging major donors and sponsors for their significant contributions to your organization. Obtain their permission before featuring their names or other identifying information in your report; otherwise, list them as anonymous contributors.

How to Present Financial Data Effectively

Anyone should be able to open your annual report and easily understand the financial information you’re portraying—regardless of their level of financial knowledge or expertise. Make your financial data accessible and effective with the following tips:

Create charts and graphs. Data visualizations make it easier to interpret financial information and identify trends. For example, you could use pie charts to demonstrate your revenue breakdown and expense allocation so readers can quickly understand the percentage of funds that come from or go toward each area.
Use simple language. Avoid any jargon that some audience members may not be familiar with, or define more technical terms to ensure everyone is on the same page. For instance, you may explain that assets are resources your organization owns and liabilities are debts your nonprofit owes.
Highlight key metrics. Summarize your finances with key metrics and ensure they’re prominent on the page. Bloomerang’s nonprofit strategic planning guide recommends tracking metrics like cost per dollar raised, average gift size, donor retention rate, new donor acquisition rate, monthly giving program participation, and fundraising strategy return on investment (ROI).

You may also contextualize this data by pairing it with impact stories. For instance, when discussing individual donations, you may explain how the funds raised allowed your disaster relief organization to help families like the Smiths, who lost their home in a recent forest fire.

By adding financial information to your annual report, you’ll demonstrate financial transparency, give richer context to your nonprofit’s impact, and allow your staff and stakeholders to celebrate this year’s successes. If you need any assistance with compiling or analyzing this financial data, reach out to a nonprofit accounting firm for help.