What Is a Nonprofit Annual Report?

Before we define the report document, first of all, what is a nonprofit organization and what does it entail? In plain terms, a nonprofit organization is one that is not motivated by profit. To elaborate, a nonprofit organization is a tax-exempt company that promotes a social purpose and delivers a public benefit. Nonprofit organizations are sometimes referred to as trusts, cooperatives, advocacy, charitable, environmental, and religious organizations. A nonprofit organization nearly always employs volunteers and relies on their devotion and conviction in their mission because it is difficult for them to compete with private-sector salaries. Nonprofits, however, may have challenges to face, such as funding challenges because they mainly rely on outside sources like donations.

Nonprofit organizations rely on donations or grants to perform their goals, and whatever it is that they’ve accomplished must be reported on a document called a nonprofit annual report. It is a business document that is created and distributed by nonprofit organizations each fiscal year. It is intended to showcase the organization’s main successes, motivate readers about the mission of the organization, establish trust, and thank contributors for their support. Despite the fact that annual reports are not required by law, most nonprofit leaders appreciate the significance they can provide, as this document can help illustrate a non-profit organization’s achievements to current and future financial backers, develop new alliances, and acknowledge important figures to their cause. Even though it is not legally needed, when nonprofit organizations opt to construct one, they must take it seriously because there is so much at stake when done half-heartedly, such as the achievement of the organization’s goals.

What’s Inside a Nonprofit Annual Report?

Listed and discussed below are the key components that need to be included when creating a nonprofit annual report document:

Introduction. The first key component that should be written in a nonprofit annual report (or any annual report, for that matter) would be the introduction section. This sort of document often begins with an introductory section that includes brief explanations of the nonprofit organization’s activities throughout the year. Having such an overview allows the business to engage with financial report users such as shareholders, financial analysts, creditors, government agencies, and prospective investors. The introduction portion contains information such as a review of operations and financial outcomes, summaries of historical trends, and nonfinancial data. In the introduction section, larger organizations may contain a chairman’s statement and a director’s report.Clear Mission and Focus. The next component to be included in a nonprofit annual report would be the organization’s clear mission and respective focus. This part is also known as the nonprofit organization’s mission statement. If the organization could condense its principles and purpose into a single sentence, it would have its own mission statement. Because the nonprofit organization’s supporters will not be the only ones reading the annual report, the mission statement should come at the initial part of the annual report. Before diving into the hard statistics, readers should understand the organization’s objective and the changes they wish to see.Income Statement. After what serves to be the nonprofit organization’s mission statement, the income statement is then written next. This section provides a thorough overview of a business’s profits or losses earned throughout a fiscal year for companies that need to make a profit. Nonprofit organizations, on the other hand, must include this part because let’s face it, the organization’s patrons want to understand how their money is being spent. Being open and honest about the organization’s spending helps to build confidence among supporters. Furthermore, it demonstrates to prospective contributors that the nonprofit organization can handle finances ethically and effectively.Accomplishments. After breaking down the nonprofit organization’s income statement, the group’s accomplishments need to be written next. Since this document is an annual report, the achievements listed should have occurred within the past 12 months. This portion of the nonprofit annual report should tell readers what the group was able to do in a year, from fundraising events to volunteer activities to community projects. These initiatives should receive the majority of the attention in the achievement report. Furthermore, in this area, a smart writing technique is to break down the organization’s successes into compelling numbers that the audience can simply grasp.Balance Sheet. After the accomplishment section, the balance sheet needs to be included next. For nonprofit organizations, this section of the annual report is simply known as a nonprofit statement of financial position. A balance sheet is a portion of an annual report that depicts a company’s or charitable organization’s capacity to pay financial commitments. It effectively describes a nonprofit organization’s assets and liabilities. In other words, this section of the annual report provides a picture of the nonprofit’s financial health. This component is often divided into three sections: assets (what the nonprofit possesses), liabilities (what the organization owes), and net assets (the equity of the nonprofit organization).Statement of Cash Flow. After writing down the balance sheet, this is the next key component of the nonprofit annual report to be included. A nonprofit statement of cash flows is a financial report that demonstrates how money flows in and out of a business on a regular basis. This section records money inflows and outflows from operations, investments, and financing activities. Nonprofit cash flow statements can be documented in one of two ways: directly or indirectly. The statement of cash flows in a direct cash flow is calculated based on the monetary transactions performed by the nonprofit organization. On the other hand, the basis for an indirect cash flow is net income, and the net adjustments for assets and liabilities are computed to construct the statement of cash flows.Major Contributors. The last key component that needs to be included in a nonprofit annual report would be the organization’s major contributors. In addition to highlighting what the nonprofit organization has done, the annual report expresses gratitude to those who assisted the organization in meeting its objectives. The key contributions, prominent personnel, and board members must be identified and appreciated in the nonprofit annual report.

Advantages of Being a Nonprofit Organization

Listed and discussed below are some of the advantages that come with being a nonprofit organization:

Grant Funding Access. Once the group becomes a nonprofit organization, several avenues will open leading to public and private funds that will enable the organization to achieve its particular aims. Because nonprofit organizations provide several services to society, there are numerous grants available. Donations and grants are the most effective ways to keep a nonprofit organization solvent, albeit obtaining them may be time-consuming. Even if the group relies solely on modest donations from the general public, it must nevertheless ensure compliance with state legislation. To collect donations from the general public, certain regions, for example, require an organization to register as a nonprofit.Limited Personal Liability. Once a non-profit organization is registered, its members have only limited personal culpability. This implies that even if the nonprofit organization is sued or goes bankrupt, its personal assets are safe. However, restricted liability can be overturned in certain circumstances, such as board members combining nonprofit and personal finances or participating in unethical conduct. Nonetheless, in the event of a disagreement, board members are typically protected if they observe the applicable nonprofit rules and regulations.Credibility. A group of individuals, no matter how noble their purpose to society, will always want a company address and a bank account at some time. Furthermore, making an organization endure without money can be difficult, and while there are several perks to working for nonprofit organizations, not everyone will be devoted enough to stay faithful in the long run. Getting donors to contribute to an informal group might also be a fruitless endeavor. By merging that group of individuals into a nonprofit organization, they will get the legitimacy necessary to approach funders with the trust that the goal merits.Professional Advice. When a group agrees to form a nonprofit organization, it is legally required to have a registered agent. It might be one of the nonprofit organization’s members, however, hiring a professional registered agent is the best practice here. It may be expensive, but there is a valid purpose for getting these services; the nonprofit organization would want to have a professional handle their legal papers properly and on time. Some nonprofit organizations may even be able to receive a discount on the expenses of a professional registered agent if they learn where to go and who to approach. This will alleviate some of their financial concerns. The bottom line is that the expense of these services is justified.

Steps in Writing a Nonprofit Annual Report

The benefits of having a well-written annual report for your nonprofit organization will always vary depending on the needs of the group. However, for the group to enjoy its benefits, this document still needs to be prepared well. With that being said, here are the steps needed to properly write a nonprofit annual report:

1. Write the Introductory Part

The first step to writing a nonprofit annual report is to complete the introductory part. There are many parts here, depending on the nonprofit organization. The introductory section of the nonprofit annual report can establish the subject, summarize the information, and give the report a personal touch. It may also include letters or statements from the nonprofit organization’s executive director and chair. When developing this section of the report, keep in mind that it should be brief, have a professional but warm and pleasant tone, identify setbacks and obstacles as well as successes, and present an optimistic, upbeat attitude while being honest.

2. Showcase the Main Stories

The next step that is to be done after creating the introductory part of the nonprofit annual report is to showcase the main stories that the nonprofit organization has to tell that cover the past 12-month period. It is critical in this section of the nonprofit annual report to demonstrate the organization’s mission in action by telling a story about each big success. Keep in mind when writing this section of the annual report that it can be condensed and the details adjusted to preserve privacy, but it must still be true to its essence. It should also focus on a central individual, telling the tale in the person’s own words as much as feasible, and illustrate a change as a result of the nonprofit organization’s activity and the donors’ donations.

3. Detail the Financial Information

After showcasing the main stories concerning the organization’s activities within a 12-month period, it’s time to proceed to the financial data in this step. In this step, it is critical to provide the nonprofit organization’s financial facts in a way that is understandable to your audience. To do so, it must clearly explain where the income originates from and how it is spent. It is OK to shorten the format and present an overview. To help readers see the broad picture and comprehend financial patterns, incorporate visuals such as pie charts, bar graphs, or visualizations in addition to the data offered in standard financial statements. In this stage of preparing the annual report, a brief narrative synopsis is also essential. Explain in simple words the significance of all the statistics provided.

4. Acknowledge the Contributors

In this last step of writing the nonprofit annual report, keep in mind that it’s also important to recognize the people who made it possible. Many organizations prefer to display the names of the donors as well as the amounts of their contributions. This is a method to say thanks while also demonstrating to contributors that they are part of a vast network of supporters. Still, it’s a list of names, so it’ll be skimmed. People search for their own names but seldom read through the full list. To get the most out of the pages, intersperse phrases and photographs. Following that, provide the report’s readers a next step with a powerful call to action that is repeated throughout the report. This might be as basic as asking for a donation to the organization’s cause.


What’s the most critical part of the nonprofit annual report?

The explanation of accomplishments is the most significant component of a nonprofit annual report. The readers obviously want to know what the organization accomplished, but they also want to know the reasons why the organization did it. Readers are also interested in the outcomes, including why the nonprofit used its time and money in the manner that it did and what difference it created.

What and how do organizations qualify as nonprofit?

Only organizations that advance religious, scientific, philanthropic, educational, cultural, public safety, or cruelty-prevention purposes or goals are granted nonprofit status and tax-exempt status. Furthermore, the organization must assist the public in some way, whether by providing commodities, services, or a mix of the two. They must also make financial and operational information available to the public so that contributors may learn how and how well their gifts have been used.

Can annual reports be done in postcard form?

Yes, they can. Postcards are an excellent alternative if maximum readability is desired. Supporters may comprehend how the charity organization performed last year by using well-designed infographics, photos, and data. However, because there is only so much that can fit into a tiny space, this works best for short-form annual reports. If comprehensive narratives are preferred or a big list of donors must be included, a longer-form alternative is still the best option.

Creating an annual report can be a daunting task, and that rings true for nonprofit organizations. However, though not a legal obligation, it still should be done so that the supporters of the nonprofit’s cause will have a way to find out how their donations are being utilized by the organization. In this article, there are a few sample templates that can help you have a further understanding of this document and they can also be used as reference should you need to write one.