Nonprofit organizations are treated differently from for-profit companies by governing and taxing authorities because they are different. Nonprofits exist to serve a greater purpose than generating profit. All of the financial transactions at a nonprofit organization contribute to the ongoing purpose of fulfilling its mission.
However, just because most nonprofit organizations don’t pay federal income taxes, doesn’t mean they are exempt from reporting.
While the annual report is not required to be completed each year, we suggest that every nonprofit compiles an annual report. We’ll discuss the reasons supporting that suggestion later along with the basics of the nonprofit annual report and a free template for you to get started with.
What Is An Annual Report And Why Does Your Nonprofit Need One?
An annual report cannot be described with a universal definition because it takes on a different meaning for different types of users. For large, corporate entities, the annual report is required to be provided to every shareholder. It explains how previous obligations were handled and lays out future expectations for each shareholder.
For nonprofit organizations, and the purpose of this article, an annual report represents a method used by nonprofits to share their accomplishments, goals, and gratitude.
The annual report is not required to be submitted to the IRS or any other authority, like the annual Form 990, but it is an optional report provided for board members, donors, investors, and the community. A nonprofit’s annual report gives readers an easy-to-read snapshot of the organization’s accomplishments that were made possible through donations, grants, dues, and other contributions collected.
When created properly, a nonprofit’s annual report can encourage repeat donations, inspire new supporters with the details of its mission, highlight the previous year’s accomplishments and community impact, provide financial transparency, and show contributors how their contributions made a difference while providing gratitude.
The annual report should include the following:
- Mission statement
- Impact testimonials or stories
- Financial Summary
- Donor Appreciation
Styles Of Nonprofit Annual Reports
There is no right or wrong way to present your organization’s annual report. The format that you choose should make sense with the purpose of the organization and the people that will benefit most from the report.
The first decision to make when considering the different styles of annual reports is whether your audience will appreciate a printed report or a digital report. Most large nonprofit organizations create both, reserving the more expensive printed reports for major donors or potential partners.
Printed Annual Reports
Printed annual reports are great because they can be sent through the mail to past donors, potential donors, and any member of the community. Printed annual reports can be distributed at fundraising events and even with the goods, products, or services your organization provides.
- Booklet – A bound book can be used to present the annual report. A booklet can be anywhere from three to one hundred pages and has the capacity to display a lot of information. Booklets are best for large organizations and those in crucial growth stages.
- Postcard – Postcards can include graphs, pictures, statistics, and statements in an easy-to-digest size. Postcards are more likely to be reviewed by recipients than longer booklets but leave less information for in-depth data points. Postcards are best for nonprofits that rely on several different donors and fundraising sources.
- Brochure – Brochures, like postcards, give readers a quick look into the organization without requiring much effort. The tri-fold format of standard brochures makes them an easy-to-design way for nonprofits to send out or hand out their annual report.
- Self-mailer – Self-mailers are like a postcard, but they provide more room for images and charts. Self-mailers are typically professionally assembled but are an efficient way to get your message to a lot of individuals.
Digital Annual Reports
Digital annual reports are a cost-effective way to reach a large audience. Digital reports can be displayed on your website, sent through email, and uploaded to community forums.
- PDF – PDFs are one of the most common formats for small to medium-sized nonprofit organizations. Choosing a PDF format leaves room for a lot of flexibility when it comes to content. The PDF annual report can include links to your website, PowerPoint presentations, and even videos. PDFs are a great way to provide a summary of the organization with access to more information that is interested in learning more.
- Video – Your annual report can be turned into a video that still displays important statistics and financial report highlights, but also adds personal flare. It is a great idea to include clips of loyal supporters as well as the members or community that benefits from your nonprofit’s mission.
- Interactive – Interactive annual reports are usually found on the organization’s website. If you have a strong marketing staff or work with a graphic designer, interactive reports can be an efficient way to highlight your nonprofit where viewers can choose which components are most relevant to them.
Pro tip: When choosing your style for the annual report, first, consider the cost and the audience.
- A nonprofit annual report is not mandatory but is a great way to communicate with donors, investors, board members, and the community.
- The annual report should highlight accomplishments over the last year, a financial summary, and future goals.
- Work with JFW Accounting Services for help highlighting financial data that should be made public.
Check out our sample Annual Report here, created using an editable template in Canva.
Jo-Anne Williams Barnes, is a Certified Public Accountant (CPA) and Chartered Global Management Accountant (CGMA) holding a Master’s of Science in Accounting (MSA) and a Master’s in Business Administration (MBA). Additionally, she holds a Bachelor of Science (BS) in Accounting from the University of Baltimore and is a seasoned accounting professional with several years of experience in the field of managing financial records for non-profits, small, medium, and large businesses. Jo-Anne is a certified Sage Intacct Accounting and Implementation Specialist, a certified QuickBooks ProAdvisor, an AICPA Not-for-Profit Certificate II holder, and Standard for Excellence Licensed Consultant. Additionally, Jo-Anne is a member of American Institute of Certified Public Accountant (AICPA), Maryland Association of Certified Public Accountants (MACPA), and Greater Washington Society of Certified Public Accountants (GWSCPA) where she continues to keep abreast on the latest industry trends and changes.