The CFO'S Perspective

Understanding Nonprofit Reports & Reporting Best Practices

AA nonprofit leader leaning over a desk covered with reports to use a computer while workingt any nonprofit organization reporting tells the story of what is happening and why. But reports are not simply a snapshot of where the organization is today. They are a critical piece of information to predict where the organization will be tomorrow.

All nonprofits do some combination of financial reporting, management reporting, and board reporting. Internally these reports help organizations manage risk, evaluate current efforts against performance objectives, make strategic operational decisions, and prepare for what is coming next. Externally these reports communicate with key stakeholders and rally supporters. As such, reporting is extremely important for any nonprofit organization.

Understanding this, some nonprofits will put together an annual report to summarize activities over the previous year. However, experienced nonprofit leaders will not rely on a single yearly report to guide their day-to-day operations and long-term strategic vision setting. They will also run monthly or quarterly financial reports, donor reports, and marketing reports, among others. But regardless of what they are measuring or how often they are done, effective nonprofit reports will:

  • Build trust
  • Showcase the organization’s impact
  • Express gratitude to donors and volunteers
  • Lay out a strategic plan for the future
  • Inspire their audience to act

Let’s take a closer look at what types of reporting nonprofit organizations should be doing on a regular basis, as well as some best practices to apply to these reports. Our experienced nonprofit consulting team will share their top tips for increasing organizational effectiveness in this nonprofit reporting guide:

Types of Reports

First, we will take a look at the types of reports you should be generating and then we will offer tips on how to make the most of these reports. As you go through this section, take note of any reports you are not utilizing and/or any metrics you are not tracking for ideas on where you can improve your reporting efficacy.

Financial Reporting

While the primary goal of a nonprofit organization is not to generate cash, all nonprofits rely on funds to carry out their missions. For this reason, they will typically put together Statement of Financial Position and Statement of Activities reports on a regular basis. Reporting against the budget in these ways provides an opportunity for an organization to be a better steward of their funds, especially in relation to key government and foundation grants.

However, sometimes the GAAP-prescribed accounting reports for nonprofits do not provide all the financial details needed to run the organization effectively. In these cases, additional financial reporting should be done to give a more complete view of the organization’s financial position. Additional financial reports may be done around grant usage, fundraising, membership, and donations. These financial reports will track important metrics including, but not limited to:

  • Net profit
  • Fundraising totals and ROI
  • Donor appreciation incentives
  • Membership dues
  • Outstanding pledges
  • Average gift size
  • Gift growth percentage
  • Restricted vs non-restricted donations

Typically, financial reporting will be done either monthly or quarterly to provide a more frequent evaluation of how the organization is doing financially, since nonprofits rely on funding to carry out their missions. In some instances, reporting may be done in advance of receiving a grant to indicate how funds will be used as well.

Cash Flow Forecast

One key financial report that nonprofits should do is a cash flow projection to forecast their cash position in the future. The goal of cash flow projections is to anticipate what is coming down the pipeline over the next 6-8 months (or as far ahead in the future as you can reasonably predict). Cash flow projections are often underutilized in the nonprofit world because nonprofit leadership does not always have the financial acumen to maintain them with accuracy, but that does not make this kind of reporting any less valuable.

A cash flow projection will utilize anticipated expenses and anticipated income across operating, investing and financing activities to determine how well the organization is prepared to respond to whatever lies ahead. This report will answer the critical question: “Are cash reserves sufficient enough to meet the organization’s financial obligations for the year as laid out in the budget?” Whether the answer is “Yes,” and a budget surplus exists, or the answer is “No,” and a budget deficit exists, cash flow projections offer guidance on how to spend wisely in relation to the organization’s cash position.

Donor Reports

Tracking donors and their impact has financial roots as well, but also has a relationship management component that is critical to fundraising efforts. Donor reports will not only highlight major contributions and track recurring gifts, but they will also provide information on:

  • New donor additions
  • Donor giving potential
  • Donor lifetime value
  • Donor retention/donor churn

Marketing Reports

Major nonprofits that engage in extensive marketing efforts will obviously have a wide array of marketing channels and metrics to track, but even smaller nonprofits will find value in tracking email marketing campaigns, website analytics, and social media efforts. Important metrics in this area include:

  • Conversion rates
  • Open rates and click-through rates
  • Website visits and time on site
  • Social media reactions and shares

Annual Report

A nonprofit’s annual report is an overview. It summarizes key details regarding the organization’s program, reach, and impact as well as showcases the previous year’s high points. This is the report that nonprofits are typically the most familiar with because almost all nonprofits put together some version of an annual report to share internally and externally. Annual reports typically include:

  • The organization’s mission statement
  • Core activities
  • A letter from the CEO
  • Financial statements
  • Important data and key metrics
  • Major accomplishments and highlights

These days fewer organizations are doing formal annual reports, but those that are still doing them, are modernizing the process. Instead of putting together a lengthy paper report and presenting it to the board, it is more likely to be prepared and shared online to provide a generalized view of what the organization has been doing for key stakeholders.

IRS 990 Reporting

For nonprofits Form-990 filing is legally required to ensure compliance. When it comes to 990 reporting, accuracy is of paramount importance. Nonprofits that are new or have experienced significant changes over the last year may want to consult with a nonprofit tax professional for help with this important reporting requirement.

Nonprofit Report Best Practices

Effective reporting not only conveys information but also drives action. An annual report provides the key details needed to keep donors happy and generate additional support from the public, while a financial report provides leadership with the data needed to make wise budgeting decisions. Both support the underlying mission by supplying the fodder needed to keep the organization moving forward.

Use these best practices for nonprofit reporting to help support and further your organizational mission:

  • Tailor the report to its intended audience (internally or externally)
  • Use “you” focused language to better engage your audience
  • Humanize the organization and its mission
  • Use visuals and key statistics to make it more appealing
  • Be transparent, especially around what needs to be improved
  • Keep it simple to ensure it will be understood
  • Be specific about how donations are being used
  • Go beyond meeting minimum reporting requirements

When it comes to preparing effective reports and communicating with key stakeholders, strong financial leadership is vital! In his interview with Dr. Patton McDowell on Mastering Your Financial Acumen as a Nonprofit Leader, our own Kevin Briscoe explains,

“Are there unexpected things that have happened that may change the outlook for the organization? …Those curveballs happen, and we don’t know what the next one will be unfortunately, but the financial executive for a nonprofit will be instrumental in making sure that the organization can responsibly manage those, whatever they are.”

If you need nonprofit financial consulting services, please reach out to us! We have a dedicated team of nonprofit consultants with decades of practical and professional experience ready come alongside your team to improve your reporting and help you achieve your organizational mission.

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Topics: Non Profit Organizations, Financial Reports

Topics: Non Profit Organizations Financial Reports