Nonprofit organizers use a variety of reports to understand and communicate the organization’s fiscal history, resources, and plans for the future. You will file some financial reports, such as the organization’s tax return, with the government. Other reports, like your monthly balance sheet, are for internal use. When you take the time to understand the content and purpose of each type of report, you will be better able to communicate the financial state of your organization to potential donors and allocate resources to further your charitable mission.
Financial reports include a number of documents that provide information about the organization’s current assets, income, expenses, and financial projections. The types of reports your nonprofit might produce include:
Annual budgets: Your budget will list the estimated revenue and expenses for the upcoming year. You’ll create the budget based on the organization’s financial history and your goals for the future. Making your budget involves breaking down your income and expenses into categories, such as salaries, utilities, donations, and grant income. Throughout the year, you can compare your actual income and expenses to your budget to determine if you are on track to meet your goals.
Tax returns: You are responsible for filing state and federal tax returns. You can read more about your annual reporting requirements here.
Balance sheets: Also known as a statement of financial position, the balance sheet shows the organization’s current assets (such as money in the organization’s checking account) and liabilities (including business loans and other debts).
Income statements: Also known as a statement of activities, the income statement tells you the income and expenses for a specified period (such as the previous month) as compared to the budget.
Statements of cash flow: This statement gives information about money coming into and going out of the organization. It is similar to the income statement, but does not include depreciation information (an accounting of the reduced value of your assets, such as aging computers).
Statements of functional expenses: This statement shows your expenses, which are organized by function and classification. For example, the income statement might show that you spent $100 on printing, and your statement of functional expenses might specify that you spent $50 to print programming handouts, and $50 to print fundraising materials.
To determine who is responsible for creating and managing your financial reports, review your organization’s bylaws. Typically, the bylaws assign financial duties to the treasurer (or another officer, if your board does not have a treasurer). The treasurer can solicit help from an outside accountant or bookkeeper to track expenses, create reports, and file tax returns. In addition, executive directors and other staff members often work with the treasurer to create the budget, because the staff is familiar with the day-to-day needs of the organization and can make suggestions about where to allocate costs.
Federal and state laws require nonprofits to make certain reports public. If your nonprofit is tax-exempt, your federal annual tax filings (IRS Form 990) from the last 3 years must be accessible to anyone who requests them. The laws of your state might require you to make other reports available by request, such as fundraising reports or state tax filings.
Review your organization’s bylaws and the laws of your state to determine which reports your directors and members have the right to access. Typically, board members have the right to inspect all financial reports, and new director recruits may request to review your reports before joining the board. If you have a membership nonprofit (read more here to determine whether your organization is a membership or nonmembership nonprofit), members likely have the same right to access.
Although you do not have to make most of your financial reports public, you might find that sharing your financial information will give you a marketing advantage when it comes to soliciting contributions. Sharing will demonstrate to the public that your organization is trustworthy and using its resources to further its charitable mission. You might not share every monthly balance sheet, but you could present your financial data in an annual report, as discussed below.
Annual reports highlight your organization’s accomplishments and fiscal health. You can use this space to share key financial information (such as overall revenue, expenses, and largest donations), as well as other data that illustrate your organization’s activities (including the number of programs, volunteer hours, and participation in your events).
Traditionally, annual reports are publicly available. You might post them on your organization’s website or send them to your volunteers and donors at the end of the year. You can use the reports to encourage donations and volunteer time because they show the organization’s accomplishments, as well as your potential for growth.