The Nonprofit’s guide to annual reports: building trust, inspiring donors and shaping the future

Every year, most nonprofits are required to submit some sort of annual report, or give the government detailed insight into the financial outcomes from the previous fiscal year.

However, successful nonprofits also know that year-end numbers are about more than just required filings. An annual report — sent to your supporters, partners and other stakeholders — goes beyond just checking a task off of the end-of-year to-do list. When done well, it can be the ultimate tool for donor attraction and retention, communication and even creating more impact.

In this article, we’ll cover the ins and outs of annual reports of nonprofit organisations, including what they are, why they’re important, best practices for how to write an annual report for a nonprofit and more.

What is an annual report?

An annual report is often thought of as a nonprofit yearbook or an annual highlight reel. Instead of just providing supporters with the raw data and numbers around expenses and impact — like an organisation would for tax purposes — an annual report creates a story that captures the full essence of a nonprofit’s journey over the past year.

While most nonprofit annual report examples are different in how they tell their story, most cover the:

• Past: Most nonprofit annual reports include historical information, even if brief, about the origins of the organisation, the mission, vision and the crucial issues it has set out to solve.
• Present: Most nonprofit annual reports include detailed information about what’s currently going on: activities the organisation is currently engaging in, what community needs are being fulfilled, what challenges the charity is facing, important stakeholders that are helped and resources being used.
• Future: Every good nonprofit annual report considers the next steps, including what lessons were learned and how they’ll be remedied, plans for the future, how the needs of the community will shift, how supporters can help and more.

Together, these elements create a story around the nonprofit and the difference it’s making, transforming abstract data into a powerful narrative that resonates with readers and inspires ongoing support.

Why is an annual report important?

While an annual report can often feel like extra administrative paperwork for busy nonprofits, they’re essential for quite a few reasons.

Annual reports can improve:

• Trust and credibility: As The Independent Sector says, “Public trust is the currency of the nonprofit sector.” Without trust, supporters are hesitant to give support — they worry their gifts will be misused. An annual report, however, which offers transparency around expenses, revenue and impact, can boost trust. 
• Donor attraction and retention: Annual reports, when done well, can be strategic fundraising tools that showcase tangible results of previous donations. They often provide compelling evidence of your organisation’s effectiveness, create emotional connection and more.
• Strategic communication: Beyond just numbers, annual reports can be incredibly effective at communicating your nonprofit’s vision, and positioning your organisation as different from others. Plus, with the right design and branding, nonprofits can create a visual representation of their organisational identity.
• Stakeholder engagement: Successful nonprofits have a lot of engaged stakeholders — from donors to board members and volunteers. An annual report, full of data and storytelling, can create a clear understanding of impact, motivating stakeholders to continue their support. For internal staff members, too, an annual report can boost engagement by reinforcing the organisation’s mission, creating a sense of shared purpose and making everyone feel seen and appreciated.
• Accountability: A majority of Americans say their trust in a nonprofit would increase if charities committed to third-party standards for ethical operations and good governance practices. When nonprofits produce trustworthy, transparent annual reports, they show supporters that they’re dedicated to accountability.
• Future planning: A robust annual report can be crucial for nonprofits to develop long-term strategic plans. With documentation around program outcomes, financial performance, challenges encountered and lessons learned, annual reports become critical planning documents.

How to write an annual report for a nonprofit

Every annual report is different depending on the organisation‘s mission, vision and audience. However, most organisations include the following information:

Executive summary

Most nonprofits include a brief overview of the year’s major achievements, highlighting key accomplishments, reminding supporters of the mission and offering a quick snapshot of what’s to come in the report.

Additionally, most annual reports offer a restatement of the organisation, purpose, core values and guiding principles that inform the organisation’s work.

Leadership

Nonprofits typically include the names of the most important stakeholders involved in their missions, including their:

• Board of Directors
• Executive leadership team
• Staff members

Program impact

Highlighting success stories is one of the most important end-of-year activities for nonprofits. Doing so can help show gratitude for support, lend credibility to your organisation and so much more.

Most nonprofits offer a lot of details on their programs’ impact, including:

• Specific, measurable program outcomes
• Quantitative and qualitative impact data
• Visual representation of achievements (think graphs, charts, etc).

Financial reporting

Another key part of any annual report is the financial findings. As expected, supporters want to know exactly how their donations are being spent, and how they’re impacting the community.

Usually, this part of the report includes:

• Detailed income statement
• Expense breakdown
• Revenue sources

Donor and volunteer recognition

Donors and volunteers are the backbone of any nonprofit organisation, and an annual report is the perfect place to highlight their contributions to your mission. While every nonprofit is different, many reports typically include:

• List of major donors
• Donor category breakdowns
• Giving levels and recognition
• Volunteer spotlights
• Metrics around volunteer impact

Future goals

At the end of an annual report, most nonprofits typically offer readers insight into where the organisation is headed next, including:

• Strategic priorities
• Upcoming initiatives
• Organisational growth plans
• Challenges and opportunities
• Vision for the next year
• Ways to support and get involved

Best practices

In order for an annual report to be effective, it should include all of the above elements and follow a few best practices.

When creating your annual report, be sure to:

• Use visuals: Supporters don’t want to read a document full of only numbers and raw data. In order to really tell a story, and create an emotional connection, use high-quality photographs, infographics, charts, graphs and designs that reflect the organisational brand.
• Consider your format: There’s no right nonprofit organisation annual report format, but most organisations are now creating digital annual reports to send out via email or social media. Some organisations also print their reports into brochures and send them via direct mail. When deciding your format, consider your audience and what resonates best. 
• Make it easy to understand: Whenever possible, be sure to simplify and distill complex information so supporters understand exactly the story you’re trying to tell. Use infographics, highlight key statistics and use color strategically when possible. Plus, be sure to avoid the use of jargon or industry terms.

Bringing it all together

No matter what your annual report looks like, always be sure to be transparent, data-driven, clear and compelling. The best annual reports will create trust, engage stakeholders and go beyond just raw numbers, making everyone feel a part of your mission.