The IRS requires nonprofits to file 990s when they generate revenue over $25,000. And private foundations, government agencies, and other funding sources generally require annual reporting on the expenditure and use of funds. But developing and publishing an annual report is generally not required, although it is clearly recommended.
Publishing an annual report helps your donors, friends and stakeholders keep abreast of your accomplishments during the previous year. An important tool for accountability, the annual report lets supporters know what you did with your money and offers them assurance that their investment was a wise one. While the 990 certainly provides a level of required accountability, it doesn’t provide a plain and comprehensible document that illustrates the impact you’re making in the community— that’s the annual report’s job.
For organizations that raise money from a wide variety of funding sources, the annual report should become the key marketing and information vehicle. Most annual reports should be completed and sent out within six months of the end of your fiscal year.
Here are the most important components of the annual report. And how YOU can successfully implement them.
1. Letter from the chairperson of the board. Include this letter in one of the first pages of the annual report to set the tone. In the letter, the chairperson should give an overview of the organization and what impact the organization has had during the past year. The letter should also include some language describing the critical role the board of directors has played.
2. Letter from the president/CEO or executive director. This usually comprises the second page of the annual report and should describe the activities of the staff, the programs, and an overview of the organization’s goals and objectives. It should also thank the donors and stakeholders for their support and donations.
3. Theme for the annual report. Before the report is even drafted you need to develop an overall theme for the year that can be reflected in the cover and throughout the document. Flowing from the theme should be a message that represents how the theme was operationalized throughout the year.
4. Show clear and simple financial statements. This is a critical piece that everyone will at least review if not study when reading the report. If a CPA audited your organization, be sure to include the audit letter they developed. You should ALWAYS include a balance sheet, and an income and expense statement, and then illustrate the revenue and expenses through a pie chart or other graphics.
5. List of the board of directors. The board is the legally constituted body responsible for the effective functioning of the organization. List the board members with their business affiliations in the annual report; this gives the reader an understanding of the quality of people associated with your organization. If you have an advisory board, list them and their affiliations as well. Your board members give your organization credibility.
6. Key staff. Since most organizations accomplish their goals primarily through their staff, it’s a good idea to list the key staff members responsible for the programs, management and leadership functions of the organization.
7. Donors. Make sure you list all of the primary donors, sponsors, and key stakeholders in the organization. Many organizations list their donors in categories starting off with the major gifts donors and then moving down to the small donors. Remember to ask people if they want to be listed, as some donors want to remain anonymous. In some annual reports, this section could take many pages, but most organizations feel it’s worth the ink to publicly acknowledge their donors. Obviously, if you have thousands of donors, you’ll have to describe the different levels and thank more personally the key individuals, private foundations, government agencies and corporations that made the most significant contributions.
8. Photos are important. Every annual report should have photos, paintings, artwork from kids, etc. that reflect the passion and emotion of the mission and the programs. This is important not only to make the annual report interesting to read, but to move the reader to action.
9. Quotes and stories. Make sure when writing the report to use the active rather than passive tone and to use plenty of quotes and stories so the annual report comes alive to the reader.
10. Thank-you and thank-you, and thank-you again. You can’t say thank-you enough! Just remember to thank your volunteers, your board, and your staff—NOT JUST your donors.