Tuesday, May 07, 2013

What the Nonprofit Annual Report Is, Why It Is Necessary, But More Importantly - How It Can Be Powerful In Increasing A Nonprofit's Fundraising, Volunteers, Public Relations, and Marketing Results

Nonprofit organizations should produce an annual report...annually.  The annual report is not as much 'a pain in the butt without rewards' as it may sound.  In fact, it has tremendous potential to be a very powerful tool for the nonprofit to raise more money more frequently, clarify what your organization does for whom or what thereby helping to develop more interest in your organization in its community, and much more.

A nonprofit annual report is just that - a report that is created usually at the close of the organization's fiscal year (which varies organization to organization but is usually stated in a  nonprofit's bylaws),  created every year of operation, which lists in whole and truthful detail, through succinct, easy to read, clear formatting the organization's goals, accomplishments, programs, organizational budget, expenditures, income, service statistics, tax identification number, and other information (usually including the organization's mission statement, how someone can reach the organization, sometimes its vision, larger programs' individual budgets and income and loss, how much of each dollar raised goes to programs, what its new and current goals for the coming fiscal year are, a list of the larger annual fundraising events, new hires, new board members and executives, and any new programs or organizational growth, and so on).  The information provided about the organization's just completed fiscal year is relayed succinctly for thoroughness but ease to read - so information is typically listed in bullet lists, graphs or charts, or even copied and pasted digital file images ((i.e. .jpg, .tif, .gif, and .png) of such more detailed things like financials such as the Profit and Loss Statement or Income and Loss Report, etc.).  Only highlights are given in the Annual Report.  A reader should be able to gloss over the report and understand quickly highlights of the organization's most recent fiscal year's operations.  If a recipient of the Annual Report wishes to get further detail from your organization about any of the highlighted information, you can provide it upon request.  This is normal and also a good way to keep the costs of producing an annual report down.

Above all, the IRS compliance requirements and federal law require that a nonprofit given official federal (and most often by states as well) charity status be transparent: open to the public, reporting fully, in a timely manner, to any and all requests from the public for the organization's board ratified financial and operations information.  Why do these laws and rules exist?  So that the public (who may wish to give to your nonprofit or may wish to become a board member or even a client) can investigate and determine through truthful and complete information about the nonprofit whether it merits their support and whether it is a well run, professional, mission focused nonprofit that succeeds or whether it's a poorly run, dishonest nonprofit or even simply a sham.  Yes, the federal government and law say the organization must provide information and complete and truthful information on its own self.

Annual reports can be anywhere from one page to tens and tens of pages; glossy and professionally printed or just printed from the photocopy machine; full of images of say beneficiaries or programs; or simply just the data and facts without photos.  As long as the key information needed to fully and truthfully give an operations snap shot of your nonprofit is provided - you've covered your organization's due diligence but also provided what should be conveyed in a strong annual report.

For every nonprofit that completes an annual report each year, there is a different format and style to it - there's no one way to do it or 'do it right'.  Having said this, there is some key content that excellent annual reports contain that make them "excellent" by virtue of what the annual report does for that nonprofit.  In other words, a well informed and clear annual report can do some powerful work benefiting a nonprofit's bottom line, increasing its number of supporters (from donors to volunteers to community partner organizations), demonstrate the competency with which the nonprofit is run and also the efficiency with which it is operated, and more.

You see, an annual report should not be viewed as only meeting compliance or "yet one more thing that needs doing" but rather, it is an opportunity to bolster your organization's operations across the board.  Yes, really.

The target audience of a nonprofit annual report should be viewed rather than as one entity or person but as a room of different people or different types of people defined by how they relate (or will relate) to the nonprofit.  For example, an annual report that is well utilized by its organization over the course of the current (new) fiscal year will be probably viewed by its: website visitors; newsletter recipients; current donors; potential new donors (in particular larger increment donors); potential new volunteers, board members, staff members, consultants, community partners; banking or lending institutions; potential sponsors; current and potential clients; media; and so on.  In other words, depending on how well disseminated (utilized) it is by the nonprofit an annual report, from year to year, has a wide range of operations-enhancing uses so by virtue of this it should be viewed as having a wide and varied audience (especially as its planned and laid out, year to year).

An annual report has several duties - and in its strongest potentially most helpful format, for the most recent completed fiscal year, it contains board ratified versions of:

__ The organization's name, logo, physical and mailing addresses, website domain, main phone number and e-mail contact information.

__ The nonprofit's mission statement, a general but clear definition of the organization's beneficiaries, what the unique need in the community is that the organization serves (which would not be met if it did not exist/operate), the list of programs, the names of the board members, perhaps a short general welcome/thank you note from the board president, perhaps a staff or regular volunteer roster.

__ Programs goals, the service statistics for each program, including numbers of clients served, intended outcomes, actual outcomes and accomplishments per program. 

__ The year's operations budget including income and loss, and possibly the financials for the year.

__ How much of each dollar raised goes to programs including a pie chart breaking down of all programs including overhead expense where each dollar raised was spent, and another pie chart depicting where each dollar raised came from ( i.e. individual donor, sponsor, corporate donor, grants, etc.).

__ The fundraising outset goals, intended outcomes, and actual amounts raised (either broken down by month, or event, or by fundraising method).

__ The organization's accolades, partnerships, awards, etc. from the community at large and any national or state recognition, and so on.

__ The current goals (for the current/new fiscal year), how those interested can support or volunteer with the organization, and what current needs exist (for example, if a shelter nonprofit for women and children is building a brand new home, it might state in the annual report a list of new or like new items needed for clients, in the coming year, such as children's clothing, women's clothing, toys, etc. and where they can be dropped off).

__ A Thank You to all who have supported, volunteered with, or partnered with the nonprofit.

Other information can be provided.  Here is a post on how to create an annual report.

By virtue of what content is needed it becomes evident that the best annual reports are created by nonprofits that for instance, regularly always gather service statistics after each program, or professionally accounts for dollars in and dollars out.  All of the organization's operations that are conducted professionally and according to best practices (and then kept in records) are then available for not only the organization's annual report each year but too for marketing or public relations materials or to inform the necessary content in grant proposals provided to potential grant donors.  The time taken to properly administer, lead, and operate a nonprofit (according to professional nonprofit best practices) pays off in spades - in spades!

What needs to be given, on the whole, is a truthful and extant snap shot of the organization's beneficiaries, programs, operations, income and loss, achievements, and so on such that in the annual reports details (which, again, are just highlights) the individual nonprofit is depicted as it actually stood, in reality, in the most recent fiscal year.

Typically a nonprofit gets all of the pertinent organizational financials, service statistics, and operations data compiled and (as needed) ratified by the board within six months to a year after fiscal year end.  In that time the annual report document can be laid out in whichever computer program or however (if by hand, if needed).  Also, it needs to be decided where it will be posted and when it will be given out (in hard copy form) so that numbers needed is determined, how and where it will be printed can be shopped and selected, and where they will be stored should be decided, etc.  As always, a final rough draft of both the content and the print proof should be reviewed by several set of eyes for errors, clarity, readability, succinctness, etc.  Once O.K.'ed we wait until it's ready and prepare to scan it in to get a digital version for dissemination online (i.e. it should be posted to the nonprofit's website, it can be e-mailed as needed, be easily accessed to be included in maybe the organization's brochure or in the next organizational newsletter, and it can be easily stored (remember to back up) for posterity).

Once the final version is available - annual reports should be mailed to the organization's major donors; recent grant donors (as is appropriate - not many grant donors want unsolicited mail from grant recipients and you want to keep them happpy); e-mailed to current board members, clients, donors, community partners, and volunteers; in advance in public relations or marketing situations; and perhaps the nonprofit's banker or financial lending officer; and so on.

Ask for recipients' feedback to the layout and content of the annual report in an organized fashion, such as perhaps through a survey, and tabulate the response.  Look over responses, tabulate findings, and appreciate any recommendations or lessons learned and use those in the next annual appeal to improve their readability and usability for the intended audience - those who actually wind up reading and using it.

If annual reports are created but not used, compliance is handily met but they are unnecessarily ultimately a sink on the organization's resources.  This is a shame.  If your organization thinks through creating their annual report and has them made - it should absolutely use them.

Ultimately, in the end, the clear and well informed annual report makes a compelling case: for the organization's operational transparency and professionalism; achievements like mission success; its potential to continue to do excellent work in the community again and again; the quality and aptitude of its work (and leaders, employees, and volunteers); the level of support and validation it receives from its community (supporters); and all else that truly demonstrates the nonprofit's integrity.  Why?

A truthful case made for the organization (like an appeal letter, a grant proposal, or in this case an annual report) that happens to be compelling (positive and enticing) generates supporters' interest and attention and so it generates support.  That is all any nonprofit needs to grow and succeed.  Support is the requisite partnership a nonprofit must always be generating from its community successfully in order to operate but to grow, as well.  This is the case in all nonprofit fundraising, marketing, public relations, and so on.  If an organization's operations are professional, its integrity whole and genuine, and if it accomplishes the goals of the organization's mission then it can (and should) always make a compelling case in its written literature and content. The key is to, all year long, each year, do the due diligence in order to be able to honestly report on all of the organization's operations and administration (for instance service statistics - gather those for each program, tabulate them, and keep them on hand).

Here are examples of some nonprofit annual reports from different nonprofits and organizations of different sizes:

Annual reports and financial information for The Humane Society of the United States

American Red Cross Annual Report for 2012

The Seattle Foundation Annual Report 2011

Take a look at them, after reading this post, and compare each of their unique formats, content, and what you (as someone maybe unfamiliar with their day to day operations) find helpful/informative or overkill and not necessary.

1 comment:

Anonymous said...

Pretty thorough analysis - thanks for sharing your thoughts!
-Jon @ nonprofit software