How Nonprofits Can Use Financial Statements to Tell Their Story

Nonprofit organizations rely on effective communication to engage donors, stakeholders, and the public. While financial statements may not seem like a natural storytelling tool, they offer a powerful way to convey a nonprofit’s mission, values, and impact. By selecting different presentations and tailoring their financial disclosures, nonprofits can craft a narrative that resonates with their audience and supports their goals.

The Role of Financial Statements in Nonprofit Storytelling

Financial statements serve as a bridge between a nonprofit’s operations and its stakeholders. They provide transparency, demonstrate accountability, and illustrate the organization’s financial health. However, these documents can also communicate much more:

1. Mission Alignment: Financial statements show how funds are allocated, highlighting priorities such as program spending versus administrative costs.
2. Impact Measurement: Revenue sources and expenses can illustrate the scale of operations and the breadth of services provided.
3. Growth and Sustainability: Trends in assets, liabilities, and reserves showcase the organization’s capacity for long-term success.

Tailoring Financial Presentations for Storytelling

Nonprofits can adopt specific approaches to present financial information in a way that supports their story. Here are some strategies:

1. Highlighting Program Expenses: One of the most effective ways to showcase mission-driven work is to emphasize program-related expenses in the statement of functional expenses. By demonstrating that a significant portion of the budget is directed toward program services, nonprofits can reassure donors that their contributions are making a difference. Additionally, nonprofits can emphasize their efforts by highlighting the expenditures in the various services areas they are focused on, by how they define program services categories and natural classes reported functionally within the financial statements and annual reports.
2. Visualizing Data with Charts and Graphs: Transforming raw numbers into visual formats can make financial data more accessible and engaging. Pie charts showing revenue sources or bar graphs comparing year-over-year growth can quickly convey key messages.
3. Breaking Down Revenue Sources: Providing a detailed breakdown of revenue sources, such as grants, donations, and earned income, helps illustrate the diversity and reliability of funding streams. Consideration should be made to how investment income is reported whether investment income and return is included in operating income or outside of operations and how much of the nonprofits regular operations is supported by endowment income appropriations. A well-diversified revenue base demonstrates resilience and reduces perceived financial risk.
4. Showing Trends Over Time: Comparative financial statements, which display data from multiple years, can highlight progress, stability, or growth. Stakeholders often appreciate seeing how the organization has evolved.
5. Including Non-Financial Metrics: Pairing financial statements with non-financial metrics—such as the number of beneficiaries served, programs delivered, or volunteer hours contributed—can provide a fuller picture of impact. For example, connecting program expenses to measurable outcomes underscores the efficiency and effectiveness of spending. Consider disclosing the impact the nonprofit has by leveraging volunteer time and services without direct cost to the organization.

Adapting to the Audience

Not all stakeholders interpret financial statements in the same way. A nonprofit’s storytelling strategy should consider the specific interests of its audience:

• Donors: Focus on transparency, impact, and the alignment of spending with mission goals.
• Grantmakers: Emphasize sustainability, efficiency, and the ability to meet grant objectives.
• Board Members: Provide a comprehensive view of financial health and strategic priorities.
• The Public: Use accessible formats and visuals to build trust and highlight achievements.

Ensuring Accuracy & Credibility

While tailoring financial statements for storytelling, it’s crucial to maintain accuracy and compliance with accounting standards. Misrepresenting financial data can damage credibility and erode trust.

Nonprofits should:

• Adhere to Generally Accepted Accounting Principles (GAAP).
• Obtain regular audits or reviews by independent accountants.
• Provide explanatory notes to clarify financial data when needed.

Looking Ahead

Financial statements are more than compliance documents—they are storytelling tools that can inspire confidence, demonstrate impact, and reinforce a nonprofit’s mission. By thoughtfully presenting financial information and tailoring it to their audience, nonprofits can build stronger connections with stakeholders and advance their goals.

If you need further guidance or have any questions on how to design your reporting in a way that effectively tells your nonprofit’s story, we are here to help. Please do not hesitate to reach out to discuss your specific situation.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.