INSIGHT

Nonprofit financial reporting: A guide to transparency and accountability 

Angela Thomas, Lindsey Chavez • April 1, 2025

Services: Sage Intacct Industries: Nonprofit

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As a nonprofit organization, your ability to fulfill your mission depends on many factors, but few are as crucial as effective financial management and reporting. Navigating financial reporting requirements can feel overwhelming, especially when you’re focused on advancing your cause and serving your community. 

Accurate financial reporting isn’t just about compliance—it’s about building trust with donors, making informed decisions, and ultimately maximizing your organization’s impact. 

In this guide, we’ll walk through the essential components of nonprofit financial reporting and how the right tools and partnerships can transform this critical function from a burden to a strategic advantage. 

Why financial reporting matters for nonprofits 

You’ve likely heard the phrase “garbage in, garbage out.” This holds especially true for nonprofit financial reporting. Your stakeholders—from board members to those who manage grants and donations – rely on your financial reports to make important decisions about and for your organization. If the information isn’t accurate, poor decisions are likely to follow. 

Beyond decision-making, proper financial reporting enables you to: 

• Apply for grants with confidence and credibility 
• Comply with funder reporting requirements and loan covenants 
• Evaluate your organization’s fiscal health accurately 
• Demonstrate accountability to supporters and the community 
• Make data-driven decisions for both short-term needs and long-term planning 

The 4 essential financial statements for nonprofits 

While there are numerous ways to organize your financial information, most nonprofit organizations compile four main types of reports. Each provides a unique lens into your financial health and activities: 

1. Statement of activities 

This report (the nonprofit equivalent of a for-profit income statement) provides detailed information about your organization’s transactions, showing how your revenue generation and expense allocation further your mission. It’s divided into: 

• Revenue: Broken down by funding sources (donations, grants, earned income, etc.) 
• Expenses: Categorized by function (program, administrative, and fundraising) 
• Net Assets: Your total revenue minus total expenses 

This statement should align with your operating budget, allowing you to evaluate planned versus actual expenses and revenue, which helps with future budget planning. 

2. Statement of financial position 

Also known as a balance sheet, this statement provides a snapshot of your organization’s financial health at a specific point in time. It includes: 

• Assets: Everything your nonprofit owns (cash, accounts receivable, property, etc.) 
• Liabilities: Everything your nonprofit owes (accounts payable, debt, lease obligations)
• Net Assets: Total assets minus total liabilities 

Comparing this statement year over year helps you track whether your financial health is improving and informs decisions about organizational growth and expansion. 

3. Statement of cash flows 

This monthly report shows how cash moves in and out of your organization, divided into: 

• Operating activities: Day-to-day revenue and expenses related to your mission 
• Investing activities: Transactions related to long-term assets 
• Financing activities: Transactions related to long-term liabilities 

Monitoring your cash flow regularly helps you stay on budget throughout the year and avoid unexpected shortfalls. 

4. Statement of functional expenses 

Unique to nonprofits, this matrix-style report reorganizes your costs based on their function in furthering your mission: 

• Program costs: Direct expenses related to your cause 
• Administrative costs: Expenses needed to keep your organization running 
• Fundraising costs: Expenses related to generating revenue 

This statement not only helps with tax filing but also allows you to identify opportunities to reduce overhead spending and direct more funding toward your programs. 

Warning signs to watch for in financial reports 

As you review your financial statements, be alert for potential red flags that could indicate financial instability: 

• Increasing rates of expenditures without corresponding revenue growth 
• Growing debt balances or defaulting on debt obligations 
• Continued declines in cash balances 
• Borrowing from reserves to pay current expenses 
• Consistent budget overruns 
• Declining investment returns that are disproportionate to market trends 
• Declines in volunteer hours or constituents served 

These warning signs should be taken seriously by management and your board, as they may point to deeper issues that need addressing. 

External reporting requirements 

Beyond internal management, your financial reporting serves critical external purposes: 

IRS Form 990 

The Form 990 is an opportunity to tell your organization’s story and demonstrate transparency. Remember that this report is used not just by the IRS but also by: 

• Watchdog agencies like Charity Navigator, which rate charities based on financial health and transparency
• Potential donors researching organizations to support 
• Grantmakers evaluating your organization’s financial stability 

Taking time to ensure the information in your Form 990 is accurate and complete can positively impact your organization’s image and funding opportunities. 

Stakeholder reporting 

At least annually, make your audited financial statements, program reports, and annual report available to external stakeholders. Your annual report is particularly valuable for: 

• Establishing trust with supporters 
• Highlighting major accomplishments
• Inspiring continued support 
• Demonstrating accountability and transparency 

In today’s competitive philanthropic environment, building trust through transparent financial reporting is essential for maintaining and growing your donor base. 

Streamlining financial reporting with Sage Intacct 

Managing these complex reporting requirements demands the right tools. As an AICPA-preferred software, Sage Intacct offers specialized solutions tailored to nonprofit organizations’ unique needs: 

• Fund accounting: Track multiple funding sources in real-time, ensuring compliance with donor restrictions and grant requirements 
• Management of grants and donations: Monitor the lifecycle of each grant and track individual donor contributions 
• Real-time reporting and dashboards: Create customizable dashboards displaying your key performance indicators and generate financial statements instantly
• Compliance and audit preparation: Maintain comprehensive audit trails and automate compliance reporting 

These features allow your organization to streamline operations, maintain financial integrity, and focus more resources on your mission rather than administrative tasks. 

How BPM can support your nonprofit 

Implementing an accounting system for a nonprofit requires specialized experienceto ensure compliance, efficiency, and ease of use. At BPM, our team of Sage Intacct specialists understands the unique challenges of nonprofit financial management and provides comprehensive support: 

• End-to-end implementation tailored to your specific needs 
• Configuration and customization of reports and dashboards
• Staff training to maximize your use of the system 
• Ongoing support and optimization 

We partner with you to transform your financial reporting from a necessary administrative task into a strategic asset that supports your mission and growth. 

The path forward 

Accurate and timely financial reporting is essential for your nonprofit to carry out its fiduciary responsibilities and effectively manage operations. With the right tools and support, you can streamline these processes while improving transparency and accountability. 

At BPM, we’re committed to helping your organization accomplish what matters most—your mission. To learn how Sage Intacct and our team can support your nonprofit’s financial management needs, contact BPM today. Let’s work together to build a financially sustainable foundation for your important work.