The Nonprofit Financial Narrative: How to Tell Your Organization’s Story Through Numbers

The most important part of your board reports

Every nonprofit has a mission worth funding—but communicating its financial story clearly can be challenging. A nonprofit financial narrative bridges that gap, turning data from tools like QuickBooks for nonprofits into a simple, meaningful story your board, donors, and team can easily understand.

Simply put, the financial narrative is a short written document explaining the financial statements. This is page one of your board financials. It provides a quick summary of everything the board needs to know. Every board member, regardless of their financial acumen, can read it quickly and understand what they need to know. If they want to then dig further into the financial statements, they can.

Unlike traditional accounting statements, a financial narrative explains why the numbers matter. It connects financial performance with program results, showing exactly how grants, donations, and expenses support your mission. When used alongside accurate bookkeeping, it becomes one of the most powerful tools for transparency and trust.

At MightyNonprofits, we help organizations simplify reporting and bookkeeping so leaders can focus on impact, not spreadsheets. Whether you manage your own books in QuickBooks or rely on outsourced bookkeeping for nonprofits, learning to create a strong financial narrative will help you present your data with clarity and confidence.

Scroll to the bottom for a link to the downloadable template

What Is a Financial Narrative Report for Nonprofits?

A financial narrative report is a concise written summary that explains your nonprofit’s financial activity, performance, and priorities over a specific period. It complements your balance sheet and income statement, providing the context behind the numbers.

For example, instead of simply reporting “$40,000 in program expenses,” your narrative might say:

“We invested $40,000 in community programs, reaching over 1,200 participants and expanding our youth mentorship initiative to two new schools.”

This combination of storytelling and financial accuracy helps stakeholders see how resources create measurable impact.

Why Nonprofits Need a Strong Financial Narrative

A well-crafted financial narrative builds confidence among donors, board members, and grantmakers. It turns your financial data into a persuasive story of accountability and progress. For nonprofits using QuickBooks online, Gusto, or Bill.com, it also helps connect automated reports with human understanding—bridging the gap between numbers and mission.

And when you work with outsourced bookkeeping professionals like MightyNonprofits, your data is already organized and ready to be transformed into a compelling story your board will value.

The basic structure of a nonprofit financial narrative

1. Overview and Big Picture of Reserves

2. Budget vs. Actual Variances (income then expenses)

3. Specific Program/Fund Details

4. Other

Overview and Big Picture of Reserves

The first thing the board needs to know is how much money do you have? This is an interpretation of the Statement of Financial Position (Balance Sheet). Point them to the equity section of the balance sheet that lists out the net assets with donor restrictions and the net assets without donor restrictions. If you have an operating reserve, or are currently working on building one, then you point this out as well. Then interpret these amounts into months of operating.

Here is an example:

As you can see on the attached statement of financial position, our organization has $250,000 of assets without donor restrictions. This is equal to 3 months of operating expenses. Our goal is to have six months of operating expenses by the end of next fiscal year.

Doing this puts the rest of the financials into context. The budget vs actual now makes sense in relation to the current reserve goals. If the organization already had plenty of reserves, then a break-even or deficit budget might be fine. This organization is working to increase their reserves and therefore a surplus budget would be expected. The financial position is good since there is already a three month reserve, but the hope is for it to get even better.

Budget vs. Actual Variances (income then expenses)

Now that the context is set, the budget vs. actual can be interpreted. See this article for a detailed explanation of the budget vs. actual report and why it’s important.

The first paragraph in this section should be a quick summary of the total income and expenses as compared to the budget.

Here is an example:

As you can see on the attached budget vs actual report, our organization is on budget. With 50% of the year complete, we have raised 52% of our budgeted income and spent 49% of our budgeted expenses.

After this paragraph you can dive into detail on the main income and expense accounts. Here it’s important to only focus on the major income and expense accounts, or any smaller accounts if there is a major variance. For a large budget line such as salaries and wages, a small variance may have a large impact on the bottom line. The same is true for revenue. In this part of the report you want to explain the reason behind any variances and whether or not the accounts will even out, or if changes need to be made.

Specific Program/Fund Details

Every organization is unique and this part of the narrative is a chance to give an update on important programmatic or grant funding. This will vary between organizations.

Other

In addition to an interpretation of the financials, this section allows you to explain any other important reporting requirements, procedural changes, or other updates.

Here is an example:

Our accountant has filed an extension for our 990. The 990 is due on November 15th. We plan to file the taxes in the next month. As discussed at our last board meeting, we have switched payroll providers. Our first payroll was run successfully last month.

Summary of Financial Narrative

Remember to keep it simple. Ideally, each board member should be able to read the first two paragraphs and have a good sense of the finances. If the nonprofit financial narrative ends up 5 pages long, the board may not read it. Try to keep it under two pages long. Here is a downloadable template.

Ready to simplify your nonprofit’s finances?

Schedule a free discovery call with our bookkeeping experts and see how MightyNonprofits can help you build clarity, confidence, and control in your accounting.

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Frequently Asked Questions

Q1: What is a financial narrative report for nonprofits? A financial narrative is a written explanation that adds context to your financial statements. It tells your organization’s story through numbers—summarizing how grants, donations, and expenses align with your mission and outcomes.

Q2: Why is a financial narrative important for nonprofit reporting?A financial narrative helps your board and donors understand the “why” behind your numbers. It supports transparency, improves fundraising communication, and complements your balance sheet and income statement.

Q3: How can QuickBooks help nonprofits create better financial narratives?QuickBooks online for nonprofits lets you track grants, restricted funds, and program expenses. These detailed reports become the foundation for your financial narrative, helping you clearly explain how funds were used.

Q4: Should a nonprofit work with outsourced bookkeeping support? Yes. Outsourced bookkeeping for nonprofits ensures your financial data is accurate and audit-ready before you build your narrative. A specialized bookkeeping team can prepare QuickBooks reports and grant tracking details, saving you time and reducing reporting errors.

Q5: Is there a financial narrative example or template I can use? Yes — MightyNonprofits offers a free financial narrative example and template you can download from our Resources page. It’s built to help you craft a clear, story-driven report for your next board or grant meeting.