How to Write an Annual Report: 4 Tips for Preparing Annual Reports
To write an annual report, the business operations and the financial position are listed, summarized and recorded. The annual report is a financial document that businesses provide to shareholders, potential investors and analysts. It is the best source of information about the business performance and financial well-being of a business.
Public companies are required to file comprehensive annual reports the Securities and Exchange Commission. However, small businesses and non-profit organizations also prepare the yearly reports to connect with customers and provide information about past performance and future goals.
What this article covers:
- What Is Included in an Annual Report?
- How Do You Write a Good Annual Report?
- Why Is an Annual Report Important?
What Is Included in an Annual Report?
The annual report is an integral part of corporate reporting. Since the annual reports are based on specific legal requirements, the items that are included in the report vary.
Most annual reports provide a fundamental overview of the business over the past year. The sections typically included in an annual report are an opening letter from the chairman, a business profile, analysis by management and financial information.
The annual report usually starts with an introduction and a letter from the chairman, primary owner or the CEO of the company to the shareholders providing a snapshot of the significant developments in the past year, company initiatives and a brief summary of the financials. Key elements included in this section are the challenges that the business faced, its successes and insight into the growth of the company.
The section is followed by a table of contents.
This section includes the vision and mission statement of the company, details of directors, officers and registered and corporate office, investor profile, the products or services that are the main source of revenue for the business, competitor profile and risk factors of the business.
Management Discussion and Analysis
The section provides an overview of the business performance over the past three years and discusses profit margins, sales and income.
If the business has launched a new product or service or there are drastic shifts in sales and marketing efforts, they should be included in this section. The other topics of discussion include new hires, business acquisitions and other information that the management thinks would be beneficial for the stakeholders.
The financial statements are the most important part of the annual report that allows current and future investors, shareholders, employees and other business stakeholders to determine how well the company has performed in past, its ability to pay off its debts and its plans for growth. The statements that are included are:
- Balance sheet
- Cash flow statement
- Income statement
- Statement to shareholders
These statements show whether the company has made a profit or loss in the past year, how much earnings it has retained and the proportion of revenues to operational expenses. Apart from the financial statements, information about the market price of shares of the company and the dividends paid have to be provided.
Other elements included in the annual reports are:
- Notes to accounts with details about the accounting policies
- Comments by auditors on the financials of the company.
- Disclaimers about forecasted income and expenses
- Stories, infographics and photographs
How Do You Write a Good Annual Report?
Annual reports are important elements of a brand’s transparency and accountability. However, rather than writing a ponderous document that only a few can understand, businesses are creating annual reports that speak to a broad group of people.
These reports communicate the values and goals of the brand. Producing creative reports that are highly visual and narrative-driven can help businesses connect with shareholders, investors and customers.
Determine the Key Message
An annual report is a perfect opportunity to highlight your accomplishments and the impact of these accomplishments. The investors and employees want to know what you did and why you did it. By connecting your activities and your accomplishments to the final goals and mission statement, businesses can build trust and foster long-lasting connections.
Finalize Structure and Content
One of the most difficult parts about writing an annual report is deciding what to include and what to leave out. It’s important to map out the content and the structure of the report.
Apart from the basic elements such as introduction, chairman’s letter, business profile and financial statement, the annual report should have a storyline that defines the overall structure of the report and shapes the content around a narrative thread. This makes it easier to identify and cut out information that does not actively move the story forward.
Use clear, precise and unambiguous writing. Maintain a professional and unbiased position throughout the document. The content of the annual report should be transparent and honest. Don’t inflate accomplishments or disguise the losses that you faced.
Use Compelling Design
A well-designed report that is engaging and professional can be used as a marketing tool by a business. Ideally, readers should be able to scan through the document and get the information they need. Here are some pointers for a good annual report design:
- Use headings and subheadings
- Devote space to photographs, infographics and other compelling visual elements
- Keep the text short and simple
- Use a bold and complimentary color scheme and layout techniques that are in sync with your brand
- Emphasize key areas with colored text boxes, quotes and captions
Plan in Advance
Creating an annual report is a long-term process that requires an organized system for recording and tracking data, media clipping, photographs and a list of business achievements. While a number of companies create the annual reports in-house, others may hire a design firm to compile, proofread and finalize the document.
Why Is an Annual Report Important?
Both public and private companies use annual reports to provide important business and financial information to customers, investors, employees and the media. Here are some reasons why an annual report is necessary for businesses:
- Provides an opportunity to highlight a company’s key achievements, expectations for the coming year and overall goals and objectives
- Gives information on the company’s financial position
- Introduce you’re the key members of the business to stakeholders and the general public
- Tells shareholders and employees the company’s strategy for growth in the coming year
- Useful as a decision-making tool for managers
The annual reports keep your critical business information up to date. A failure by public companies to update the investors and the state might result in late fees or even dissolution of your company.