An annual report holds immense significance in showcasing the progress, accomplishments, and financial health of a company. The annual report isn't just a mandatory document; it's an opportunity to communicate your business's story to stakeholders, investors, and the public. But how do you write an annual report?
What is an annual report?
Annual report is a compilation of financial information that gives insight into your company’s financial position and operational activities from the previous year. A comprehensive annual report gives stakeholders, potential donors, and other interested parties information about the business, which they can use to make decisions. Filing an annual report is crucial to keep a company in good standing and to keep it as a registered entity.
How do you write an annual report?
1. Start off with the shareholder's letter
This vital communication is written by the CEO or manager of the business and its tone sets the mood for the entire report. Care should be taken to remain inspiring and positive and inject a hint of personality into this personal communication.
2. Add a general description of the industry
In this section you want to create a positive an inspiring picture of the industry as a whole. Here, you should include numeric data about your market share as a player in the industry or positive predictions that indicate the upward trend in the growth of customer awareness of your business, positive reviews or regard and your networking among key players in the industry. In this section the aim should be to inspire optimism among major stakeholders.
3. Include audited statements of income
Income and expense reports should always have been through a professional audit before being presented to shareholders, financial institutions, and potential investors. This instills an air of reliability and confidence in the reader. This section should include the annual income of the business, alongside the expense statements. Financial statements can include balance sheets, income or profit and loss statements and a cash flow statement - they sum up the financial position of the business.
4. State your financial position
In this section you can make use of colorful charts and graphs to indicate the true financial position of the business. Stakeholders want to see that the business is generating income, minimizing expenses, turning a profit and planning the next financial year according to accurate financial information.
5. Give details about cash flow
Details about the ready, inflow of cash into the business will be of great importance to those reading your report. This section should relate to the section about income statements and refer to information and graphs noted in this section. While the business may be rich in assets or potential profits, the cash flow is the total of finances being transferred in and out of a company's bank account during the financial year. This affects the liquidity of the business and is a true reflection of business stability.
6. Provide notes to the statements for line items
Your financial statements may not be easy for individuals who are not directly involved in the business to understand. For this reason, all the financial statements need to include additional notes to clarify each or several facts and figures in the statements.
In order to provide accurate details about the financial status of the business, the information used to compile the report must be as accurate as possible. Errors made during the collection process or compilation of the report can substantially affect the viewpoint of shareholders and fuel funding concerns as well as affect management decisions. In this segment we explain how a report is written, how to avoid mistakes during data collection and provide encouragement on how to begin the process.
What should be included in an annual report?
The six basic components of an annual report are:
- The shareholder's letter
- General description of the industry
- Audited Income Statements
- Financial Position
- Cash Flow
- Explanatory notes
You may include brief additional sections, but it's generally recommended to adhere to these six basic sections. This makes the report easier and less time-consuming to read and easier to understand at a glance. Aim for an inspiring, concise report that paints a positive picture of the status of company's finances.
What to consider when writing an annual report?
The success of every financial report begins in the planning stage. In this stage you consult and involve the planning committee to determine the data you need, who is responsible for collating and compiling income and expenditure reports, data on operations or information on accounting practices and requirements. It is important to include all the relevant information, without making the report too long or tedious to read.
Remember: Shareholders and stakeholders are interested in finding out the results of your yearly operations.
Aim to include relevant information in an inspiring report. To do this you want to include meaningful results, not just long lists of data. Try to use the facts and figures included in the report to tell a story. At this stage you will want to develop a basic framework for the data, graphs, charts, predictions and photographs you want to include in the report.
3. Pitfalls to avoid
When learning how to write an annual report, mistakes are inevitable. As already noted, making the report too long, confusing or tedious to read is a common mistake.
Tip: you want to stick to the shortest possible length, while providing ALL the relevant data. This data should be relevant to the particular stakeholders or potential donors you want to attract. Including too many details and information about daily operations will result in boredom and doesn't get down to the basic results that the parties need to know.
Make sure to answer the following questions:
- Why does the company exist?
- What is the vision or objective of the business?
- What is the strategy to reach this goal?
- How does the company make money?
- Online reports: What is included in the annual report?
The importance of online annual reports
These days many companies share their annual reports online. This is an effective way to reach many stakeholders at once and allow sharing of the document with interested parties in a network. While reports are similar to paper copies, online reports are an excellent way to get immediate feedback on your annual reports. By including an online feedback facility or response form, readers and shareholders can respond personally to the CEO, asking for more information, improved formatting or praising the content and structure of the report. So, don't forget to consider online cloud-based platforms and other online formats.
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