Annual report preparation can be a challenge. You must cover all necessary information, and it's important to make sure your report is clear, concise, and visually appealing. You'll need to choose a report format, write the report, proofread it to eliminate any errors, and then distribute it to all concerned parties.
Here, we'll walk you through the steps of creating an annual report and show you how to craft one that furthers your business goals — whether you're a seasoned pro or just getting started.
What Is an Annual Report?
An annual report is a document that provides a comprehensive overview of the operational activities performed by your business, as well as the performance figures your business has achieved over the past year. If your business is registered as an LLC, LLP, S Corp, or C Corp, you'll be required to file an annual report with your Secretary of State (typically via online submission).
The best annual reports include the following components:
A letter from the owner (or CEO) that highlights the main achievements, challenges, and future plans of the business.
A summary of the business’s mission, vision, values, and goals
A description of the products or services offered by the business and how these components meet the needs and expectations of the target audience
A financial report that shows the income, expenses, assets, liabilities, and cash flow of the business for the past year.
A social and environmental report that demonstrates how the business contributes to the well-being of its employees, the local community, and the planet as a whole
An appendix that contains any additional information or supporting documents that may be relevant or potentially required by law
Annual reports can vary in both length and format depending on your business's size, type, and industry, but these reports should always be clear, concise, accurate, and engaging.
The Purpose of an Annual Report
The overall purpose of an annual report is to provide a clear and comprehensive picture of your business’s activities and performance over the past year.
Annual report preparation can help you achieve several objectives:
Informing your stakeholders, customers, investors, employees, suppliers, regulators, and the public about the achievements, challenges, and future plans of your business
Demonstrating accountability and transparency to your stakeholders, as well as showing them how you use your resources and manage risks
Enhancing your reputation and credibility as a responsible and trustworthy business that delivers value and quality
Showcasing your social and environmental responsibility and impact and how you align your business activities with the United Nations Sustainable Development Goals (SDGs)
Celebrating your successes and milestones and acknowledging the contributions made by your team
Identifying your strengths and weaknesses and setting goals and strategies for improvement and positive growth
Inspiring and motivating your team and partners to continue working towards your vision and greater mission
How to Prepare an Annual Report for Your Business
Annual report preparation doesn't have to be difficult, which is why we've outlined each step in detail below. Complete each of these steps in your annual report, and you'll be on the right path to delivering a comprehensive and engaging document to your stakeholders:
Step 1: Cover Page
Your cover page should include your business name, logo, tagline (if applicable), and the year for which the report is being prepared. You want to make sure your cover page is attractive and professional, so feel free to add a catchy title or slogan that summarizes your main message or theme, and aim to reflect your brand's identity and personality.
This may also be a good place to include the names and addresses of all corporate directors and entity members, as well as the Registered Agent, but you could also include this information on a separate page if you need more space.
Step 2: Table of Contents
A table of contents in your annual report offers immediate clarity, and it should list your report's main sections and sub-sections, along with respective page numbers.
This allows readers to quickly navigate your report to find information, which should keep their enthusiasm up.
Step 3: Letter From the Owner or CEO
A letter from the owner or CEO introducing the report adds formality to your annual report, but it also offers connection and a sense of dedication. Your readers should be able to see that your report wasn't constructed carelessly.
The letter should highlight the main achievements, challenges, and future plans of your business, but you can also use it to express gratitude and appreciation for your stakeholders, customers, and partners for their continued support and trust. Make sure your letter is personal, sincere, and engaging in order to showcase your vision and demonstrate your leadership skills.
Step 4: Summary of Mission, Vision, Values, and Goals
Summarize the mission, vision, values, and goals of your business. This will help you communicate your overall purpose and direction to your stakeholders, as well as show them how you create value and positive impact.
You can also include a brief overview of your business’s history, target market, competitive advantage, and unique selling proposition (USP).
Step 5: Description of Products or Services
Describe the products or services your business offers, and expand on how these offerings meet the needs and expectations of your customers. You can also highlight the features and benefits of your products or services and how they differ from those offered by your competitors.
To make this section even stronger, include customer testimonials, reviews, or case studies to show proof of your customer satisfaction and loyalty.
Step 6: Financial Report
Include a financial report that offers a full account of your business's income, expenses, assets, liabilities, and cash flow. Also include key financial indicators or ratios that measure your profitability, efficiency, liquidity, solvency, and growth, and demonstrate these values using charts, graphs, tables, or infographics that present your financial data clearly and concisely.
Ensure that you can explain the meaning and significance of your financial figures and how they relate to your business goals and strategies.
Step 7: Social and Environmental Report
Include a social and environmental report that identifies and showcases how your business contributes to the well-being of its employees, the surrounding community, and the earth in general.
How does your business align with the United Nations Sustainable Development Goals (SDGs), and what actions do you take to address the social and environmental issues that affect your business and stakeholders?
Highlight some of the positive outcomes your social and environmental initiatives or programs have achieved — things like employee engagement, customer retention, community involvement, carbon footprint reduction, and waste management are strong talking points for this section.
Step 8: Appendix
Your appendix should contain any additional information or supporting documents that are relevant to your business, especially those that are required by law.
A thorough appendix should include audited financial statements, any certificates or awards held by your business, legal disclosures or disclaimers, references or sources, and other contributions of that nature.
FAQs About Annual Report Preparation
What Is Required to File an Annual Report?
If you chose to form an LLC or other registered business entity, there are several requirements for your annual report preparation. You'll need to specify your company's legal name and address, the names and addresses of all members (if your business is an LLC) or all officers and directors (if your business is a corporation), and the name and address of your Registered Agent.
You'll also need to pay the state filing fee and file in compliance with the due date your business has been given. You can view due dates for your entity type on the Secretary of State website for the state in which your business was registered.
Aside from legally required information, a strong and well-crafted annual report includes a cover page, a table of contents, a letter from the owner or CEO, a summary of your business's mission, vision, values, and goals, a description of your products or services, a detailed and comprehensive financial report, a social and environmental report, and an appendix.
When Should Annual Reports Be Prepared?
Annual report preparation should occur at the end of your fiscal year, which is typically December 31 for most businesses. This allows you to produce the most accurate and up-to-date financial information for your report.
You may also have a deadline set by your state for your business type — some states or countries require annual reports to be filed before a specified calendar date, while others have a due date based on the anniversary of formation.
You should also make sure to distribute your annual report to your shareholders and other stakeholders before your annual shareholder meeting and before the election of your board of directors. This will give them enough time to review your report and make informed decisions about your business.
What Are Five Elements That Should Be Included in an Annual Report?
A well-prepared annual report should include these five components (at minimum):
A letter from the owner or CEO that highlights the main achievements, challenges, and future plans of the business
A summary of the business’s mission, vision, values, and goals
A description of the products or services offered by the business and how they meet the needs and expectations of the customers
A financial report that shows the income, expenses, assets, liabilities, and cash flow of the business
A social and environmental report that demonstrates how the business contributes to the well-being of its employees, community, and the planet
What Are Three Important Statements in an Annual Report?
From a financial perspective, there are three critical statements that you should include in your business's annual report. These statements can help you analyze your business's financial health and performance, identify your strengths and weaknesses, and set attainable goals.
Be sure to include the following statements in your annual report:
Your income statement, which shows the revenue, expenses, and profit or loss of the business for the past year.
Your balance sheet, which shows the assets, liabilities, and equity of the business at the end of the year.
Your cash flow statement, which shows the sources and uses of cash for the business throughout the year.
However, there may be a couple of additional financial statements to include if you wish to increase transparency and trust with your shareholders, including a statement of change in equity or a statement that explains how the other financial statements were calculated and prepared.
What Is the Most Important Part of an Annual Report?
Your financial report is the most important — and most scrutinized — component of your annual report preparation. Generate an accurate view of your business's finances so that your stakeholders can understand how your business is performing, as well as how it plans to perform in the upcoming year and beyond.
If You Want to Get It Right the First Time, Incfile Can Help
Annual report preparation can be a daunting task that carries a high level of importance, and a strong annual report can mitigate shareholder concerns and ensure your business is legally compliant.
Worried about tackling an annual report on your own? Incfile can help. We'll prepare your annual report documents and file them on your behalf, lightening your workload and allowing you to focus on developing a profitable, fulfilling business.
Chad is a freelance writer and former project manager focused on presenting information on SaaS, technology and business formation.