How to Create and Compile an Annual Report for Your Small Business
An annual report, also known as a yearly statement, showcases the current fiscal state of a company and its financial goals. An annual statement should also issue a comprehensive financial breakdown of the company's past financial year.
By law, publicly traded companies are required to issue annual financial statements to keep their shareholders informed. But if you don't own a publicly traded company, should you bother generating an annual financial report?
In our honest opinion, yes. Many organizations—from nonprofits to budding LLCs—prepare annual financial statements. And whatever type of small business you own, getting a complete and honest picture of your company's performance via an annual report can help you make essential decisions for your business's growth.
If you've never created an annual report before, we strongly recommend meeting with a financial advisor (such as your CPA, business banker, or bookkeeper) to discuss how and why to draw up annual reports. Your financial professional can advise you on what reports to create, then help you interpret the results to make wise business decisions moving forward.
But if you're looking for a quick financial statement overview, you've come to the right place. After reading our article, you'll understand what an annual report covers, how it can benefit businesses of all sizes, and how different reports are typically filed.
We'll also take a look at several outsourcing options for yearly report preparation.
Annual reports table of contents
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What is included in an annual report?
First, a quick recap: individual states require all US businesses to update company information through annual reporting. Additionally, large corporations must craft yearly statements to inform potential and current investors of the company's performance over the previous year.
Depending on your business size, you might not have to prepare reports for a large crowd of investors. However, your small business can still learn and benefit from annual reports that are adapted to fit your unique situation.
Okay, so what exactly does an annual report entail? For starters, it includes a report from the CEO as well as copies of the company's balance sheet, income statement, and statement of cash flows. Current documents are included and should be compared to prior annual reports and an auditor's report.
Yearly business reports often start with general information about the company and its economic highlights from the past year. Then, company executives usually offer a compelling statement to shareholders with the executives' perspective on key events from the preceding year as well as their visions for the years to come.
A yearly report also contains three important annual financial statements. While all of these statements are tied to one another, they offer distinct perspectives on your company's economic well-being:
- A balance sheet captures your company's current financial status. It compares tangible and intangible assets to your business's long-term liabilities and equity. (In other words, it's like a snapshot depicting your company's current financial standing.)
- An income statement contrasts your revenue in the preceding year with the expenses incurred over that same period.
- A cash flow statement (a.k.a. a statement of cash flows) focuses only on liquid funds generated and spent during the year.
Annual reports may cover additional topics:
- Stories, photos, and charts that construct a relatable narrative for investors
- An auditor's report to certify financial information
- An explanation of relevant accounting policies
- Notes on financial statements for clarification and contextualization
- A disclaimer about forecasted expenses and revenues
Why is annual reporting important?
Like we said, the yearly business report is a requirement for large corporations, which need to inform public and private investors about the financial and operational state of the company. But businesses of any size can benefit from annual company reports in the following ways.
1. Reevaluate your business's strategies
Over the course of the year, it's easy to get bogged down in day-to-day business tasks. Compiling an annual report gives you the chance to slow down, take a breath, and look at your company's overall financial health.
Crucially, small businesses can use annual filing to reevaluate their core strategies. Most importantly, you can ask yourself:
- What are we doing well?
- Which financial and marketing strategies are helping us the most?
- What are we doing poorly?
- How can we change in these areas?
2. Understand your business's place in the financial landscape
An annual financial statement can be a catalyst for answering questions about its operation within the competitive landscape. For instance, you might use your annual report to assess:
- Who your main competitors are
- How you compare to those competitors financially
- What your business's strengths and weaknesses are compared to those of your competitors
- Which opportunities and challenges present themselves as you assess the market and your place in it
3. Assess the success of your yearly financial goals
Every business should set goals—not only in terms of finances, but also in terms of operations and human resources. An annual report can clearly show a business if its financial goals have been met or not. If the goals were met, an annual report can show you by how large a margin you succeeded. If they weren't met, an annual report might give you some insight into why your goals weren't achieved.
4. Set new goals for the coming financial year
Your annual report can help you set new financial, productivity, and HR goals based on last year's productivity. Obviously, this is a vital piece of information for your shareholders to consider. But even if you don't have a publicly traded company with multiple investors, setting clear goals for your business can help you meet next year's financial challenges.
5. Plan for growth
Let's say that you launched a small tech startup three years ago. Do you have plans to potentially grow and sell your company? Are you interested in gathering investors to help expand your business?
Even if you're not planning any major expansions for a few years, or even a decade or more, you'll be ahead of the curve if you start preparing annual reports now. Clear, honest financial reporting will show your future investors that you're a true business professional with good financial sense.
How do you assemble and file annual reports?
If you're a sole proprietor or a small-business owner with only a few employees, accounting software is the easiest way to draw up a financial document for your internal reporting. After all, accounting and bookkeeping software do more than track your finances—they also generate key financial statements.
Report-focused accounting software like Xero, Intuit QuickBooks Online, and FreshBooks can draw up fiscal documents for you with just the click of a button. You can then review your software-generated statements with your CPA, accountant, or bookkeeper to plan for the upcoming year. (If you don't have accounting software, don't worry—your accountant certainly does.)
If you own a publicly traded company, you likely have an accountant (or even an entire accounting department) who can draw up an annual report on your behalf. Alternatively, you can outsource your state-mandated reporting to a third-party company, which we'll talk more about below.
And depending on the state your business is incorporated in, you might need to submit some consolidated financial statements. These reports keep your critical business information up to date with the relevant state authorities. Failing to update the state might result in late fees or even dissolution of your company on a state level.
What are the best companies for outsourcing annual reporting?
Because every state has its own rules and regulations regarding annual reporting, filing small-business reports can be overwhelming. And if your business is licensed to operate in multiple states, you might need to report separately in each state.
Hiring an outside firm to handle your annual reports can help you rest easier knowing your business will remain in compliance with current law and avoid penalties.
The five companies below will file your business's annual reports for you, saving you time and effort so you can focus on what you are really good at—running your business.
Annual reports are required for all publicly traded companies, but they're also a useful year-end tool for business owners looking to reevaluate their finances and move their business forward.
If you own a large corporation, we're sure you've got annual reporting and filing covered. But if your midsize business could use some outside help to maintain compliance, we recommend BizFilings—it's a thorough, transparent business management solution that can see you through every step of the annual report filing process. And if you rely on accounting software, you can create easy financial reports any time you want to check your business's financial health, not just at the end of the year.
And don't forget the most important part of the process: meeting with a financial consultant. While we can offer informative, general advice, only your financial advisor understands the complicated ins and outs of your unique business. Good luck filing your annual reports—you're going to do an amazing job!
Are you in the early stages of setting up your small business? Our ultimate accounting guide can walk you through important accounting terms and principles that all new business owners should know.
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