What to Include in Your Company’s Annual Report
Your company’s annual report reflects on the preceding year’s business. Current and prospective shareholders, directors, employees, and any other interested parties can learn the most about your company in a relatively short time through your annual report.
There are varying jurisdictional requirements for filing annual reports, but nearly all public companies are required to make theirs public. Check with your legal counsel if you have any questions regarding the legal requirements for your company.
An annual report should include: a report from your CEO or chairperson, the fiscal year’s balance sheet and comparison to the prior year, the year’s cash flow statement compared year-over-year, and an auditor’s report.
The CEO’s Report
The chairperson or chief executive officer (CEO) should open the company’s annual report with a statement regarding the previous year’s book of business. This should include comments about the various lines of business and their performance, what worked and didn’t, corporate initiatives implemented or discontinued, and the overall state of the company.
This section can be visual and include charts, graphs, pictures of products or the company’s headquarters, etc. Statements must be factual and without hyperbole or exaggeration and should be enthusiastically written. This is the section most people will read and, based on content and delivery, will decide to read more or skip it.
The financial health of your company will be the top item of interest for anyone reading your annual report, and the balance sheet is a first stop for most readers. This section of your annual report is a concise snapshot of assets, liability, and owner(s) equity.
Cash Flow Statement
The cash flow statement is a broader look at the flow of cash and cash equivalents at the company. It is typically broken down into operating, financing, and investing. Those reading your company’s annual report and focusing on this section will be keenly interesting in how the revenue flows into the operating divisions, how much of it is financed plus associated costs, and how the prudent reserves are invested.
Investors, potential investors, lenders, and creditors will use the cash flow statement to gauge the company’s ability to pay its bills and remain in business.
There are many reasons to audit your company’s financial performance. For public companies, it is a requirement in the annual review, but quarterly reports are typically unaudited. For private companies, however, it’s not required. A private company may want to have its financials audited and certified for a couple of different reasons.
First, lenders and creditors nearly always want two-years of audited financials before take a company seriously. Audited financials can also lead to cheaper interest rates because of the reduced risk lenders see in a company that’s been around for a while and took the time to have its financials audited.
Second, should you desire to take your company public at some future date, the Securities and Exchange Commission (SEC) requires two years of audited financials for companies already in existence before a granting public status.
No matter the size of your company, an annual report should be prepared each year to bring together everything that happened in the past year. Not only is it a great tool for your shareholders and prospective investors, it’s an excellent way to have all the details about your company in one place.