If you own or run a limited liability company (LLC), a small corporation, a nonprofit, or another type of company, you're probably filing annual reports with your state's Secretary of State.
Company annual reports are often required by your state, so check with your Secretary of State to determine if you need to know how to file an annual report, what it must contain, and when to file it.
If you own a corporation that has publicly traded shares, you must file an annual report with the Securities and Exchange Commission, and you also may have to file it in states where the corporation is doing business.
Many publicly traded corporations have their own in-house personnel prepare their annual reports, or they farm them out to large accounting firms, professional writing firms, and graphic artists to create impressive brochures to accompany the reports. The focus here is on smaller companies, LLCs, and nonprofits.
Purpose of annual reports
Company annual reports are information sheets that a company or organization prepares to let shareholders and constituents know how it's doing financially, what its future looks like, and what important events have occurred over the past year.
Both large and small companies often put photos in the report or accompanying brochure to let people see the "face" of the company.
Customers can relate better to people than to corporations, so it's a good idea to use photos as part of your marketing strategy and for developing your company's personal brand. Putting a face on the company allows your customers and prospects to connect you—or your partner—with your small business.
How to prepare annual reports
The first thing you have to decide is if you want your company to prepare the report, to prepare part of the report, or to outsource its production. Annual reports include straightforward text about finances and about the company, actual accounting results, and sometimes graphs and photos. The annual report design is up to you, but you don't want to send out something that looks amateurish.
If your company is able to put together your LLC's annual report or your nonprofit's annual report on your own, you'll save money. In the long run, however, if the result looks sloppy or like something you threw together on a computer with clip art, you're better off outsourcing your annual report. Different companies can prepare sections of your annual report, or you can have an attorney prepare the report for you and file it with the state.
If you choose to do some of the report yourself, you can purchase accounting software to help with the financial aspects of your report. The information to include in your annual report equals most or all of the following, but check with your Secretary of State to see what the company's home state requires so you don't miss anything.
What an annual report contains
A good annual report will include:
- The company's name, address, and type of business it does
- An annual report letter to the shareholders, written by the owner or director of the company, which:
- Is easy to read while being informative
- Contains interesting prose while promoting the company
- Discusses exciting new developments for use as marketing strategies
- Praises the company for its innovative products and services
- Uses photos, easy graphs, and creative slogans to create a memorable document
- A balance sheet, which shows your company's current financial status
- An income statement, which shows profits and losses
- A cash flow statement, which shows investors that your company has cash on hand to pay the company's expenses
- A section about the company's important achievements
- Human interest information about the owners, particular employees, or about the company itself
- The names and addresses of corporate directors and the registered agent
- The names and addresses of the members of an LLC, sole proprietorship, or partnership
Writing an annual report
The best annual reports contain the information listed above, expressed in language that doesn't exaggerate what your company can and will do. Write your annual report in plain language. You can save the more descriptive language for the annual report letter, so long as you don't overstate the company's merits.
Write without using clichés, and use an active rather than a passive voice. Look at examples online from companies you admire. If you're not comfortable writing the report and the letter, have someone in your company prepare them or outsource the work to a professional writing company.
Nonprofit annual reports
While most companies write annual reports to entice people to invest in their company or use their products, a nonprofit annual report serves a different purpose. Its main goal is to attract people who agree with and support the nonprofit's cause. If the annual report also gets people to contribute to the nonprofit company, then the report has done its job.
A nonprofit company prepares its annual report in whatever format works for the nonprofit. The company can use brochures, letters, photos, or cards, or use a digital format with some engaging company information. You can make the prose easy to understand and not as formal as in annual reports produced by for-profit companies. The annual report for a nonprofit works well when it's used as a call to action. And always include information about how people can donate to your cause.
Effective annual reports combine solid text and data in the report itself with more creative prose in the annual report letter. Financial statements make up a good portion of the report, which some people will gloss over, while others will review carefully. No matter what style your annual report uses, make sure the end result is something that reflects well on you and your company.