An annual report is a report on a company’s activities throughout the preceding year. Annual reports give shareholders and other interested parties information. This can include information on a company’s activities, financial performance, and inner workings. Investors can analyze annual reports to determine what businesses they want to fund.
Financial regulators can review annual reports to determine if a company is compliant. The SEC requires publicly traded companies to file an annual report yearly. Private businesses can still produce an annual report. For example, if they have private investors, plan on securing private investment, or plan on going public. Most states require LLCs to file an annual report yearly.
This blog will look at the components of an annual report and show how to prepare one.
Annual reports for an LLC
The annual report that a corporation must file differs from that of an LLC. You may have to file an annual report to your respective state if you operate an LLC. They will ask you to provide/update basic information and prove your good standing.
This form outlines basic information about your business, including your:
- Business name and address
- State of incorporation
- Registered agent information
- List of officers and directors or list of members of an LLC
- Details of business activities in the state
Some states may require additional information, like
- Balance sheet summaries
- Cash flow statement
- Capital investment data
- Auditor's report
- Anticipated revenues and profits
- Changes in equity report
However, the additional information is usually reserved for annual reports filed by corporations. Typically, an annual report provides three things. Financial information about the company, its structure, and its leadership.
What to include in an annual report
Usually, an annual report is split into two sections. The first section contains the company’s mission and story. This section starts with a CEO letter to shareholders and a business profile. Data without context doesn’t give you a full picture. So an annual report should paint a picture with emotion and intrigue.
The second section cuts into the data. You will include financial statements, balance sheets, and cash flow statements.
Here are the five sections of a typical annual report:
- Letters to shareholders
- Business profile
- Financial statements
- Management’s discussion and analysis (MD&A)
- Operating and financing highlights
Five steps to creating an annual report
#1 - Write the letter to shareholders
The first part of an annual report is a letter to shareholders. Usually, the CEO, chairperson, or company owner drafts this letter. It is an overview of what the company’s done in the previous year and what’s to come in the annual report. The shareholder letter offers the CEO an opportunity to speak directly to shareholders.
The CEO is the company's leader, so the letter should come from that perspective. If things were challenging, this is where you can get ahead of it, phrase it positively, and inspire hope.
Shareholders or potential investors can compare the shareholder letter to a company’s Form-10k and financial statements to scrutinize its honesty.
Here’s what you could include in a letter to shareholders:
- A personal and company introduction
- Financial results
- Achievements
- Market conditions
- Future plans and measures
Your shareholder letter should be concise and accurate, ranging from 150 to 200 words.
#2 - Compile the business profile
The business profile section summarizes key info about the business. This summary will frame what’s to come in the financial section. Someone reading this section should understand what your business does, its customers, who leads it, and more.
Here’s what you can include in your business profile:
- Your company’s key products or services
- Your company’s mission and vision
- The board of directors and other business officers
- Opportunities and risks
- Strategic partners
- Major changes like new products, marketing shifts, new services
- Unusual expenses, opportunities, or changes (for example, COVID-19)
#3 - Generate Key Financial Statements
The main purpose of an annual report is to provide hard data. All of the components leading up to the last two sections are just precursors.
There is a lot of debate about how to structure an annual report. Should you leave the financial part for last or include it before your letter to shareholders and business profile?
One argument says to never show your narrative and story without backing it up with data. This could lead to readers getting the wrong idea from the story you’re trying to share. The opposite argument actually says the same thing but in reverse. They say showing your financial statements first could lose the reader in a sea of stats.
Many people look at financial statements to determine how well the company performs. Current and future investors, shareholders, employees, and other interested parties rely on these reports. They can also gauge where the business is headed, its growth plans, and whether they wish to continue investing.
The statements included in an annual report:
- Income statement
- Balance sheet
- Cash flow statement
- Statement to shareholders
These statements can be in graphs, charts, infographics, and even stories. There is room for expression in the letter to shareholders and business profile. There’s no room for that in the financial section. Your financial statements should undergo a professional audit before presenting them to stakeholders.
#4 - Select Operational and Financial Highlights
The key financial statements are a complete review of the company’s financials. The operational and financial highlights section pulls key information that report’s a specific narrative.
Some examples may include the following:
- Opening a new facility
- Launching a new product or service
- Announcing a major partnership
- A specific financial metric
#5 - Write the Management Discussion and Analysis
After the financial section, there’s one more chance to analyze the business. This is done through a management discussion and analysis. In this section, your team has the opportunity to present an analysis of your company’s inner workings. This includes compliance, legal, regulations, systems, and controls.
This section isn’t audited, so there’s more room for thought. An MD & A should be hopeful, but management will typically guard their future plans. The idea is that since it’s not required, there’s no need to put too much of their business out in the public setting.
Never miss an important deadline again
The annual report is one of the most important documents your company will produce. An accurate and timely filed annual report is important to keep your company compliant. State and federal regulators expect you to do so with penalties, including fines or dissolution. Running a business means managing one deadline after another. ComplYant can help entrepreneurs manage their deadlines.

Related posts

How to build a business growth strategy

Forming an LLC: 5 vital steps
