Annual Reports: Not Just for Large Operations

March is a busy time of the year for corporate business. Taxes
have to be filed, annual corporate fees are renewed, and so on.
Also during March, many publicly held companies issue their
annual reports. And while the latter are often perceived as being
geared only to public or very large companies, the fact is that all
businesses”?small as well as large”?can benefit from generating
an annual report.

Reviewing your past business year in-depth, and then writing
about it is an excellent exercise for your company's ownership
and management. In addition, your annual report becomes an
interesting read for your employees and followers of your business
“?key suppliers, bankers, attorneys, friends, relatives, etc.
Regardless of who reads
your annual report, the process
itself is one of the most
valuable things you can do
to help identify where you
stand as a business.

Five sections
Let's get into the nuts and
bolts of what your annual
report might look like. To
make it simple, you can segment
your annual report
into the following five general sections:

• Letter to shareholders: gives the president, CEO, or chairman
  of the board an opportunity to write a formal statement
  about the company's performance this past year. In this case,
  you may be writing the letter to yourself as the “shareholder,”
  but that doesn't matter; write the letter as if you are reporting to
  a group of shareholders or investors. Be honest in your written
  assessment of both the negative and the positive experiences.
  Share the vision of your overall corporate plans and how you'll
  improve on your weaknesses and perpetuate your strengths.
• Financial summary: provides a narrative of the financial
  results of the business. Discuss specifics about your revenues
  and expenses. Write about areas where the company succeeded
  in gaining revenues or cutting expenses. Identify the
  strengths and weaknesses in your financial picture. Is your
  short-term debt too high? What is your debt-to-equity ratio, and
  has it improved or worsened during the year? Did you have any
  extraordinary gains or losses? How much interest did you pay?
  What did the cash-flow picture look like? Identify goals for the
  upcoming year for your profitability ratios. Answering questions
  like these will provide you with a great perspective on the past
  year, as well as some vision of where to go for the next year.
• Analysis of company operations: where you provide details
  of your company's operational aspects and the past year's
  operational results. Again, include the good and the bad, your
  strengths and weaknesses. Present information about your
  plant”?is it an advantage or disadvantage to your current business?
  Discuss your equipment”?did you add new equipment,
  or retire any old equipment? You might choose to include specifics
  on what new equipment you're planning to purchase.

This also can be an appropriate place to write about your
marketing plan from last year: Was it a success, or did you ,in
fact, struggle on the marketing side of your business? What new
markets were you able to penetrate? Did you pick up market
share in certain areas of your product line, or lose market share
in another? Introduce your marketing goals for the coming year.
Discuss key vendor relationships, banking relationships, and
any other pertinent items.

• Financial statements: the heart of the report”?after all, an
  annual report without financial statements wouldn't really be
  too useful. You can elect to provide detailed financials or offer
  more consolidated data, depending on how much information
  you wish to provide the readers. When compiling your financial
  statements, stick as close to generally accepted accounting
  principles (GAAP) as possible, providing more credibility to your
  financial statements. You can get creative in other sections of
  your annual report, but this section should be presented in a
  very professional manner.
• Miscellaneous information: the last part of your annual
  report, an optional section where you can write about anything
  else you want to present. For instance, you can discuss your
  business plan for the past year and how you performed, and
  you can share your business plan for the upcoming year. You
  might choose to include photos and a brief description of some
  of the major projects you completed in the past 12 months.

A better perspective
Remember, this is your annual report, so write about what you
want. Be creative, and don't hesitate to make your report interesting.
Get copies of other annual reports from some large publicly
traded companies and use some of their ideas. Also remember
to be honest in your review. As you reflect on the past year
and write about both the good and the bad, you will find yourself
with a much better perspective on how to improve your business
for this year.

Marty McGhie ([email protected]) is VP finance/
operations of Ferrari Color, a digital-imaging center with
Salt Lake City, San Francisco, and Sacramento locations.