DISCLAIMER: this blog post is only meant as a guide and is not intended to give any legal advice. All annual reports should ensure that they fulfil the legal requirements of their own country or state by referring to the guidance provided by the relevant regulatory bodies.
Writing an annual report can be quite a daunting task for experienced managers and those coming to the annual report for the first time.
It seems like such a sprawling, unmanageable beast.
You sit down at your desk, staring at the blank page, and realise you don’t even know where to start.
There are some great examples of annual reports available, but the thing about writing the annual report is that you can’t just emulate others- it’s something so personal to your business, your company, your year, that copying someone else’s format just wouldn’t land right.
If this is describing your situation, we’re here to help.
In this blog post, we’ll talk you through:
- What an annual report is (and what it can be)
- The legal requirements of the annual report
- A step by step process that will help you plan out and write your annual report
- what to do if you get totally stuck with writing an annual report
- how the annual report can actually be an asset to your business
With that in mind, let’s dive in.
What is an Annual Report?
An annual report is simply a report that covers the previous financial year, discussing challenges, profits, auditor’s reports and strategic reports, and director’s remuneration for the year.
It is an open and honest assessment of the business over the previous 12 months, that is transparent enough to be read and understood by anyone who might have interest in the business.
So, what the hell does that all mean?
Basically, at the heart of it, an annual report is your round up of the year, where the money came from and where the money went, who is in control of the company and who isn’t, what’s the plan for the future and how well the plans for the previous year went, and all of the nuts and bolts of the company in general.
The issue with that is… it sounds incredibly dull.
The good news is the annual report doesn’t have to be all that tragic. Yes, it is a corporate document, but it can also be so much more than that.
It is a corporate STORY, an engaging narrative that roadmaps the future of the company whilst respecting it’s past.
It’s a single source of truth for the business and can be:
- a marketing tool
- a branding statement piece
- a single source of truth for the organisation
- a resource for anyone else making reports in the current year
- a benchmarking tool
- a chance to assess your brand’s key messaging
- a masterful showpiece of stakeholder engagement and elegant design
…Without overselling it that is.
It doesn’t have to be, of course.
If you’re not bothered about an all singing, all dancing corporate asset, it can be very functional and dull as ditchwater. But if you bring in some marketing results too, then it makes for interesting reading!
Let’s cover off what absolutely HAS to be included, whichever route you choose to go down.
What Is Required To Be In An Annual Report By Law?
In the UK, the FRC (Financial Reporting Council) regulates the annual report and decides what needs to be included. Generally speaking, from the UK regulations, the annual report should include:
- a strategic report
- a corporate governance report
- a directors remuneration report
- financial statements
- a directors report
Here is what to include in each report.
A Strategic Report
This section of the annual report deals with business strategy and potential pitfalls, and is made up of the following section.
This section lays out the strategy of the business.
It should include an overall strategic positioning and a business model that shows how the business generates and preserves value and money.
It also needs to have an overall analysis of a general business environment for the company.
This includes things like what trends have affected the business in the past 12 months.
It also outlines principle risks and uncertainties that might have an effect on the business going forward.
Finally, it should have a business performance and position analysis, which shows how the business is performing in its field, measured against key performance indicators.
Other Parts of the Strategic Report
Most strategic reports also include a statement from the director of the company and some highlights of the year to open the annual report with.
This functions almost like a letter from the editor in the start of a magazine.
Some companies may also close the strategic reporting section with a statement of longer term viability for the business.
Corporate Governance Report
This section of the annual report deals with business structure and where the authority or power sits, and includes:
Corporate Governance Framework (Structure)
This section lays out how the company is ran from the top down. It is generally represented graphically and looks at organisational structure.
Mostly this is just to show who has control of what in a very top level sense, and introduces the board.
Board of Directors
This section lays out who the board of directors are and what their responsibilities are, and more specifically how they embody the company’s values and further its purpose.
Basically, it’s the part that tells stakeholders who the people running things are, and why they’re qualified for the job.
Depending on the structure of your business leadership this also includes a summary of executive committees or other decision making parts of the business who don’t have a board presence.
Statement of Disclosures
This section is reserved for telling everyone how the business is being ran, in compliance with the company’s rules.
It should also outline these rules, and talk about who has control of what when it comes to the board chair and the CEO.
Other Parts of the Corporate Governance Report
It’s also good in this part to add a bit about how the company is committed to adhering to the guidelines outlined by the FRC and how this report does that, just to bulletproof yourself from any auditing, as well as giving yourself a checklist to go through to make sure the report is fully in order.
Tesco do this really well on page 32 of their 2020 annual report, but it can be a bit of an intimidating read.
Odds on, your company is probably a bit smaller than Tesco’s, so don’t stress if your annual report doesn’t look exactly like theirs.
Directors Remuneration Report
This section of the annual report deals with the money and assets directors receive, and how that amount is decided, and includes:
This section covers off director’s salaries, bonuses, share options, pensions, compensation paid… basically any time the business has directly given a director (including non-executive directors) money or something of value, it should be reported here.
This is up for audit, so be 100% honest and transparent- there is no value in hiding or finessing any director remuneration.
This section is just for you to go over the company’s approach to how they decide on what money, bonuses etc. the directors receive.
It’s also good to look at pay equity here, considering gender equality and representation, how the directors are paid in comparison to their average salaried employee, and how their pay has grown or scaled in the last year in comparison with the business.
Other Parts of the Directors Remuneration Report
Again, this is a key part of the annual report as it gives transparency for key stakeholders and shareholders to understand and monitor how the business is being ran financially so anything you think is relevant is worth including.
Worst case scenario, the financial aspects that you think warrant including here get covered off in the next section, and you end up with an even more detailed, less vulnerable to audit annual report.
We’re nearly there, stick with it!
This section is all things money and arguably the most important section from a regulatory point of view.
Independent Auditors Review
You might be eligible for an audit exemption if your company is a private limited company and has an annual turnover of less than £10.2 million, so first of all, that’s worth looking into. You can find more about the audit exemption rules on the government audit website.
For the non-exempt among us, you need to get an auditor in to make sure that their assessment of the financial standings of the company match up with what you say in your financial statement report.
For the exempt folk, it’s worth mentioning at the beginning of this section that you are exempt and why you are.
Either way opening with the independent auditor’s review or a statement of exemption positions the entire report to be read from a basis of trust.
This section should include:
- Your income statement (money in)
- Your statement of comprehensive income (money in, assets acquired, general changes)
- Your balance sheet (assets including cash, debts, and shareholder equity)
- Your cash flow statement (where the money comes from and where the money goes)
Including those should cover off the majority of the regulatory requirements, but it’s always best to be thorough.
Other Sections of the Financial Statement Section
Include anything and everything that could be considered financially interesting- this is not the section to be considering a less is more approach!
Lots of graphics and tables in this section help it to be as clear and understandable as possible.
You ideally don’t want to make it too difficult to understand, if you need a degree in accounting to make heads or tails of this section you’re probably barking up the wrong tree!
Whilst the directors report can be provided in the directors report remuneration section, I think it is important enough and valuable enough to warrant its own section. It can be a little bit more subjective and it softens the harshness of a report that is, in essence, very money focussed.
This is just a list of the people who served as director in the financial year. Unless you’ve had a particularly tumultuous year, this should be a really easy one to do!
A Summary of Trade
This should include all of the companies trading in the previous year, as well as considering a short summary of future prospects, a reflection on any major changes to a company’s fixed assets and, if relevant, any major financial events that occurred between the end of the financial year and the publishing of the annual report.
Recommendations for Dividends
Depending on your company’s dividend policy will hugely affect this section, but speaking generally the Director should give reasoned and balanced recommendations based on the financial performance of the company over the year.
And there you have it! Following those sections will get you a perfectly serviceable annual report that ticks most if not all of the regulatory requirements… but what if you could have more?
What if there is a phenomenally useful asset hidden in plain sight that improves your brand reputation, your web presence, your efficiency, productivity, and overall workforce happiness?
Let’s see what we can do to get you from hitting some legal requirements to building out a fully functional swiss army knife of reporting, marketing, and raw utility.
How to Write an Annual Report: A Step by Step Process
This is a rough outline of how to do all of the top level planning for each stage of the annual report creation journey.
Step 1: Plan for Your Audience
This is an easy step. Far easier than ensuring all of the regulatory stuff is adhered to. This is simply considering who you want to reach with the annual report.
This is stakeholder engagement 101, moving away from all of the legalese and accounting doublespeak and back into your wheelhouse. Who are your key stakeholders for this project? Who is your external audience? Who else will use this report? Let’s run it down.
First of all, the chairman and shareholders will be at least a little bit interested in the annual report.
It’s their house, and they need to make sure that it’s all in order.
It’s easy to write with this audience in mind, because they are incredibly invested- in all senses of the word- and want to read what you’re creating.
Ok, who else? Potential investors? Again, if they are considering putting a load of money into the company, they’re pretty much a captive audience.
Let’s think of a more difficult audience to capture.
The rest of the workforce.
How do you engage the 9 to 5 in the top level operational stuff of the business?
There are a couple of approaches, but the easiest one is to ask them what they’d want to know about the business, or ask them what they’d like to see from the business.
At the heart of it, there has to be an understanding that all businesses, or most at least, live and die on their employees. In a business with 250 employees, do we really think that the 5 people who meet up in the board room are carrying the business?
Put the work force at the centre of the report, and celebrate their achievements and accomplishments. They are the beating heart of your organisation, and should be recognised as such.
Is there anyone else you should consider when writing an annual report?
Well, yes, actually.
In 12 months time you are presumably going to have to put together another one of these, and you’ll find yourself in a very similar pickle.
Why not write this report so that when next year rolls around you have a wealth of reference points for next year’s figures and dates? Make them easily digestible, understandable, and clear, in a replicable style.
You’ll be astounded by the wisdom of your younger self in a year’s time.
Step 2: Structure your Content
No sugar coating, this report is going to be massive. It is a monumental task to try and capture a year’s worth of business in one easy to comprehend report.
Start by frameworking your sections. What do you want to say, when in the reader’s journey do you want them to hear it, and where should it be so that it makes sense.
Once that is all frameworked out, think about how you want to deliver your messaging.
That complicated bit of money management? Pie chart it out to make it easier to understand.
That one epic win that totally changed the course of the year?
Go big with it- graphics, positioning- even consider making it an interactive piece of content if your report is going to be presented digitally.
There are tons of tricks that can be used to make the good news really explode off the page.
This can build trust.
Think about the last time you spoke to someone truly passionate about something. That’s what the annual report should be- passionate about your business.
It should come across as genuine and honest first and foremost, but passion is vital. You can be passionate about the negatives too, if you’ve had a tough year.
It’s all about positioning your messaging right, and placing focus on the right things- resilience, bouncebackability, flourishing in the face of adversity.
Placing different weightings on different events is a very powerful tool in any reporting, and can make all of the difference between a reader coming away with a bleak impression of your company or a really optimistic one.
Thinking of your audience from Step 1, which would you rather?
Step 3: Tell a Story
I very nearly included this in the regulatory requirements section, as it is included in the guidance from the FRC. It was left out of the regulatory requirements section as you’re unlikely to get a telling off or trigger an audit for lack of storytelling.
Narrative storytelling in the annual report is key for stakeholder engagement, transparency, ease of access, and, vitally, for designing an annual report that isn’t just an unreadable jumble of facts and figures from your business.
A lot of people struggle with this aspect of the annual report, but it is the easiest bit to account for. If you ask any CEO or owner of a business what happened over the year, you’ll quickly find out what parts of the narrative they care about.
All businesses have an intrinsic story, and while it might not be a grand soap opera, it is a way to engage readers and hold interest throughout the facts and figures.
It also strengthens your authenticity, it opens the business up and invites people in.
Step 4: Account for the Skimmers
If you put a 100+ page report in front of anyone, odds are they aren’t going to read it word for word, cover to cover in its entirety.
Account for those who would traditionally leaf through and skim for key points.
Make the key points they’d be interested in easily findable, and really noticeable.
Strong graphic components, such as bold photography, well designed charts, or even simple illustrations to go along with your points can make all the difference.
Step 4.5: Flair- Don’t Be Afraid To Let Your Hair Down
The annual report doesn’t have to be boring, it just has to be honest. Have fun with it, you’re going to have to do it either way- you may as well do it creatively.
Step 5: Ensure Honesty
In all of your storytelling, planning, facts and figures, at some point you will get lost in the report like a child in a maze.
You’ll be up to your eyeballs in it, steeped in it.
It’s easy to lose sight of what is important.
There is a very slight distinction between truthfulness and honesty.
Even if all of your facts and figures are 100% accurate, and all of your assurances and statements are so true they could be added to an extremely niche wikipedia page, if your annual report doesn’t capture the zeitgeist of the year, the general overarching feeling of your company, then what’s the point?
Don’t be afraid to admit you had a bad year if you did.
Be unashamedly proud if you’ve had an absolute flyer of a year.
Just be honest.
If you feel like the company underperformed, even with some positive stats, don’t be afraid to articulate that.
Create an accurate, honest account of the year as a historical record.
If in five years time your company has a bad year, they’ll have a roadmap of recovery ready and waiting, a resource that speaks to a time when things weren’t so good but the company flourished anyway.
It’ll be much more useful long term than a booklet of statistics without any meaning behind them.
Step 6: Stop, Collaborate and Listen
Cheesy MC Hammer puns aside, you have no greater resource when it comes to writing the annual report than the people around you.
Department heads, CEOs, receptionists, cleaners, solicitors, accountants, whoever.
They all have something to offer the business or else they wouldn’t be there, and they all have their own unique experiences of the business.
If ever you aren’t sure on something, or feel like there is something missing from the report- ask around. 9 times out of 10, People will be more than willing to help.
It’ll help on the flip side as well, once the report is published. People are more likely to engage with something they feel like they’ve helped create.
Step 7: Get Sign Off
Everything in the annual report has to be true.
The entire purpose of the annual report is to provide a fair, balanced, and easily understandable overview of the whole business over the last 12 months.
It should be a single source of irrefutable truth for the business.
Get a legal team to look over it to ensure everything is above board and fulfils the regulatory obligations.
Get an accountant to look over it to make sure it is, in fact, fair, balanced, and true.
Get as many people to say ‘yes, this is fine and publishable and true’ as possible, so you are less likely to make any costly mistakes in the final, published edition. Better to be safe than sorry.
I Am Still Totally Stuck With My Annual Report And Don’t Know What To Do
Ok, so you still feel a little bit helpless and don’t know where to start. That’s ok. There are ways and means around that too.
You’ve done your due diligence, read this guide, and probably have a better understanding of what you need to do than you did when you googl’d this.
Take a breather.
Get up, stretch your legs, get away from your desk for 15 minutes. A blank page awaiting words is daunting, especially if it has been haunting you for a while. Do something to distract yourself, doodle on a piece of paper.
If you’re still feeling totally lost with it all, consult last year’s report if there is such a thing available. Look at how that report is structured, and factor it into your own structural planning.
Look at how you (or whoever else) weaved the company’s story into that report… and if they didn’t, you already have an easy win on your predecessor.
Consider the key messaging of the business as a whole, and how that messaging is reflected in the day to day, month to month operations.
There are so many ways to get into the annual report that might work for you, but if you still can’t get started, go and ask for help.
There’s no harm, or shame, in asking someone else for a little bit of guidance on how they would crack that particular nut.
It plays into collaborative working well, it will engage them with the content when it is eventually published, and it will help you get a foothold with the report.
They’ll appreciate that you’ve came to them for help, and you’ll be able to get out of your own way and just start the damn thing!
If none of that works, well… maybe a little bit of inspiration is in order.
The Annual Report as a Branding Vehicle
Some companies absolutely smash the annual report clean out of the park, into the stratosphere.
Their annual report is so brutally honest, so refreshingly executed, so unapologetically them, that it becomes another vehicle for their core messaging.
It becomes a pillar of their brand. A perfect representation of everything they stand for.
In 2018, milk company Oatly transformed their annual sustainability report from a bearer of bad news to a quirky, fun examination of the challenges and opportunities facing sustainability.
Right from the outset, the tagline ‘slightly worse than last year’ sets up the tone of the report, as well as preparing stakeholders and readers for an underperforming year of reporting.
With a little bit of funky font and a play on the magazine style announcements of ‘this year even better’, whoever created this report took the sting out of falling short of their goals.
It is still an exceedingly well written report, and all of the facts and figures are there, but the manner in which it is presented is so in keeping with the Oatly brand, their website, their packaging, their core messaging, that it doesn’t feel like reading a stuffy corporate document.
It has evolved past that, and become a part of the brand in and of itself.
With some clever design and a bit of expectation management, what could have been a dour read is transformed into an entertainment piece that unfortunately delivers some less than optimal news.
This is pivoting bad news into… not necessarily good news, but certainly a potentially positive outlook, and is a great example of how placing different weighting on different content can be a tremendous tool.
The Annual Report as a Marketing Tool
Here it is.
The heavyweight champion of the world when it comes to annual reporting.
The near perfect confluence of interactive design, branding, content, facts, simplicity, elegance, structure and absolutely genius use of gamification.
Presented as a side-scroller type video game, the soft pastel character (in the shape of a ‘U’ to represent you, the reader- we see what you did there, Mailchimp) wanders through a little town filled with the facts and figures of Mailchimp’s year.
It is incredibly stylised, and very cool, but it is also incredibly powerful as a marketing tool in it’s own right.
As of writing, the Mailchimp’s annual report has over 13,000 good quality backlinks, driving traffic to it’s site.
All from writing something that they 100% HAD to write because of their own legal obligations.
Now, obviously the amount of effort that Mailchimp put into their annual report was above and beyond anything that the average company can afford to do, but even so, as a study into the power of gamification in corporate spaces, the impact of graphic elements in annual reports, the importance of narrative storytelling in reporting… basically everything we’ve been talking about.
It’s a truly astounding example of how to write an annual report, and one that would be nigh on impossible to emulate but is fascinating nonetheless. Hopefully a bit of inspiration fodder there for you! Now stop stalling and go and write your annual report!
How to Write an Annual Report
To write an annual report, you need to tell the story of your business over the past year, including everything that is covered in the legal guidelines, in an aesthetically pleasing, well designed, and most importantly, honest way.
That’s all you’ve got to do.
The rest is in your hands.
Did this help you understand how to write your annual report?
If going through this post has got you considering where your company is, and where it should be, check out our post on reasons to rebrand and see if it’s time to make a change.
If you feel like you need more inspiration, check out our post on the worst and best annual reports– you could even try to rank the companies beforehand and play along!