Curt Mastio
By Curt Mastio on June 13, 2024

How to Prepare Annual Financial Reports for Investors

As we make a final push to end the year on a high note, it’s important to set aside some time to reflect on how the year went via your annual financial report. Not only to perform a bit of “lessons learned” for yourself but also so that you can report back to your stakeholders and investors. 

From friends and family to full-on venture investors, they all want to know how their money is working for you (but mostly them). Not only do your investors want to know how things are going, but they deserve to know. 

They’ve invested in your ideas, in your startup, in YOU. They’ve invested with the hopes that you will generate a return on that investment. Even if you’re not building a unicorn, they’d like to earn that money back (and then some).

Annual (and/or quarterly) reports are a great way to share that information. While you should be keeping your investors informed regularly, the frequency will depend on what you’ve aligned on. 

At the very least, your investors should receive a quarterly report. But for the annual report, you should invest some extra time.

Who’s Your Audience?

Your target audience should be the biggest determinant of your report’s content and level of detail. 

No matter how things at the startup are developing, investors will appreciate your transparency and not having to beg for information. Further, many investors will negatively read into a lack of information. 

The thinking is that if things are going well and the founders are excited about the trajectory, they would be thrilled to share. Conversely, lack of information is a sign that the company is struggling and probably not going to make it.

Because your investor pool may represent several different categories of investors, it’s not out of the question to share a tailored version to each group. Some VCs and individual investors will request specific information, including details that a larger pool of investors wouldn’t want, understand, or know what to do with.

For example, your friends and family might not need every last detail about CAC and churn %. If they’re not VCs, keep it simple and to the point. They’re probably perfectly satisfied with a shortened, one-page summary about what’s going on and how the business is developing.  

Lastly, don’t be afraid to highlight key challenges the business is facing.  Oftentimes your investors are able to provide unique insight into tackling those problems and you’ll never be able to leverage their expertise if they don’t know you’re facing a particular challenge.

What Belongs in Your Annual Financial Reports?

Again, once you have a full report to share with VCs, you can always pare down details for a “friends and family” version as needed. 

Professional investors will probably want to see:

Key financial figures (including the variance vs. the previous year: 

  • Revenue
  • Expenses
  • Cash on hand, burn rate, and runway

Traction and indications on how the customer base is developing:

  • Average churn %
  • Major new business acquisitions 
  • Customer LTV and average CAC
  • Number of active and paying users/customers
  • Any other key metrics relevant to your business model

Key product updates

  • Made any major changes lately?
  • Are you shipping anything new?

Business Updates

  • Key hires and departures, including:
    • Team size and growth
    • Maturity and level of team experience
  • Key partnerships 
  • Major operational changes
  • Changes to the marketing strategy

Funding, new investments, and M&A activities

  • Any other investors who came aboard during the funding round
  • Large key investments (large equipment, increased headcount)
  • Any significant acquisitions you made during the period

And if you’re able to provide an outlook for the coming year, even better. 

An annual report might weave these dry facts and figures into a compelling story with colorful charts and graphs. This will help your audience understand what’s going on underneath the figures, what’s driving (or hindering) growth.

How About Specifics?

How often should you send updated a to your investors? 

Again, the frequency of your updates depends on who your investors are and what you’ve agreed with them. 

An annual report is good, but it’s by far not the only necessary report. Depending on your main audience and the maturity of your company, a monthly update may be required.

If the startup is still small, a quarterly update might actually be better. Monthly updates have the drawback that a single month might be too short a window to see significant progress. 

How do you send your updates?

A full-length, professional-looking financial report with all available KPIs and information is an option. 

You and your investors might also find that a 1-2 page overview that restricts information to the key messages without getting too deep into the weeds is also enough. 

From a tool perspective, there is a wide variety of software and services available to save you time while also putting together flowing, easy-to-read reports:

Just to name a few.

Ready to Have Great Annual Financial Reports for your Investors?

As a founder, you’ve got a lot of options and wiggle room when it comes to financial reporting. The most important thing is not to force your investors to beg for information. Maintain transparent, open communication with your investors.

If you’re ready to level up your reporting to investors, Founders CPA can help. 

Founder’s CPA understands startups, investor relations, and reporting. Contact us for a free consultation. We can get you set up to share clear, concise, and informative reports on a regular basis with your investors. 

Published by Curt Mastio June 13, 2024
Curt Mastio