“Show me the money!” You may remember Cuba Gooding Jr.’s immortal line from the movie Jerry Maguire, “Show me the money!” Well, that’s what the annual report and financial statements do. They show you the money. They show you where a company’s money came from, where it went, and where it is now. If you can read a nutrition label or a baseball box score, you can learn to read basic financial statements.
The basics aren’t difficult and they aren’t rocket science, and you should be able to look at a set of financial statements and make sense of them. If you call on large business accounts, you have at your disposal an extremely powerful sales tool: the customer’s annual report. An annual report provides a wealth of information about the issues that are most important to the customer, the company’s values and many other clues as to what will make them buy from you.
In the article “Mining For Treasure In Annual Reports” by Art Siegel writes: One of the most valuable tools in any salesman’s arsenal, and one of the least used, are companies’ annual report. Not your own company’s, but for each of your corporate customers. Annual reports contain some of the best information you can find on what makes a customer’s company tick and the major issues inside that company which can help you get the sale.
At the beginning of every annual report is a letter from the CEO or Chairman which typically summarizes the past year and makes commitments to the shareholders for the year to come. Few corporate documents receive as much care and scrutiny as this letter. It is the corporate equivalent of the President of the UnitedState’s State of the Union address.
There are two principal things to look for in the letter which can provide you with important clues on how to sell to this company:
- First is the word ‘challenges’ or equivalent word(s) that show up in most annual reports. The company says something like: “We encountered unforeseen challenges in our software re-engineering project…” In other words, they planned to accomplish something, and now they are embarrassed to report that they failed to achieve their goal.
- Equally important are statements of future goals: “In the year ahead, we will develop two new…” If these announced goals are not met, they will show up in next year’s report as more embarrassing ‘challenges’.
Both the challenges and the future plans represent the innermost heart and soul of what the company’s top management thinks about on a daily basis. If you can think of a way that your company’s products or services could address either of them, you have a basis for writing an introductory letter to a senior executive suggesting you have an idea that they need to hear.
Another feature of just about all annual reports is a description of the nature of their business. This may be as simple as one page describing the company’s core business or as extensive as several pages on each of their divisions. At a minimum, these sections give you valuable information you need before any sales call about what they do at the company.
You can use this information to tailor your presentations, as well as deciding which of your present customers to use as references. Another thing to look for in this part of the annual report is anything that is changing? Do they talk a lot about a product line that has not been a major contributor to sales in the past? If so, this tells you the direction in which the company is evolving. They are more likely to spend more space on solutions that relate to the growth areas, than parts of the business which are being de-emphasized.
The financial figures always include quarter-to-quarter and year-to-year comparisons for total revenues and expenses, as well as for various line item categories. How valuable these numbers are depends upon the amount of detail provided. What you are looking for are clues that some area has a problem that you could help fix. For example, are selling expenses rising faster than gross sales?
If so, does your company offer a service that might reduce cost or improve sales productivity? What about administrative expense? Do you sell a product that could help there? For each line item which shows either a reduction in revenue growth or an increase in expense, then ask yourself whether you could make a case why your company could reverse these adverse financial trends.
Finally, at the end of most annual reports, you will find lists of the company’s directors and executives. Needless to say, the executive list is most valuable in telling you who heads each key area of the company, and it is likely to be more accurate than any mailing list you can buy. As for the directors, most of them probably sit on the boards of several companies, you might consider sending out an introductory letter to each of them as well…
In the article “Reading Your Customer’s Annual Report (Really)” by Jack Malcolm writes: There’s gold in those reports… Sophisticated sales professionals know that long term profitable relationships at high levels depend less on price and product discussions than on showing your customer’s high-level decision makers how you will help them meet their business objectives and being able to speak their language.
You’ll find information about both in their annual report. The key to getting useful sales information from your customer’s annual report is focused reading. If you know what to look for, you’ll know which sections to pay close attention and which to skip, and things will seem to magically pop out at you as you read. Four main things to look for:
- Where are they going?
- What are their strategies and initiatives to get there?
- How are they doing?
- Key language and phrases you can use in your sales discussions.
Where are they going? Read the Chairman’s Letter first. This is the section in which the company is telling you where they’re going, what they most want you to know, and probably includes the major themes that senior level decision makers think and talk about in their daily work. Know what these themes are and you will speak their language.
What are their strategies and initiatives to get there? So, now that you know their major theme, it’s time to get more specific. Continuing on, they tell us their ‘growth imperatives’, which is their way of saying how they’re going to get there, including launching new products, growing services and software, leading in growth markets…
How are they doing? Interpreting your customer’s financial statement is more than you probably want to know, but you should have a general idea of how sales and profits have trended, as well as a general sense of how big they are. You can skip most of the fine print in the ‘Notes to Financial Statements section’, although if you deal with just a specific segment of a company you might find it useful to see more fine-grained detail about their various operating segments in this section. Pay particular attention to recent acquisitions, which can be clues about the direction the company is pursuing and can be new markets for you within that company.
Key words or phrases: Speaking their language can get people’s attention. One method to get appointments is to use company-specific phrases in your subject line when sending an email to your customer. It shows you’ve done your homework and separates your message from the usual spam.
The most important thing about annual reports is; just read them. Every salesperson I know is aware that they should read their customers’ annual reports; but very few actually do. If you take the time now you will definitely be ahead of your competition.
In the article “Reading Financial Reports For Dummies” by Lita Epstein writes: Reading a corporation’s financial report is never the easiest thing to do, and annual reports can be especially daunting. You may be relieved to know that you don’t actually need to scour every page. The following parts best serve to give you the big picture:
- Auditor’s report: Tells you whether the numbers are accurate and whether you should have any concerns about the future operation of the business
- Financial statements: The balance sheet, the income statement, and the statement of cash flows; where you find the actual financial results for the year
- Notes to the financial statements: Details about potential problems with the numbers or how the numbers were derived
- Management’s discussion and analysis: The higher-ups’ breakdown of the financial results and other factors that impact the company’s operations
The rest is fluff… However, it is important to understand how financial ratios can be used to measure the performance of a business. This has never been more urgent and important; when corporate frauds and corporate governance are high on the public agenda. However it is also important to understand how they can be used positively to maximize value and success in a business.
In the article “Reading Annual Reports Made Enjoyable” by Ernest Nounou writes: Here is a simple but not exhaustive set of rules to follow in reading annual reports. They may not convert you into a Wall Street analyst, but will help you obtain far more worthwhile information, knowledge, and insight into your customers. Rules for reading an annual report:
- An annual report and financials represents a snapshot at a given moment. By the time it is mailed, an annual report is more history than news.
- Reading history, look for trends over a reasonable time period of at least 3 years.
- Good management will likely get things right over time and will not turn stupid. Of course the inverse is also true.
- If you can’t understand language used to describe normal company performance, it’s not you; it’s them.
- Successful performance is traditionally measured by level and growth of sales and real profits from operations. Everything else is commentary.
So now that you have all this terrific ‘annual report & financial’ information, what should you do with it? Here are some definite musts when it comes to reading an annual report: Review the company’s financial statements and look for trends in profitability, growth, stability, and dividends. Read the report thoroughly to pick out hints that the company is poised for explosive growth — or on the brink of disaster.
Places to look closely for such hints include the letter from the Chairman, the Sales and Marketing Section, and Management Discussion and Analysis Section. Carefully read the letter of the Certified Public Accountant (CPA) firm’s opinion to be sure that the firm (CPA) agrees that the financial statements are an accurate portrayal of the company’s financial reality.
Carefully read any footnotesto the financial statements. These footnotes often contain information about company assumptions that can be critical to a full understanding of the financial statements… ’Mining’ customers’ annual reports and financial statements will significantly enrich your knowledge of your customers, which will contribute to improve sales…
Of course, there are also the traditional sources of information to keep an eye on customers; business press, Internet search, company website, news alerts, analyst reports, conferences, trade shows, newsletters, competitive reports, traditional and social media…
“In an annual report, you’ll have a great deal of information that is of value, some that has some sort of value, and some that is worthless” ~ Richard Loth