Written in everyday language, your customer’s Annual Report to Shareholders offers a wealth of easily understood information to learn about your customer’s business and inform your sales strategy.
Use these shortcuts to capture the information most relevant for sellers. In the upcoming Part II of this series, we’ll share a similar exercise using your customer’s other annual report, Form 10-K.
1. Start with the Letter to Shareholders
The Letter to Shareholders is your best source of information about your customer’s business.
Although published only once a year, the external factors, business initiatives, and financial metrics it cites generally have long-term applicability. Check your customer’s Investor Relations website to ensure you have the most current version and note when the next Annual Report will be available.
Look for the following:
- External factors: What are some of the market factors outside of your customer’s control that are impacting all of the companies in their industry? Examples are everywhere: regulatory requirements, customer trends, interest rates, fuel prices, exchange rates, etc.
Action > Reference external factors early in customer conversations to demonstrate you understand their business and to establish your credibility
- Business Initiatives: What strategic initiatives has the customer identified as essential to their growth plans?
Action > Link your value proposition to achieving your customer’s stated business initiatives.
- Forward-looking statements: What insights can be gained into the company’s future plans?
Action > Position your business case to foster a long-term customer relationship.
- Business metrics: What financial metrics, ratios or prior-year successes are highlighted?
Action > Quantify the value of what you’re selling using these metrics.
- Significant trends: Are any market, product or divisional trends discussed that align with your solutions?
Action > Preempt your competitors by being the first to engage with new ideas
2. Next, Review the Financial Statements
- Income Statement:
- What was the company’s revenue trend over the past three years?
- Did any significant product or service mix changes occur?
- Did a significant percent of revenue change occur by region or business unit?
- What was the company’s gross margin trend over the past three years? Did any significant year-over-year percentage changes occur by region, business unit or product segment?
- What was the company’s profitability trend over the past three year
Insights > Any of the above that show a downward trend represent a selling opportunity.
- Assess the percent of revenue for each major expense category: R&D, sales and marketing, general and administrative, and any others that apply
Insights > Line items showing an upward trend also represent a selling opportunity.
- Balance Sheet:
- Over the last year, did the company’s total assets grow or shrink?
- Did any significant asset categories (accounts receivable, inventory, etc.) record a notable change in balance?
Insights > Any asset category (other than cash) that shows a growth trend represents a selling opportunity because decreasing non-cash assets improves cash flow, making cash available for other investment.
Wherever you can correlate asset category trends to income statement trends there’s a selling opportunity.
3. Scan Other Parts of the Annual Report
- Management Discussion & Analysis (MD&A):
Whether you’re already selling to a Strategic Business Unit, or looking to identify a SBU as a point of entry, the MD&A describes high growth areas.
Look for the following:
- The results of operations
- Changes in financial condition
- Risk management strategies
Insights > High growth areas represent a selling opportunity.
- Notes to Financial Statements:
These notes are integral to the financial statements. In addition to harboring hidden opportunities, they’re also useful for explaining financial trends.
Insights > References to relationships, contingencies or other factors provide effective data points for strengthening your business case and aligning your solution’s value.
20 Minutes Well Invested
Regularly reviewing your customer’s Annual Report to Shareholders is not overwhelming or impractical to incorporate into your sales process. In fact, it can be done in as little as 20 minutes per year.
Recognizing that most sales professionals make poor use of this rich resource, using insights gained from Annual Reports can place you on a platform far above your competitors.