Many business owners wait until the next financial crisis before carrying out a financial audit.
Making financial reports can be hectic and time-consuming. A lot of time is lost digging through records, receipts, and tax documents.
Benefits of a Financial Audit
However, performing a financial audit is crucial! It can help you reduce risks and evaluate little expenses that add up to damage your business.
In one of Benjamin Franklin’s famous quotes, as seen on Forbes, he warned business owners to be wary of little expenses.
So, what can you do to save your business? Precisely, how can you curtail accruing “little expenses”?
The answer to those questions is to evaluate your spending through audits – internally or externally. If the expense attached to external assessments scare you, did you know you can do a self-audit?
Read on to find out more of the benefits of a self-audit and how to implement it on your business.
Eliminates Internal Theft or Embezzlement of Funds
A thorough self-audit not only evaluates your financial documents, but reviews your company’s policies. If there is no threat of fraud, there might be loopholes in your company’s procedures.
Luckily, a self-audit helps find those loopholes. You will also examine vital policies such as internal controls, record-keeping, protection against theft, and spending limits.
Prepares You for Possible External Probing
A self-audit reveals and evaluates crucial areas of your business. In this way, it safeguards you against external probing because you already know what and where to check to plead the case of your company.
It Is Affordable
Unlike external audits that require you to employ third-party agencies, self-audits are in-house. At most, you’d select a representative from all divisions of your company to form a committee. Think about it, will that cost you a dime?
How to Carry Out Your Own Financial Audit
- Find the Right Time
Say that you run a winter clothing line. Conducting a self-audit between December and February is ill-advised. Why?
Winter months are likely periods with massive sales in such a business. As such, any financial assessment during that time won’t be thorough.
On the other hand, summer months are likely perfect for self-audits. In other words, you would likely have time to evaluate your financial documents with undivided attention.
- Gather Your Financial Records
Now gather all essential records such as bank statements, invoices, and sales receipts. After assembling the documents, send them to the accounting department for close evaluation.
While you’re at it, review your accounting policies so that documents are promptly sent to the accounting department.
- Review Your Record-Keeping Policies
Additionally, look into your records retention practices. Do you store records adequately?
If no, put a system in place that archives your canceled checks, cash register tapes, and invoices.
Also, evaluate your policies on protection against theft. Is your accounting software password protected? Do you separate accounting duties amongst your employees?
Lastly, analyze your tax records against the tax returns. Are there any non-correlating reporting or numbers?
- Examine Your Cash Flow
Say you spent below $2000 on logistics all through 2019. And in the first quarter of 2020, you’d already spent over $3000. When you find such alarming increases, query it.
And you should not stop there. Look at the percentages. What part of your business accrued expenses so much?
The answers will help you build systems to cap spending for each segment of your business.
However, you don’t need to compare annual figures only. You could do more frequent audits. Monthly evaluations let you look at expenses such as data charges, service contracts, and logistics.
With these tips, performing a financial audit is not as difficult as it seems. More importantly, these steps could help you find cash-flow leaks in your business.
If you would like help with your financial audit, we would love to be of help! Contact us today!
