That's where an audit comes in. This process analyzes all business functions to determine how to cut costs and operate more efficiently.
A financial inspection is something you can complete yourself, traditionally resulting in one of four options:
- Adverse opinion: Your business has grossly misrepresented its financial records, indicative of fraud.
- Qualified opinion: Your business' finances are incorrect and contain misrepresentations.
- Unqualified opinion: Financial reports free of misrepresentations, also called a clean opinion.
- Disclaimer of opinion: No opinion on financial statements, or audit is incomplete.
An audit might sound burdensome and costly, but it can save the business lots of money and show the other members of the executive team that you're capable of assuming responsibility for the company's financial health.
Audits could help you recognize impending financial crises and steer clear of them, too. A look at headlines over the years shows how improper uses of funds have caused companies to receive unwanted attention and scrutiny. As you use audits to look for ways to save money, you'll simultaneously become aware of any grossly inappropriate spending patterns that could raise suspicion from outsiders.
4 benefits of carrying out an audit
Since an audit examines every aspect of the business, you can discover multiple money-saving opportunities. Some may set the stage for pursuing long-term growth despite potential industry fluctuations.
1. Identify unused expenses and inventory
Are there too many bills? An audit will scrutinize the company's expenses and determine if each service is being used. Perhaps the company pays for a digital platform that it doesn't use anymore, or maybe a vendor is overcharging for a service. This process will also analyze your inventory, as many businesses acquire too much in advance. Excess inventory equals the loss of valuable up-front cash.
2. Discover favorable billing errors
Billing errors are common and often unnoticed. An audit will analyze invoices to ensure the company is paying the correct fees. Even a small amount — just a few dollars — can add up to hundreds over the years. As the business grows, it's easier for minor mistakes to slip through the cracks, and so an audit will get accounts back on track.
3. Pinpoint unused services and subscriptions
Many well-known services switched from one-time fees to ongoing subscriptions. It's easy to sign up for a free trial, then forget to cancel before the recurring fee kicks in. Therefore, your company is likely paying for at least one service they’re not using. An audit will look at all subscriptions and pinpoint the ones to cancel. Plus, it will suggest transitions to cheaper or multi-functional alternatives.
4. Make indirect spending transparent
Expenses like employee salaries and inventory are easy for a financial director to analyze. It's also essential to look at indirect spending with a procurement audit. This type of inspection accounts for peripheral purchases like office technology, including computers, telephones and printers. It also looks at transportation costs — like filling the company car with gas for an investor meeting — and janitorial services.
How to perform an audit and save money
An audit will help a financial director maintain control over a business, even as it grows. To start the process and begin saving money, follow the four tips below.
1. Appoint a coordinator
Staff often feel confused and anxious during an audit. It may seem like those who underperform are already out the door. Appoint an employee to serve as an audit coordinator to keep the workplace calm and organized. This person can answer questions, listen to concerns and offer feedback.
2. Track all documents
Documents, like invoices and receipts, prove the authenticity of a significant transaction. Lack of a proper paper trail is an indicator of fraud — though poor bookkeeping can also be the culprit. An auditor will need to dig through records, including accounting, data processing and financial reporting.
Since a financial director compiles quarterly and annual reports for stakeholders, looking at the documents used to create the most recent versions of those could be a smart starting point.
3. Ask some questions
If you’re carrying out an audit, this is the time to ask the company and those in charge some critical questions. Based on the audit, how can you prevent recurring issues? Should you adopt new developments or accounting standards? Did the audit detect any significant problems? All this information will help the organization improve.
Besides basing your questions on the audit results, consider how upcoming financial trends may negatively or positively impact the company's ability to save money. Leaders in the company depend on your knowledge as a financial director to help them anticipate what's ahead and get ready for it.
Perhaps something in the audit revealed that the business needs to make a substantial change to prepare for a likely shift in the industry. Investing in doing things differently now could help the company avoid wasting money by falling behind its competitors.
4. Install new software
In today's technologically advanced world, financial directors can rely on software to make the audit process easier and quicker. A cloud-based ERP (enterprise resource planning) system that analyzes the entire business can provide insight and reassurance, especially in a fast-growing company. Much of the audit process can be automated, allowing experts to examine more data in less time.
View audits as a good thing
Audits let you analyze every aspect of the company and discover where to save money. Waste can take the form of excess inventory, unused subscriptions or indirect spending. The goal of an audit is to find areas of improvement which is why they should be viewed as a positive rather than a negative. At the end of the day, a successful business can take criticism and learn to adapt.