If you’re a small business owner, there’s every chance that you equate the word “audit” with an official inspection from the HMRC.
While there is some semblance of truth in this, however, it’s also fair to say that internal auditing remains an excellent accounting tool that can maintain your businesses financial health at all times.
The only question for SMEs is when to conduct their first financial audit, so that they can get the most from the practice and enjoy sustainable growth.
When should you conduct your First Audit?
In truth, there is no fixed answer to this question, as it largely depends on the unique circumstances of your SME and its underlying business model. These are crucial variables, so it’s important that you keep your eyes peeled for potential triggers that should compel you to undertake your first audit.
One of these is the desire to seek initial investment in your business, as it’s impossible to secure third-party funding for your venture without first ensuring that your finances are in good order. Any inaccuracies or discrepancies in your financial reporting will undermine your chances of securing financing, or at least encourage lenders to offer more stringent terms and ask for a higher level of equity (or other security).
Auditing service providers such as RSM Global can definitely help with this, ensuring that you present a strong case for investment to potential partners.
An initial audit can also help you to test and refine your financial reporting processes, primarily by identifying accounting mistakes before they are reviewed by national tax authorities. In this respect, you can consider hosting internal account audits on a monthly or quarterly basis during your first year of trading, as this helps to reveal mistakes almost as soon as they occur and correct these accordingly. This ensures that you produce figures that you can rely on throughout your first financial year.
This proactive approach also prevents recurring mistakes from taking hold of your business and ultimately skewing its figures. Remember, mathematics is an exact science which dictates that numbers should always add up, and regular auditing enables you to guarantee this over time.
The Last Word
As we can see, there’s no definitive answer for businesses wondering when to undertake their first internal audit. Clearly, there are obvious triggers to look for, however, while the concept of monthly or quarterly auditing also offers SMEs the best chance of managing their finances effectively.