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By Crizel Carbellido
Special to Financial Independence Hub
Business finances are important for any company to pay attention to, but perhaps more so for small- and medium-sized enterprises (SMEs) given their limited capital and their need to make the most out of every single buck.
Errors or miscalculations in an SME’s financial records can potentially lead to disastrous consequences, such as an untimely shortage of funds, inefficient business decisions due to wrong financial forecasts, and — if worse comes to worst — a state of being in the red.
One of the best safeguards against troubles like these is a full financial audit. To that end, here is a quick guide on what financial audits entail, why they’re a must for your small business, and how to prepare for one.
Accounting vs. Auditing
To rookie entrepreneurs who are just getting a handle on their business finances, accounting and auditing may seem like the same thing: and the latter may even seem unnecessary. However, these processes actually serve different purposes.
While accounting is concerned with the regular record-keeping of a business’s financial transactions, auditing is a less frequent procedure meant to check if those records are indeed accurate and error-free. In addition, given that a financial auditor is typically an independent party, their services are invaluable for providing an unbiased look into a business’s finances and giving an entrepreneur a more objective appraisal of their company’s financial standing.
What are the Benefits of a Full Financial Audit?
To those who know the process better, getting a full financial audit yields multiple benefits for small businesses. One is that it helps spot any inconsistencies or errors made during the bookkeeping and accounting process. As mentioned above, identifying and correcting those mistakes are crucial for ensuring that an entrepreneur is basing their business decisions on accurate data.
Having an audited financial statement on hand can be helpful when dealing with various financial institutions, such as some business banking Philippines providers, just in case they happen to need exhaustive documentation about the business’s financial standing. If you’re exploring a banking solution like the Philippines’ Maya Business Deposit or financing through Maya Flexi Loan, it would be a good idea to complete a full financial audit of your SME first.
A financial audit can also be beneficial for cost-cutting measures, as the process will allow you to identify areas where you might be overspending and pinpoint expenses to be streamlined.
Lastly, having your business audited will make it easier for you to spot fraudulent activities from bad actors in your company. That means that you’ll also have better chances of neutralizing them quickly and, overall, improve the integrity of your financial processes.
In turn, this could elevate the reputation and credibility of your business: especially among potential investors, as they can be assured that you’re constantly on top of your finances.
Tips for Overseeing a Smooth Audit
Philippine businesses whose gross annual sales have reached or exceeded a sum of PHP 3 million are required by the Bureau of Internal Revenue (BIR) to submit an audited financial statement (AFS) every year. If your small business happens to meet that threshold, then you’ll need to work with a third-party auditor to conduct a financial audit on your business for full compliance with the country’s laws.
To make sure that the auditing process goes smoothly, have all the pertinent records prepared beforehand. Include your ledgers, financial statements, tax-related documents, and other accounting records. You can lessen the burden of collating all these documents by ensuring that your day-to-day record-keeping is transparent and organized, so that there won’t be a need for a last-minute scramble to locate what’s necessary.
If you want to make your record-keeping process much easier on your finance and accounting staff, you can rely on records kept by your digital bank. Maya Business Deposit lets you keep track of your business transactions through its Business Manager dashboard. A digital tool like this one can make gathering documents a breeze in time for your audit deadline, and it can also prevent instances of missing records caused by paper documents getting lost or destroyed.
Another important step in preparing for the auditing process is to make sure your own finance team is well-informed about it. After all, their cooperation will be crucial in making sure the audit will be as efficient as possible. If there happen to be any outstanding discrepancies in your records, be sure to discuss them with your team beforehand so that it’s easier to communicate any issue in its entirety when the auditor arrives.
Formulating a Post-Audit Action Plan
The financial audit doesn’t end once you’ve gotten your audited financial statement. Rather, this will be the time to mull over the feedback you’ve received from your auditor in order to devise an action plan that will fix any issues stated in their evaluation.
Are there errors in your billing statements? Then perhaps it’s time to acquire up-to-the-minute accounting software to help reduce instances of such errors happening in the future. Did the auditing process take longer than expected because of the time needed to find relevant documents? Then you should probably look into improving your current file management system so the process can go faster next time. Carefully go over the errors and weaknesses pointed out by the audit document, and you’ll be able to steadily work on improving your small business’s operations: increasing its productivity, transparency, and financial stability as a result.
Few things may be more nerve-wracking to a small business owner than an audit of their business finances, but on your part, just remember that it’s a necessary process for your company’s financial health. The more knowledgeable and better prepared you are for your audit, the easier it will be to improve upon your financial stability and promote a culture of financial transparency within your organization.
Crizel Carbellido is a content writer and marketing professional. She spends a lot of time studying how technology and businesses continue to transform lifestyles and communities. Outside the office, she keeps herself busy by staying up-to-date with the latest fashion trends and reading about the newest gadgets out on the market.
