11 Steps to Run a Financial Audit of Your Business to Optimize Spending

Running a Full Financial Audit of Your Business and Optimizing Spending

Financial audits are often associated with investigations conducted by certified public accountants (CPAs). However, you can also perform a financial audit independently to gain insights into your company’s financial status. By doing so, you can identify and address issues, save money, and prevent your business from entering an unstable financial situation.

There are various reasons why you might choose to conduct a financial audit, such as:

  • Showcasing outcomes to investors or funders when seeking a loan
  • Identifying the causes of profitability fluctuations
  • Evaluating financial readiness for expansion
  • Fulfilling a lender’s requirements for loan applications or renewals
  • Building stakeholder confidence

Here are some actionable suggestions for conducting a thorough financial audit:

1. Choose a slow business period

To ensure a comprehensive self-audit, schedule it during a relatively slow time for your company. Avoid conducting the audit immediately after acquiring a new high-need client or during peak business seasons. This allows you to devote sufficient time to each aspect of the audit without rushing or overlooking important details.

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2. Analyze changes in expenses

While business expenses naturally vary from year to year, significant unexplained increases can be cause for concern. Scrutinize your expenses line by line to identify any new or unusual transactions. This analysis may uncover misspent funds or help you remember previously forgotten expenses.

3. Find ways to reduce operational expenses

Evaluate your day-to-day operational expenses, such as lease payments, utility bills, office supplies, and employee wages. Explore cost-saving options such as bulk purchasing or seeking lower-cost alternatives from suppliers. Additionally, consider implementing preventive or predictive maintenance programs to minimize unexpected breakdowns and associated costs.

4. Review recurring charges

Review all recurring charges to ensure they are necessary for your company. Cancel services or subscriptions that are no longer needed or explore alternative options with lower costs.

5. Examine business credit card transactions

Review your business credit card transactions and establish clear policies regarding legitimate company expenses. Verify that employees submit receipts for purchases made with the company card.

6. Categorize expenses and income accurately

Utilize accounting software to categorize your expenses and income correctly. This assists in determining the profitability of each service and identifying any costs that require further examination.

7. Document company changes

Document all changes that occurred during the audited period. This includes program starts or discontinuations, changes in team size, and shifts in product offerings. Understanding these changes provides insights into their impact on your company’s financial performance.

8. Ensure proper usage of loans

If your business received loans, ensure they were used for approved purposes. Adhere to any stipulations associated with the loans and be prepared to provide documentation if audited.

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9. Explore cost-saving opportunities for freight

If your company relies heavily on shipping providers, analyze shipping costs to ensure they align with industry standards. Consider negotiating lower rates with your current provider or exploring alternative providers.

10. Identify opportunities to cut costs

Identify areas where costs can be reduced without compromising performance. For example, consider downsizing office space or purchasing refurbished computers.

11. Compare audit results with financial forecasts

Compare the results of your audit with your financial forecasts to ensure consistency and accuracy. Update your forecasts as necessary to make informed financial decisions.

Conducting a successful financial audit enhances your business awareness and allows you to proactively address potential issues. Additionally, maintaining regular monthly reviews of financial forecasts and records can reduce the need for comprehensive audits and improve overall stability and growth. Good luck!

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