How to carry out a complete financial audit and optimize its cost

Most people think that financial audits are like researches carried out by a Certified Public Accountant (CPA). That is one definition and if your company needs a loan, it's possible it lists on the stock market or when it reaches another milestone, it will require financial transparency. 

However, a complete financial audit can also be done independently. Regarding this, it is an exercise to monitor your company's financial position. There, you will see what is going well and you'll be able to detect problems.

Besides revealing wasted money, audits can reveal how you can save money and avoid the company to get into an unstable and unsustainable situation. Therefore, you have to think about it as time well spent.

Many situations call for a complete financial audit in your company. They are: 

• Showing investors or financers the results of a loan. 
• Establishing the reasons for a recent increase or decrease in profitability.
• Assessing if your company is financially ready to expand.  
• Meeting the requirements of a lender to ask for a loan.
• Increasing the trust of the company's interested parties. 

Below, you will find some practical suggestions to carry out a complete financial audit that will add valuable information about your business.

1. Choose a slow commercial period.

A complete financial audit takes a lot of time to be carried out correctly. This is why it is better that it takes place during a relatively slow period for your company. Don't schedule it a week after acquiring a new customer that may need you or during the most active season or month for your business.  

Instead, think about the moments you have enough time to go through every stage of the audit to record its findings. Otherwise, you could hurry and overlook key details. If that happens, the purpose of the audit is ruined.

2. Look for changes in the expenses. 

It's normal that a company spends different amounts of money from one year to another. For instance, maybe you needed new computers for all the staff last year or you invested on a state-of-the-art 3D printer. However, you should worry when you see an increase on expenses and you can't identify why. 

Maybe you spent $8.000 more than last year despite having relatively stable numbers until that moment. If this is the case, you should examine your company's expenses one by one and try to identify new or unusual transactions. A closer look can provide evidence of wasted money. It could also help you remember expenses you have forgotten about. 

3. Determine efficient ways of reducing operative expenses. 

Operative expenses are related to the daily requirements of your company's working. They can include renting payments, public service bills, office supplies and employees' salaries. 

Take a look at all the expenses and find out if they can be reduced. Could you buy bulk items to reduce costs? Check your relationship with your suppliers to see if you can find other alternatives at a lower price. 

It's also a good idea to check the percentage of expenses associated with unexpected problems. Did an important piece of equipment fail and cost you a lot of money due to emergency calls and spare parts? 

Usually, you'll see that following preventive or predictive maintenance programs will save you a lot of money by reducing the unexpected inactivity time and its costs. Try to connect all the operative expenses with the possible revenue for your company. If you can't, maybe some of the expenses are not that necessary as they seem to be. 

4. Check if there is evidence of recurring charges.

Many companies make users register and charge them a monthly fee that is not cancelled unless users realize and cancel it themselves. This sounds convenient at first because you don't have to worry about forgetting to pay a bill on time and leave your business without a necessary subscription or essential service. However, it could also mean you're paying for something the company no longer needs. 

If you come across such cases, check the contract and make sure it doesn't have a minimum membership period. For instance, you may have agreed on a two-year contract 18 months ago; in this case, you must keep on paying the fee until the contract expires. 

Stopping the payments before time could harm your credit or lead to taking legal actions against you. On the other hand, check all recurring expenses so that you know that they coincide with things your company really needs. 

If you don't have a contract and the other company keeps on charging you, send a formal request to your supplier and ask for a written answer. If that doesn't work, contact your credit card issuer to begin a dispute. Provide backup documents to prove you still don't have a contract and that you already contacted the supplier. 

5. Check your commercial credit card and its transactions.

It's also a good idea to check the transactions made with your commercial credit card while you carry out the financial audit. Do you have clear policies about what a legitimate expense is? Are there processes for employees to present an invoice when they use the company's credit card? If employees are aware of the approved uses of it, you can talk to them about any unusual expense to get more information. 

You can also take a look at the credit card statement. Then, you can look for errors or unexpected events that could harm your credit. For instance, you can discover illegal activities due to identity theft or discover if you made payments your supplier never got. 

6. Make sure your expenses and incomes are correctly classified.

Maybe your company uses an accounting software tool that helps you classify income and expenses. If you own a web design and advertisement company, classification can help you determine the profitability achieved by each service. 

The correct software tool can also divide your general expenses into categories.  If you see that specific expenses occupy an extremely high percentage of the budget, it's time to look at it more closely. 

At the same time, you can discover that one of your business's branches is not generating enough income to justify what you spend on it. If that's the case, the most efficient solution can be closing that branch or reducing its resources. 

However, even if it includes an automated classification or if it requires a manual entry of information, the software tool is not error-proof. Errors can occur and they could distort your financial information. 

7. Make a list of all the changes that caused financial differences in the company. 

Another useful tip is to document all the changes that took place during the audited time. For instance, did the organization start or discontinue any program? Have you hired too many employees for a team? Maybe your company stopped producing a particular product and you have not filled that void with new products yet. 

Keeping a record of these changes will help you carry out a more successful audit since you will be able to reduce surprises and confusion. Listing that information will allow you to see the impact of what's different. 

For instance, if you have hired 20 new employees in the last year, is there a notorious increase in income in the areas they work? 

You could adopt the same approach with a team you expect to make your company grow. Maybe you have used it for a year and a half. If that's the case, try to connect the income with the expenses to see if it was worth it. 

8. Check if the loans were used for approved items. 

Maybe your company has received loans from the government as assistance in the COVID-19 emergency. This financial help comes with clauses about how to spend that money. For instance, you could use it to pay salaries but it's possible the government audits you to see if you used it for that purpose. In that case, a commercial representative would have to write a report proving that the company used the money correctly. 

Even if your company doesn't go through an official audit to check what you did with the money lent, its internal financial reports should confirm if there are wasted resources. If you find some of these, get professional advice about the best ways of dealing with them and avoiding them from spreading. 

9. Look for ways of saving money in mailing. 

Maybe your company has increased the use of mailing services. Make a list of how many articles on average are sent via mail per month and how much you spend on doing so. Then, determine if what you pay is still a reasonable price despite its increase in your company. You can find other companies that offer the same services for less money. 

Before changing the company, talk to your current suppliers. Tell them you're thinking about hiring another company and they may offer you a discount. 

10. Find more opportunities to save money. 

Even a financially well-managed company can have some excessive expenses that may be found during a complete financial audit. Instead of feeling disappointed, identify the ways you could reduce expenses without affecting performance. 

For instance, you could move to a smaller office and have more employees working from home. You could also buy used computers instead of new ones. Doing this should provide you more long-term financial security.

11. Compare the results of the audit with financial predictions. 

Once the audit was completed, it is a good idea to compare its results with the financial predictions. Doing this can help you avoid important problems in the future due to information differences. 

If you detect cases in which the previous financial predictions don't reflect what you found in the audit, update them. This step guarantees that you have more precise and relevant information so that you can make the right financial decisions in the future. 

Most companies don't experience financial problems overnight. Instead, problems arise gradually and, then, exacerbate. Making the wise decision of carrying out a complete financial audit allows you to detect possible problems and have time to get help to solve them. Besides, you will understand what activities lead to success. 

Another important step is reviewing financial predictions and relevant reports monthly. Then, update them if necessary. This type of continuous plan reduces the need of carrying out a complete audit because you can have more control over your financial information regularly. 

Moreover, a monthly assessment will provide you with information to make quick changes when necessary. Keeping yourself in the loop about your company's financial situation improves its balance and helps you promote growth.