Many businesses bleed to death in their first five years of existence, leaking money from holes in their finances they know nothing about. Others crumble under the weight of legal and tax issues; another fallout of incomplete financial information.
And while it is true that any entrepreneur serious about making it in business should naturally keep track of expenditure and revenue, that sort of basic accounting often fails to address operational inefficiencies, assess business risks adequately or expose ineffective financial systems and internal fraud.
Regardless of how well you’ve been keeping your books, an external audit carried out by an unbiased professional is the best way to guarantee a thorough review of your accounting process and a proper examination of your financial records.
Don’t be fooled, an external audit is not exclusive to bigger businesses. On the contrary, its advantages transcend business size, making it essential. It will cost you some money, but your money will be well spent.
These are the major benefits of an external audit to your business:
1. Discovery of accounting errors
These errors can wreck your business by affecting decision-making or corrupting your financial data, consequently hindering planning.
2. Validation of your company’s financial statement
A financial statement verified by an external auditor makes your business appear credible to lenders and investors. Securing loans and investment for growth, claiming compensation from insurers and attracting clients (for certain kinds of business) are all easier when your financial statement is foolproof and signed off on by an external auditor.
3. Prevention of tax and legal difficulties
An audit will help you avoid the tax and legal issues that often arise from reporting inaccurate financial information. Many businesses have faced prosecution for avoidable inconsistencies in their financial reports. Yours should not.
4. Exposure of fraud
Because an external audit is usually thorough and unbiased, fraudulent activities in your company are likely to be revealed during the auditing process. The true nature of unsubstantiated ‘overhead costs’ and ‘miscellaneous expenses’ often come to light under the intense scrutiny of an external audit.
5. Better internal control and accounting processes
Along with the verification of your financial statement, an external audit will review your method of compiling financial reports to ensure that there is enough internal control to limit fraud. The audit will also improve your accounting process by educating you on best practices.
Editor’s Note: MARGIN is a support platform and community designed by Venia Business Hub to help Nigerian entrepreneurs grow profitable businesses. You can get more free business resources and practical advice on their site.