The dream of every startup is to start off the project first, and then make profit. Having in-house or external auditors for the startups is not usually part of the game. Auditors are, however, usually there to review the accounts of companies and organizations to ensure the financial records of the company are accurate and rid of any illegality. They can also act in an advisory role to recommend possible risk aversion measures and cost savings that could be made by the business. An auditor can simply spill the beans about how you go about your expenses or how to go on borrowing. Here we discuss whether your startup business really needs an auditor in the first years of its doing business.
Auditing Gives You A Chance To Know More About How Well You Keep Your Records
Auditing is important for your startup because it will help review the procedures your business uses to create and store records. The auditor reviews an inventory or listing — digital or physical — of the records your company keeps. The listing provides the auditor with an understanding of the volume and type of records your business manages. Auditing is incredibly important as bad accounting could lead to allegation of fraud and negligence, which may give rise to other serious issues in the future.
Once business owners know that their accounting process is up to date, it would offer them the opportunity to make key financial decisions for the growth of the business. They would also learn that for the business to be successful, they have to all work towards delivering the best results.
Auditing Will Give You A Chance To Fix Certain Errors Early
Businesses often slide into bigger problems because some minor issues were not detected and resolved at the outset of the business. What auditing does is to forestall this problem, including resolving any legal or tax issues immediately as they occur.
The risk here is that since most startups may lack the technical skills to detect some game-changing errors, errors can usually find their ways into the business and remain there, even for a long time. An auditor can set the records straight and also educate the business owner on how to effectively manage the accounting process and make sure everything is up to standards for the future of the business.
Auditing Is The Best Strategy For Tracking Your Finance and Making Adjustment
The best way to always track your finance and expenditure is to go by auditing. Auditing will make it possible for business owners to make more effective decisions, and channel their investment appropriately. Any accounting errors would usually be bad for the future of the company.
Auditing Would also Be Required When You Are Seeking Equity Investors, or Looking For Lenders, Or Before Going On Your IPO or Simply Selling Off Your Business
Auditing is required most times, when you are looking for equity investors for your business— usually after a Series B or a Series C funding stage . In these cases, a lower level self-auditing may not be enough. However, before your business starts making profit, you may still be able to negotiate away from a full audit, even when it has been required. This may not be the case when the company matures. Again, auditing may be required if you are scouting for a lender by way of venture capital, or other types of bank loans. Audits of your business may also be required if you are thinking about selling off your business, finally.
Thinking about going public also?Audit is usually a must.
Where Traditional Auditing Proves Costly, You Can Carry Out Self-Auditing
Getting a traditional external auditor to do the auditing may be like squeezing life out of your new business. The cost may be shooting through the roof. The best deal is to go the way of self-auditing. This would mean assigning a member of your business to look through the books and find the faults. Of course, nobody expects that this effort would generate information as accurate as that provided by a professional. It would, however, give deep insights about the startup’s finances. In all, although internal auditing may have its own set backs, it could be a good option for startups with very little money to spare.
Moira Vetter, Founder & CEO of Modo Modo Agency, a strategic marketing firm, that was recognized as a 2018 & 2017 Inc. 5000 company and a 2017 Best Places To Work, advises startups to adopt the following simple strategies towards a more effective self-auditing.
Formalize monthly financial statement review with your team — Awareness is the first step to managing budgets frugally. When the person charged with keeping the books closes the books each month, schedule a meeting to sit down and review the financial statement as a group. Ask questions about line items that are going up. Look for line items that are larger than you imagined and ask questions about why.
Review credit card statements as a group for recurring expenses & CUT THEM — For this to be efficient you need the team using the company credit card for all expenses rather than buying things on personal cards and expensing them. This is particularly important for recurring expenses so the group can see how seemingly small monthly items add up. Before you know it, lists of $5 to $25 monthly amounts are a serious monthly expense. My firm recently did such an audit and uncovered an analytics account that we are no longer using. These are the items to ensure you are still using, and take the time to cancel accounts if you’re not using them. Among these hosted items are:
Email Hosting — if you’re growing, the number of people with email accounts can grow quickly and a change in hosting can help optimize expenses. Change your hosting agreement if you need to.
Social Accounts — LinkedIn LNKD +0% and Job promotions, Facebook FB +0% and page boosts, Hootsuite or Buffer distribution services, Follower management apps like Unfollowers. Are you getting a return on these expenditures? If you don’t know, find out before you keep spending blindly.
Web Hosting — How much space and how much functionality do you need from your Web host? Could you be spending less for your website host.
Memberships — some startups belong to business clubs or Regus office locations. It can be a point of pride to invite people to a business club. If you haven’t been more than a couple of times in the last year, see if you can pay as you go versus carrying the cost of memberships you are not using.
Planning for Computer Expenditures — As a part of our year-end audit we assess the current operating condition of our computers and any anticipated expenses. New computers are like going to an office supply store, you want everything you see and all the shiny new stuff is fantastic. The extra step you should take as a startup up is not simply adding new computers, but determining who can use a computer hand me down. People that aren’t power users can use the current system of someone you are buying a new machine for to help maximize your investment.
Staffing Planning & Associated Expenses — If your startup engages recruiters, temporary staffing firms or advertises for a lot of positions, these expenses can add up quickly. Take time to assess all the positions you feel you’ll need. Only advertise when referrals aren’t a good source of candidates. If you have to use temporary staffing, pick a firm that does contingent placement and discounts fees based on the amount you have spent with the to temporarily staff a position.
Meal Expenses — As an early business you may be inclined to treat all the people you know to lunch or drinks on your card. You may also get in the habit of providing lunch on a regular basis for the staff. Remember that only a portion of these expenses can be written off on your taxes and think about when you really should be paying the tab. Food costs a lot, adds up quickly and is NOT an essential business expense.
Office Rental Expenses — Fight the urge to rent class A office space until you’re well along in terms of profitability. If you’re not using your space, consider a non-competitive sub-tenant. You could reduce your costs by hundreds or thousands of dollars a month.
Bottom Line:
Auditing can provide serious lifelines for startups plotting to go far. It starts from the first day to keep your business on focus and on the right track. It gives you deep insights on the errors of the business, including ways through which you lose money and how to move away from them. Even though it can be expensive, it could end up saving the day for startups if it can prevent costly errors.
You can check out a list of auditing firms for small businesses in your country’s business directories. Nigeria |South Africa | Egypt |Kenya
Charles Rapulu Udoh
Charles Rapulu Udoh a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world