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Seven ways a Financial Audit can assist your
business to be on track
Success starts with a sound financial strategy.
It is part of the continuing conflict between working in the business and working on the business. This results in small business owners who create and deliver their products or services ignoring the calculated events that keep the business healthy and growing.
Results could remain the same with happy customers and busy employees, but you may recognize something is out of sync when reviewing profits and losses. This is a sign that it is past time for a detailed financial audit requirement.
Audits are not valid when your business is approached by a lender, getting ready to take on partners, or preparing for sale. However, regular audits provide helpful knowledge to help you build financial control into your plans.
Here are what you want to understand:
1. There is a varying cash flow. Yes, it is achievable to be profitable but run out of cash, which is not good! However, long-term awareness is about your business's capability to maintain a positive cash flow. When you do not have, you will not be able to pay your monthly expenses.
2. You have enough working capital. Separate from cash flow, working capital measures your business's short-term financial health and profitability efficiency. This is calculated by deducting your current liabilities from your existing assets. When your business has a positive working capital, your business can pay off its short-term liabilities at any given time. Conversely, negative working capital means you do not have that ability.
3. You are having on budget. However, you cannot just hope you have sufficient cash to pay the bills.
If you have acquired having a budget, are you sticking to it? If not, what adjustments are required?
4. You are unprepared for unexpected expenses. You will need funds to pay employees, vendors, and suppliers during a slump period. You are better off with a large buffer of reserves, approximately near six months' worth. If you have less than that, then you are placing your long-term success at risk.
5. You have a significant amount of debt. Unfortunately, debt is not uncommon for a small business.
However, it is likely to have too much of it. The technique is to achieve debt with a good cost-cutting and speedy reduction plan, so debt does not become a trap.
6. Are you frequently paying the bills late? Frequent late payments mean trouble. You are running the possibility of destroying supplier relationships and being cut off from vital services. This is where the difference between manual to automated accounts payable systems can be extremely advantageous.
7. Need to comply with tax expenses.
This is the last thing your business requires is to be paying penalties on top of your tax commitments.
This will end up costing you time, money, and energy.
To sum up: Regular financial audits give you a better understanding of how your business must operate, use money, and take risks. Set up tools to improve you regularly audit your financial health to make sound decisions about urgencies and improvements. If you do need support with audits, reach out to your accounting professional for their guidance.
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