Capital is the lifeblood of any business enterprise. Especially, in the case of small businesses, any reckless investment could literally end the business enterprise after a few years. Making each penny count through a regular audit is the basic tune for ensuring the long-term survival of a firm.
Usually, small business houses don’t have that much money to hire an entire team of accountants to look after their resources and wasteful investments. Hence, a regular audit of company expenses by an independent and professional accountant is the need of the hour to guide an entrepreneur.
Need and Importance of a Regular Audit
1) Guidance and Direction:
Guidance and direction are extremely significant for an entrepreneur to make the right choice of decision when needed. Usually, self-employment starts out of a sudden idea and could lead to an abrupt spending of essential resources without a valid rationale.
Even an internal audit advantage the necessary checks on reckless spending while advising the entrepreneur about where the resources should be judiciously invested for the proper functioning of the business.
2) Applicable Investment or Not:
Often, an entrepreneur takes wrong decisions out of insecurity and improper knowledge. For example; a small entrepreneur doesn’t need a lot of staff to maintain its accounts. One or two people can easily do the same in Tally and MS Excel software. Therefore, prudent decision making in accounting is necessary for small businesses.
3) Control Administrative Expenses:
A confident entrepreneur never shies away from making huge managerial expenses wherever compulsory. However, without auditing the efficacy of the same it might prove to be a wasteful expenditure. On an estimate, around 30% of the small business expenses is a sheer wastage of money.
The frequent financial reporting could prevent an entrepreneur from saving a few bucks of money. For example; a company might invest a lot of money towards empowering all staff with necessary technical knowledge but is it necessary for everyone to have technical skills or is it more important for the persons handling IT department? Regular audit often gives clear direction to these things.
4) Following Competitors:
One of the key mistakes that every small-business owner makes is following competitors. An entrepreneur should be decisive enough to take a right decision at the precise time. Regular audit of small businesses makes sure that the entrepreneur utilizes his resources carefully and in accordance with the requirement of the business.
For example; a small New York-based firm started advertising its products and services on costly newspapers regularly. It led to a huge investment. The same could have been effectively done on Yellow Pages or handbills at a lesser cost. A routine audit of company costs often opens up eyes of the entrepreneur before making any incessant expenditure.
5) Meet Legal Requirement:
In some countries, a regular audit of the company’s expenses and income is a lawful compulsion. The enterprise has to follow the rule and let its business be audited by an independent auditor at frequent intervals. The audit also enhances the credibility of the business enterprise while helping the entrepreneur with some key decisions for the long-term stability of the firm.
6) Enhance goodwill and reputation:
This is one of the most important benefits of the audit. A regular audit enhances the goodwill and reputation of the firm. Two out of three customers always prefer to buy goods and services from a regularly audited firm.
In conclusion, we can say that a regular audit by an independent auditor augments the prestige of the firm. He takes a very little amount of professional fees in comparison to a reckless investment that the entrepreneur would have wasted elsewhere.