Not all business owners are equally financially astute – we are not all born to be accountants. Besides, in the rush and excitement of setting up a new business, it is easy to forget to set in place good accounting practices. However, a failure to audit your business finances will almost certainly lead to a lower bottom line, and a lack of thorough audits is the reason behind the closing of a lot of otherwise successful businesses.
Keeping control of expenses
As with your personal budget, business expenses need to be kept under control. With a business, this is more difficult to do than with personal finances as most businesses have multiple people who have spending needs and the ability to use company finances to acquire goods and services. It is key that you require your employees to report business expenditure and that you review these reports – or appoint someone to do so.
Often, expenses are not technically necessary, but may improve your business in some way – by making employees happier, or by enhancing customer satisfaction. Auditing your expenses carefully can help you identify the essential expenses, and depending on how well your business is performing, allow you to decide to splurge in certain areas where the benefit is not completely clear.
Managing funds owed to the business
It may seem common sense, but many businesses struggle to keep track of the funds owed to them by their clients and customers. This starts with always invoicing for work done or products sold as customers won’t pay a bill that they have not received. Accounting software or even a built-to-purpose invoice generator such as Invoice Home can help here, making it easy to issue invoices and keep track of who has paid.
Outstanding debts can be managed in several ways, and a lot of businesses try their best to find ways to make sure that these are paid quickly. Invoice factoring is a way of getting the funds due paid quickly, but there is usually some percentage fee charged in exchange for the facility. Nonetheless, many a business has had to stop operating due to incoming funds being received too late compared to outgoings that have been committed to, such as rent and salaries – so make sure that your accounts receivable operation is effective. An audit will reveal any shortcomings.
The importance of making the correct tax payments
Tax is not something that anyone enjoys thinking about, but the way that you structure your business can have a significant influence on the amount of tax that you are paying. Even more importantly, not paying the correct amount of tax can cause a lot of legal difficulties for the directors and owners of a business. Depending on the complexity of your business, you may need expert help in the shape of an accountant.
Qualified accountants have a wealth of experience, not limited to knowledge of tax laws. Though you should never attempt to illegally avoid tax, an accountant can help you make sure that you are not paying more than you should be. Even more importantly, accountants can point out areas where you are not meeting the minimum requirements to comply with tax law, whether this is with respect to VAT, National Insurance, or another area of tax.
Finding your most profitable markets
Auditing your business finances can deliver interesting and useful information in other ways. If you calculate the profitability of individual products or market segments that you are serving, you could find that some of your business activities are not contributing to the bottom line of your business, while you are ignoring potentially more profitable markets.
Large companies and corporations would intensively analyse their internal numbers for just this purpose. Though these organisations have very qualified people involved in it, even smaller businesses are well advised to carry out analysis on this level. For example, divide the markets that you serve into categories – whether it is by geography, a person’s age or the size of the company. Work out a profitability ratio for each. You may find that older customers are bigger spenders and in turn direct more marketing efforts to them.
Finally, it is crucial to plan audits
One of the pitfalls of an auditing system is that you can end up getting good and useful information some of the time, but not on a regular basis. Often, the information delved up in an audit can only be judged by doing a comparison across time. If you do not regularly collect the information, you won’t be able to make this comparison. Besides, operating your business at peak performance only some of the time, instead of all the time, is not serving your or your investor’s best interests.