Many firms, including mine, invest in an annual professional audit of their financials. For startups, an audit that could cost $15,000 to $30,000 is out of the question. But, if you want to demonstrate you have the discipline for growth, you should begin the process of self-auditing your finances as soon as possible.
Some of the things a professional financial audit looks for
As I learned, an audit is much more than a seal of approval that accounting was done properly and there is no opportunity for fraud. One of the best things a professional auditor will do is provide management insights for you. These insights include things like:
6 things a startup can do to self-audit expenditures for a strong 2016
In a young startup where all the passion exists around the product or the customers, it is easy to view finance as a line function that is the responsibility of the ‘money person.’ In fact, the health of a business in startup is the job of every member and small decisions can quickly add up if the group is not engaged in controlling costs, keeping tight reigns on financial decisions and responsibly growing revenue.
Where you are a finance-minded individual you not, these are things that every startup can employ to strengthen the balance sheet immediately.
1. 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.
2. 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:
3. 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.
4. 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.
5. 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.
6. 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.
Set your firm up for success in 2016
An entrepreneur’s success can be directly tied to where they invest their money. If you are not budgeting and spending on your key customers, innovating your product or building your dream team, eliminate your spending in other categories. As you scale, these are precisely the types of audit evaluations potential investors and acquirers will do. The more discipline you apply in the early stages, the better foundation you will have for scaling rapidly and demonstrating the business savvy that can secure you the funding you need to continue scaling.