What is the Importance of Audits for Small Businesses?
There is no doubt that UK businesses, and particularly SMEs, face some tough challenges in the months ahead.
After all, the weekend saw the rate of inflation rise yet again to 2.7%, after a marginal decline had been reported in June. With real wage growth also continuing to stagnate, households have less disposable income to spend and businesses across the UK are beginning to feel the adverse effects of this.
With this in mind, firms will need to take proactive measures to ensure that they can cope with a potential decline in revenue. Regular financial audits may be central to this, for the following reasons:
- Audits Highlight Excess Areas of Expenditure
Expenditure is a key part of any business, but are you always sure that you are spending your money wisely?
This is a huge concern for entrepreneurs, who can often find themselves spending outside of their means as they fail to adapt to issues such as reduced consumer spending, rising inflation and the depreciation of the pound.
Regular audits can help to negate these issues, as they highlight any areas of excess expenditure and enable you to seek out viable solutions. They can therefore help you to reduce costs over time, without forcing you to compromise on the quality of your products, services or the way in which they are delivered to customers.
- Audits Ensure Compliance with Tax and Financial Legislation
One of the big concerns for small businesses or start-ups is financial management, both in terms of optimising cash flow and complying with UK financial law. Struggling to achieve either of these goals could well cost your business dearly, particularly in instances where you fail to comply with tax laws and end up paying a huge fine.
In this respect, a proactive audit can help to prepare your business for the real thing and the end of the tax year. Most importantly, it will offer clear feedback and advice on how to organise and report on your finances, in order to provide a clear and accurate representation to regulators.
It will also highlight any fiscal entries or statements that require editing or clarification, which can simplify and hasten the process of any future audits that may be conducted by HMRC.
- Audits Create Transparency and Accountability in Your Business
The HMRC also conducts audits to promote transparency in business, while discouraging firms from seeking out an unfair and ultimately illegal commercial advantage in their market of choice.
The same principle can also be applied to the internal running of your business, which needs honesty, transparency and also accountability if it is to successfully thrive as an organisation. By promoting frequent audits, your employees will begin to understand the importance of adhering to best practice at all times, whether they are recording their expenses or formatting fiscal reports.
In terms of accountability, audits trace every single financial transaction to a department or individuals, meaning that instances of overspending can easily be raised and discussed with the relevant teams to prevent the issue from reoccurring.