EOFY is a busy time for businesses! Amid the stocktake scramble, last-minute deductable purchases and crazy sales, conducting an EOFY audit might be at the bottom of the to-do list. However, as many business owners may have experienced, conducting an end of financial year checklist is arguably one of the most crucial aspects during the month of June! Tax time provides the best opportunity to evaluate your business through performance, management and financial audits.
When you’re getting the books ready for the tax man, it is essential to clear some space to develop an audit checklist. This will help you find operational problems, evaluate performance and productivity, and keep all aspects of your business in line with your goals and initiatives for the new financial year.
Audit is not necessarily a bad word
Getting an audit check is like taking a physical exam – you’re a little uncomfortable at all the poking around, not sure if you are ready to give complete access to a stranger to point out your weak points but even if you think you’ve done everything right, you never know what an auditor might have to say. Many business owners cringe at the thought of a business ‘audit’. Nobody likes the thought of someone else poking their nose around your business, which is why you should conduct an internal self-audit. By conducting a regular internal self-audit around tax time, you’ll be in good stead should a tax auditor come knocking at your office door.
Ultimately, you should think of an audit as a quality control strategy to fine-tune and improve your business efficiency and planning. An audit is not an action to be scared of unless there has been rumours about the way the accounts of your business is handled. In which case, an audit is even more crucial to eliminate anything that may get in the way of attracting investors.
Here are some of the top benefits of conducting an audit for your business:
Attract investors and lenders
If you’re looking for investors, or wish to raise capital for your business, a business audit will improve confidence in your company and strengthen the credibility of your financial records. A business that has gone through a successful audit check is a smart way of impressing potential investors.
Sniff out and eliminate productivity killers
Often times it can be hard to identify the root cause of a business facing a stagnant profit turnover as there are just so many operational aspects of a business. Conducting an audit helps identify and repair operational inefficiencies which can help you increase profit margins and massively impact your bottom line.
Plan forward and identify opportunities
An audit enables you to objectively see what’s really working and what is not. That way you can chase after more of the good and weed out the bad time-wasting activities within your business.
A good audit will give you an accurate snapshot of everything that goes on within your business, so you can make informed decisions about the current situation and future direction of your company. A successful audit will prove advantageous in achieving your business goals and identifying the threats and opportunities before the next financial year rolls over. Imagine starting a business knowing exactly what the state of your business has been like the last year, knowing everything that went wrong within your business and every operational aspect that has a potential for further improvement.
Creating a Small Business Audit Checklist
The nature of your business will determine how you go about conducting your audit. Before starting, it is important to create a custom template for your company to include any industry specific details that you may need to focus on during your audit. This will help identify, not only the areas of your business that are weak and requires more attention, but it will also help you understand your business and where it stands, what you need to change moving forward and so on. To begin, break your checklist down into appropriate headings.
Here is a list of headings compiled by Shoebox that we believe is generally important to include in an auditing checklist:
- Top level goals and company objectives
- Mission statement and value proposition
- Customers, target market and competitors
- Business forecasting
- Are the roles of management and employees clearly defined and productive for the company
- Clear, well defined job descriptions and duties
- Identify gaps in structure and roles or responsibilities that need to be filled
- Review accounting/ bookkeeping systems and processes
- Are you using accounting software and keeping financial records efficiently?
- Are owners/ managers spending too much time on bookkeeping?
- Does the financial system help forecast business growth and cash flow?
- Do your systems adequately manage cash through a nominated budget?
- Is the company adhering to a budgeting system?
- Identify overspending and poor budget allocation
- Are expenditures and profit figures comparable against industry data?
- Do you operate in compliance with local and state HR laws and regulations?
- Are there systems for recruitment, selection and training in place?
- Do you conduct performance and productivity evaluations and appraisals?
- Is workplace health and safety in check?
- Review wages, working hours and overall employment conditions
Operations & processes
- Analyse and review current purchasing and operational systems
- Conduct a supplier overview and product quality evaluation
- Review and analyse pricing policies and margins
- Implement systems to regularly audit quality control and profitability
Marketing & promotion
- Are you adequately promoting and marketing your business?
- Is your marketing budget generating a return on your investment?
- Review and adjust your marketing plan in accordance with business goals
- Review processes for managing risks
- Is the company properly insured against professional or employee risk?
- Ensure BAS lodgements are up to date
- Review super contributions
- Plan the move to Single Touch Payroll
- Review trade debtors and identify bad debts that may need to be written-off
- Ensure all records meet the ATO standards and comply with regulations
- Review balance sheet, and profit and loss statements for planning
- Reconcile payroll and provide PAYG Payment Summaries to employees
If you are after an even more comprehensive checklist or if you are looking to find an auditing template that would suit your business, Click here for CPA Australia’s good practice checklist for small businesses. It has an attachment of various auditing checklist templates too!
Use the SWOT Analysis Method to Help You Plan
Ah! The SWOT analysis. Hearing those words again probably takes you straight back to university. The SWOT method is helpful for defining and analysing both internal and external factors that affect your business. This can help you determine your strategic direction, priorities, and fine tune your operations. Here is a refresher on the SWOT analysis and why each component is important:
Outline the attributes of your company that are currently helping you grow and achieve your goals. This could include unique equipment or technology, a highly qualified team, or favourable location that supports your business. What business processes or assets are currently successful?
What is holding you back from meeting your objectives? Identify any obstructive or destructive factors that may be hindering your ability to scale or reach objectives. What business processes need improvement? Are you due for an equipment upgrade to maintain competitive edge? Are there skills shortages, gaps or weaknesses within your team?
Investigate external opportunities that could help you move your business forward. Will you need to change systems or direction in order to realise these opportunities? Study market trends and leverage strategies that will encourage more of your ideal customers. It can also help you identify opportunities that your business could take to distinguish itself from your competition and potentially reduce/ eliminate competition.
Put a contingency plan in place for potential threats to your business that are out of your control. Are there potential competitors that may enter your market nearby? Will your suppliers be able to maintain quota and pricing of your goods? Could future technology impact your business? Or, are there worrying market trends around your product or service?
Business audits are necessary, but also valuable
While it seems like a lot to add to your plate around tax time, conducting a comprehensive business audit is instrumental in ensuring you hit the ground running in the right direction with a clear and actionable plan for the new financial year. An audit can in return prove to make the rest of your tax related tasks easier to achieve before the EOFY.
As a small business owner it must seem impossible to juggle all aspects of your business without missing something out. We understand hard-working small business owners are extremely time poor, and the day-to-day can quickly get in the way of strategic planning. Speak to your bookkeeper or accountant about affordable business audit assistance to help you develop your checklist, and have you stepping into July with confidence, and in control of the bright future of your business.