How to Run a Full Financial Audit of Your Business and Optimize Spending

Eleanor Hecks

Eleanor Hecks

Eleanor Hecks

9 min. read

Updated October 24, 2023

Most people think of financial audits as investigations carried out by a certified public accountant (CPA). That’s one definition, and you may require that if your company needs a loan, you’re getting ready to go public or the business will soon reach another milestone that requires financial transparency. 

However, a financial audit can also be something you do independently. In that sense, it’s an exercise in taking a close look at your financial status. From there, you’ll search for problems and see what’s going well. Besides revealing misspent funds, the audit might show how you could save money and prevent the company from getting into an unstable and unsustainable financial situation. Thus, you should think of it as time well spent. 

Numerous situations may make it appropriate to financially audit your company. They include:

  • Showing investors or funders the outcome associated with a loan
  • Determining the reasons for a recent profitability increase or decrease
  • Assessing whether your business is financially ready to expand
  • Meeting a lender’s requirements to take out or renew a loan
  • Increasing stakeholder confidence in the company

Here are some actionable suggestions for running a complete financial audit that provides valuable information about your business. 

1. Choose a slow business period

A thorough self-audit requires devoting enough time to do it correctly. That’s why it’s best to have your check occur during a relatively slow time for your company. Don’t schedule it to happen a week after acquiring a new, high-need client or during what’s usually the busiest season or month for the business. 

Instead, consider when you’re most likely to have enough time to go through each part of the audit and record your findings. Otherwise, you might rush and overlook crucial details. If that happens, it defeats the purpose of running an audit at all. 

2. Look for changes in expenses

It’s natural for a business to spend different amounts from year to year. For example, maybe you needed new computers for all staff last year or invested in a top-of-the-line 3D printer. However, the situation becomes more worrisome when you see a major increase in expenses and can’t immediately pinpoint the cause. 

Perhaps you had $8,000 more in average expenses last year, despite recording relatively consistent figures until that point. If so, examine your business costs line by line and try to identify new or unusual transactions. Taking a closer look may show evidence of misspent funds. It could also merely help you remember an expense you’d previously forgotten. 

3. Determine effective ways to cut operational expenses

Operational expenses relate to the day-to-day requirements of running your business. They might include lease payments, utility bills, office supplies, and employee wages. Look at each cost and figure out if they can be reduced. Could you buy products in bulk to get significant savings? Review your supplier relationships and see if it’s worthwhile to pursue lower-cost alternatives. 

It’s also smart to confirm the percentage of expenses associated with unexpected breakdowns. Did a crucial piece of equipment fail and cause a substantial budget overage due to the emergency call-out fees and replacement parts? You’ll often find that following preventive or predictive maintenance programs saves money by drastically reducing unexpected downtime and costs it causes. 

Try to connect every operational expense to eventual profit for your business. If you can’t, perhaps some costs are not as necessary as they seemed. 

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4. Check for evidence of recurring charges 

Many companies try to get customers to sign up for monthly charges that continue unless users cancel. That sounds convenient at first because you don’t have to worry about forgetting to pay a bill on time and suddenly finding your business without an essential subscription or service. However, it could also mean you’re paying for something the company no longer needs. 

If you find such instances, review the contracts and ensure they don’t have minimum timeframes. For example, maybe you signed up for a two-year contract 18 months ago. If so, you should keep paying the fees until the contract expires. Stopping your payments early could damage your credit or lead to legal action against you. Otherwise, look at all recurring charges to make sure they’re for things your company genuinely requires. 

When you’re not under contract and a company won’t stop billing you, submit a formal request to the vendor and ask for a written response. If that doesn’t work, contact your card issuer to open a dispute. Provide supporting documentation to prove you’re not still in a contract and you’ve reached out to the vendor. 

5. Scrutinize your business credit card and its transactions 

It’s also a good idea to look over your business credit card transactions while conducting a financial audit. Do you have clear policies about what constitutes a legitimate company expense? Are processes in place for employees to submit receipts when buying something with a company card? If workers understand the approved uses, you can approach them about any strange expenses to get more information. 

Take a look at the credit report for your business card, too. United States citizens enjoy a legal entitlement for a free annual credit check at each of the three main credit bureaus. You can then look for mistakes or unexpected events associated with the report that could hurt your credit. For example, you may uncover fraudulent activity due to identity theft or find that you mailed payments the provider never received or recorded. 

6. Ensure your expenses and incoming funds are categorized correctly

Perhaps your business uses accounting software that assists in putting your earnings and expenses into categories. If you have a web design and copywriting company, categorization could help you determine how much each provided service results in profitability.  

The right software can also split your overall expenses into categories. If you see specific costs taking up an abnormally high percentage of the budget, it’s time to take a closer look. 

Alternatively, you may discover that one arm of your business does not generate nearly enough profits to justify what you spend on it. If so, the most effective solution may be to shut down that segment or reduce the resources allocated to it. 

However, software is not an error-proof solution, whether it features automated categorization or requires manual data entry. Mistakes happen, and they could skew your financial data. What if someone accidentally tags your lease payment as office supplies? You’d wonder what caused the sudden jump in costs and would need to look into things further. 

7. List company changes that caused financial differences

Another helpful step to take is to document all the changes that happened during the audited period. For example, did the organization start or discontinue programs? Has it hired a substantial number of team members? Maybe your business stopped producing certain products and has not filled those gaps with new merchandise yet. 

Recalling those changes and listing them will help you have a more successful audit by minimizing surprises and confusion. Referring to that information will also make it easier to see the impacts of what’s different. For example, if you hired 20 new employees over the last year, is there a noticeable increase in profits within the departments where they work?

You could take the same approach with an expensive piece of equipment you expected to bring tremendous growth to your business. Perhaps you’ve used it for a year and a half. If so, try to connect profits to it and see whether what you spent ultimately paid off for helping your company succeed. 

8. Verify loans were used for approved items 

Maybe your company received federal COVID-19 relief loans. Such financial assistance came with stipulations about how to spend the money. For example, you could put it toward payroll expenses but you may be audited to see if you used the loan for that purpose. In that case, a business representative would have to submit a report proving the company used the money appropriately. 

Even if your company does not get an official audit to verify loan usage, your internal financial checks should confirm there are no misspent resources. If you find such instances, get professional advice on the best ways to deal with them and avoid ramifications. 

9. Investigate ways to save on freight costs

Maybe your business has recently increased its reliance on shipping providers. Do a complete breakdown of how many items you mail out on average per month and how much is spent to do it.  Then, determine if what you pay still represents a reasonable rate despite your company’s increased activity. You may find that other companies offer much lower prices. 

Before switching to another company, talk to your current provider. Tell them you’re thinking about taking your business elsewhere, and see if they can offer a discount. 

10. Find the biggest opportunities to save

Even a financially well-managed business will likely have at least a few overspending instances that you’ll find during a careful financial audit. Instead of feeling discouraged about them, identify the most impactful ways to cut costs without sacrificing performance. 

For example, you might move into a smaller office space and have more employees work from home. It may also make sense to buy refurbished computers instead of new ones. Doing those things should provide more financial security over the long term.

11. Compare the audit results with financial forecasts

Once you complete an audit, it’s a good idea to check the results of that evaluation against your financial forecasts. Doing that can help you avoid major future problems due to information discrepancies. 

If you see instances where financial forecasts made earlier don’t reflect your audit’s findings, update them accordingly. That step ensures you have the most accurate and relevant information for making financial decisions moving forward.

Successful financial audits improve business awareness

Most companies don’t experience financial trouble overnight. Instead, issues start gradually and often escalate. Making the wise decision to audit your business lets you spot possible problems and have time to get expert help in resolving them. Plus, you’ll have a clearer understanding of which activities lead to success.

Another worthwhile step to take is to begin a monthly effort where you review your financial forecasts and relevant records. Then, update them as needed. That kind of ongoing plan could make a holistic audit less necessary because you’re staying on top of your financial information more regularly. 

Moreover, a monthly check will give you the information to make prompt changes when necessary. Remaining informed about your company’s financial situation improves stability and can help foster growth. Good luck!

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Content Author: Eleanor Hecks

Eleanor Hecks is editor-in-chief at Designerly Magazine. She was the creative director at a prominent digital marketing agency prior to becoming a full-time freelance designer. Eleanor lives in Philadelphia with her husband and pup, Bear.