Can Investors Trust Management? A Business Case for Doing an Audit
Conducting a regular business audit is a vital document that is needed to help monitor and inspect the financial situation of a company. To prevent losing track of assets and overheads a business has, audits help bring clarity to managers where their cash in-flows and out-flows are going to and from.
Audits can take many different forms and depending on the nature of your business, one may be deemed more important than the other. Take for example, a retail audit. For those operating in industries where financial success is based off selling tangible products to customers, this audit measures sales volumes of products being sold. As for service-based businesses, measuring financial success is most likely due to the quality of service employees are providing to customers, thus a quality control audit would be most appropriate.
Other than clarifying a businesses financial situation, a thorough audit when presented to potential investors can help offer the reassurance they need before making an investment decision.
In relation to this, the main benefits of supplying investors with an audit include:
- The credibility given to financial statements — the main purpose of an audit is to verify that the financial statements made in a business’s documents are correct and accurate, thus helping to build trust with an investor.
- Improves planning, budgeting, and forecasting — since financial audits give an insight to the assets, liabilities, and cash inflows and outflows that are present, this information can be used to plan ahead and ultimately limit the potential financial risks a business might face. From an investor’s perspective, this shows professionality and key organisational skills.
- Compliance — for business owners, shareholders, and potential investors, showing conformity to statutory requirements is the ultimate way to show investors that a company is in fact who they say they are.
As any investor or entrepreneurs knows, how transparent a business is when asked to see key information including their statement of income, cashflow statements, and a balance sheet is the ultimate determinant as to whether they go through with their investment.
The importance of investors for emerging businesses
For businesses that are new entrants into the market, having easy access to capital is crucial for its survival. Therefore, the monetary support offered by investors is something highly valuable.
While immature businesses might not have had the chance so far to build up a high level of trust with external shareholders, going beyond the lengths necessary to start building this is vital. There a numerous ways audits can help with this. Since new entrant businesses are most likely still in the processes of development, providing interested investors with an operational audit is advised. This helps outline a business’s goals, targets, procedures, and current outcomes of a project. By providing investors with this information ultimately shows transparency, painting businesses in a positive light from the get-go.
The effect technology has had on business audits
As technological developments take their toll on all industries, the dynamic nature of markets intensifies. Being the catalyst behind most business innovations, constant technological improvement and the monitoring of product and service performance is more important than ever to avoid the ‘outdated’ label becoming attached.
As technology continually redefines how sectors operate, developing strategies and creating innovative ways to prevent falling behind in the market is something that investors commonly look for. By providing them with an aforementioned operational audit, it shows a business’s initiative to set goals and targets to deal with market changes and advancements that have yet to come.
Regardless of the type of audit examination that is undergone, the likes of statutory audits are put in place to examine the accuracy and legitimacy of the financial statements put forward by companies operating in all industries. These provide potential investors with the accurate knowledge needed before taking the leap towards investment.