There’s One Big Thing Many Small Business Owners Are Neglecting

The internal audit is a form of self-discipline that can prevent countless problems.

The first time you said to someone, “I’m starting my own business,” you probably felt a sense of pride and empowerment, as well as nervousness. When setting up a small business, you want to plan for as many contingencies as possible, and prepare for anything the marketplace or business world may throw at you.

But when you read up on tips for small business owners, one thing you probably won’t see is information about a crucial activity: the internal audit. Yes, the word “audit” is scary, but the internal audit is actually about allaying fears.

The Importance of Internal Audits

The internal audit helps ensure that your business operates as it should, that you are able to effectively manage risks, and that your business remains in compliance with regulations and laws that apply to it.

Financial and Operational Discovery

Setting up a small business usually doesn’t involve the creation of an internal auditing department. Budgets are tight, and personnel often have to play many roles simultaneously. But you can internally audit your business using the team you already have to gain information about operations and finances. At least two people should be involved to prevent auditors from simply assuming their own work is in compliance, and to open up channels of communication about processes and regulations. Discussing the results of the audit, and preparing a report on it helps your team understand why internal audits are important, while giving everyone actionable information that can help your business flourish.

Make Internal Auditing Your Responsibility

The first step to conducting a self-audit is to define what you want to achieve and what benefits you expect to come away with. Define a series of objectives, and identify any risks associated with them. If you have known problem areas, highlight them so the audit can focus on them. When planning audit activities, determine what you plan to look at, how intensely you will examine particular areas, and for what time period. Each task should have connected with it the name of the person who will be able to help you acquire the information you need.

It’s possible you’ll have to change course at some point during an audit, should new matters of importance come to light, and that’s OK. The information you gather during your audit should be used to create a deliverable product (typically a report) that drives specific actions. Plan to evaluate those actions at a specified interval after the report is prepared and note if the improvements you expect are being achieved. Subsequent audit procedures will need to be fine-tuned to better meet your needs as your business grows and changes.

You Can’t Correct Issues You Don’t Know About

Internal audits are about discovering issues that need attention. You, as a small business owner, probably know which areas are most suitable for being audited. In general, the following small business functions benefit from an internal audit:

• Expenses – because if you don’t know where your company is spending money, you don’t know where it’s wasting money
• Customer Service – Do you know how satisfied customers are? What they’ve praised and what they’ve complained about? How do you plan to put this information to use?
• Data Quality – including inventory reports, cash balances, and accounts receivable and payable. This data must be current and accurate for these processes to benefit you.
• IT Security – including security within your business and between your business and the outside world
• Disaster Recovery – including a detailed plan of how to recover operations in the event of a natural disaster, theft, or other catastrophe. What are the top priorities after a disaster?
• Compliance – whether with internal, industry, or government regulations, including compliance with tax laws. Regularly monitoring compliance can help tremendously if you become the subject of an outside audit.

Regulatory Compliance Begins with Your Team

At minimum your small business must comply with payroll, Department of Labor, and tax regulations. If you’re in industries like healthcare, financial products, or education, then you will have to comply with many other regulations as well. Knowing exactly how the well-oiled machine that is your small business operates is step one to ensuring compliance on all fronts. When your team knows that internal auditing is a priority, they’re more likely to understand the importance of external audits and be prepared. If you’re setting up a small business, I invite you to sign up for my weekly newsletter for regular guidance on the exciting and challenging world of today’s entrepreneur.

Republished by permission. Original here.

Internal Audit Photo via Shutterstock

This article, "There’s One Big Thing Many Small Business Owners Are Neglecting" was first published on Small Business Trends