The duration and profitability of a business depends on the owners and managers making the decisions. An important part of it is to have as many accurate data as possible on operations.
Do you have all the information to make the best decisions possible?
There is one important way in which a business owner or manager can answer this question sincerely and confidently if they receive an audit from a third party. Auditing of financial statements is quite common in large businesses, but it is not necessary and often expensive for small-scale operations. However, it is quite useful.
When business owners and managers see the results of their audits, they are not surprised to see ways they can reduce inventory loss, improve their receivables and overall profitability.
In theory, we expect that companies with equal opportunities should have substantially equal results. However, in reality, this is not the case.
The quality of a company’s financial measurement can represent 10-20 percent of productivity variability.
Some may argue that these companies can be more successful because they have better managers.
Maybe the connection to the audits is correlated, not causal. Even if management quality is the reason, it should be noted that good managers invest in auditing.
Cost of audit
Studies have found that the companies that audited were 5 percent more likely to survive the financial crisis of 2008 and 2010. This magnitude is almost doubled when it comes to small businesses or the construction industry.
Moreover, companies surviving audits from 2008 to 2010 had a 1.7 percent increase over their counterparts who had not audited.
Businesses survived one of the worst economic downturns as they managed to get better data on loan repayments. While making the decision, they had a clearer picture of their business operations. They had plenty of accurate data to work with.
For some companies, the cost of auditing outweighs the benefits. But while making this assessment, keep in mind the less tangible benefits that give us better information to make a business decision.