When you conduct an internal audit of your small business, you must set specific, measurable goals for that audit. You should be able to use the results of your internal audit to make improvements in your business practices that will affect your bottom line directly. If you establish concrete criteria before the audit, you will have factual information you can use to make real changes with effects you can measure in subsequent audits.
You can set a goal for an internal audit to assess risks. For example, an audit may reveal that a large percentage of your business comes from a single client. This would mean that the loss of that client could do severe damage to your income. An audit might also show that though sales are growing, your cost-of-sales figure is rising. You should recognize a risk to your bottom line that comes from out-of-control marketing expenses.
Evaluating the Return on Bank Accounts
Your small business needs ready cash for daily operations. That cash might be kept in a non-interest bearing account. However, your long-term cash that you save for expenses such as purchasing assets should be earning income for you. Your internal audit can tell you how much excess cash you have in your non-interest account each month. If the excess amount is constant, you will know that you have extra money you could be investing in order to improve the income for your company. Keeping too much cash on hand is the kind of costly practice an internal audit can uncover quickly, enabling you to make a quick change that boosts your bottom line.
Identifying Cash Flow Problems
You can ask your internal auditor to identify times when you have had to borrow money to cover operating expenses. The auditor can tell you how much those loans cost you and can track down the reason for your cash shortage. You can use this audit information to change your policies, such as shortening invoice due dates to 30 days from 60 days. Even before you make the change, you will know how much it will save you because of the internal audit figures.
Evaluating Effectiveness of Controls
Your cash controls and inventory-ordering controls may not be effectively preventing losses and over-spending. You can set a goal for your internal audit to discover the extent of cash shortages in your cash over and under account and determine whether a pattern exists that can help you identify the cause of the problem. You can also direct your internal auditor to analyze the amount of inventory you carry and determine whether you could be spending your money in other ways that could make you more money, such as purchasing assets.
Determining Range of Opportunity for an Improvement
You can set a goal for an internal audit to identify areas where employee mistakes are costing you money. For example, your auditor might find that cashiers consistently mishandle cash and cause shortages. The auditor can then compare the cost of a training program to the amount of money you are losing and establish a range of opportunity for you. If you find you have a range of opportunity of a 2 percent to 5 percent increase in positive cash balances, you might decide on the basis of internal auditing figures to implement the new program.
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