My quick take on SVB: Don’t let it rob you of your focus for building the business under YOUR control.
In other words, let noise be noise … and focus on what’s most important: your immediate world.
But I will say that this crisis is a perfect example of why you should keep regular tabs on your Birmingham business’s financial state. Thank goodness the feds were able to jump in on that mess and help avert an “extinction-level event,” but it could have been (and maybe still could be) worse if things don’t change.
Let me frame it this way: Think about your very first car purchase. It was a huge deal, right? One — because of the freedom it afforded, and two — because of the sense of pride over getting to own something that was a big purchase.
But, unless you were well prepared for what car ownership looked like, you probably overlooked the ways to keep that car operating at optimal conditions. And sometimes that ended with the real “pain of ownership” — in the form of big-time auto repair fees as you didn’t know what needed to be regularly checked (or failed to have someone in place to help you figure it out).
Now, I want to apply that same principle to business ownership. If you have a “set it and forget it” mindset about this thing you take so much pride in, you’re most certainly going to experience big pains in your ownership… with much bigger stakes involved.
To keep your business operating optimally, you have to prioritize regularly checking in on the state of affairs — especially the financial side of things. One way to do that: the continuous audit. More on that today.
But first, remember, we’re one more week closer to the April 18th personal tax return filing deadline.
If you haven’t reached out for an appointment to get things in order on that side, I’m gonna suggest you get on that ASAP. There are things we’ll need to double and triple-check before we cross all the t’s on your forms. Get on our calendar here:
Now, let’s get into the continuous audit and why you need to do it in your business (even with “the price tag” seemingly attached to it)…
How a Continuous Audit Helps Your Birmingham Business
“To pay attention, this is our endless and proper work.” – Mary Oliver
As a business owner, you’ve likely tried several different strategies to maximize your business’s success — technological strategies among them. And these can help your small business in a lot of ways, of course. But one of the last things tech can do, if ever, is change the ownership’s mindset about a business process like auditing.
Sure, audits have their place in setting a company back on course. But why do businesses run audits only sporadically or annually? Why’s that company off course when the capacity exists now to catch a problem early?
Continuous auditing (CA) can solve this problem by potentially spotting an issue far quicker than a yearly financial statement audit would. It sounds pricey and high-tech, only for big multinationals — but it’s actually not.
So… what is CA, and how can you start?
More is more: A Reason for Continuous Audit
A comprehensive, bird’s-eye view is almost always better when you’re looking at your company’s processes to analyze what you can do better or to find mistakes to fix. But “comprehensive” doesn’t mean just “how much” — it also means when?
Here’s what I mean: Why examine just a snapshot of samples against your ideal numbers (controls) when you could constantly be looking? In these days of unending cyberattacks and rampant past dues, why wait months or more (and lose money) before you can find a trend or trouble that needs fixing?
When done correctly, a continuous audit assesses controls and risks automatically and more frequently. Your auditors have a schedule, right? Under CA, that’s intensified: Your auditors’ teams check your books throughout the year or drop by your office every week or so. The point here is frequent eyeballs on your operation.
Just to clarify: A continuous audit is never intended to replace traditional auditing. It’s just one more tool in your box. And it’s not to be confused with:
- Continuous Monitoring (more frequent data gathering than CA), which gives you moment-by-moment information on your KPIs. At first glance, it might sound better than CA — but the flow of data can be so unceasing that good decisions become harder. (CA can often also be done with less tech and more good ol’ human judgment.)
- You also might have heard of computer-aided auditing. This is usually a fancy name for your auditor being helped by technology, and that can be as basic as an Excel spreadsheet.
How to start — and keep going
Even the most tech-heavy business ideas started from the most basic point: trouble spots. You probably already have at least an inkling of what yours are in your company. Start with those.
Then list the data you might have from those areas: HR, A/R and A/P, CRM, payroll, expenses, and so on. Look at the data for risks and trends. With your experience as an owner, something could leap right out. Let’s say you see spiking expenses in office supplies — could looking at that area more often pay off for the effort? If so, how often to look?
Your data collection is constant, but your examination of that data is as frequent as you want. Are you trying to influence profits on a set schedule, for instance, or trying to meet a regulatory deadline? If you must balance the frequency of your scrutiny with your needs, try to err slightly on the side of scrutiny.
- Keep the audit team as constant as possible. This helps data be collected more constantly, and therefore more reliably.
- Report early and often — find a schedule that works for you and your senior staff — and document your procedures. What work did the auditors do? When? What did they find? What was the explanation of what they found?
- A continuous audit will become easier the more you do it, as you’ll have baselines and experience to guide you.
- This of course becomes just busy work if you don’t have a plan to follow up. It doesn’t take anything fancy — a one- or two-sheet playbook of written scenarios and your first response will suffice. But this helps you be prepared — and makes CA more worth the effort.
How much is all this going to cost?
Make no mistake: You can spend a lot on this. But even though a continuous audit sounds fancy it actually uses a methodology similar to traditional approaches.
Even better, you can use tools like Excel for presenting data in easy-to-read spreadsheets. You can make playbooks in Word or Google Docs. You already know about financial statements, so I won’t belabor that one. The analysis and decisions can come from your or your advisors’ knowledge, experience, and smarts.
In summary, what I’m trying to say is: Just start thinking about data in a new way. And more frequently.
I’m sure you hear ideas come down the pike constantly about how to supposedly improve your Birmingham company. We’re always here to work through the decisions with you.
All the best,