Many business owners think that as long as their companies remain private, they don’t have to get a financial statement audit. However, when it’s time to get financing from a bank, they may find that an audit is recommended, and even required. The following insight into audits may help you better understand why they can be helpful for you and your business.
First, according to a study cited in Entrepreneur magazine, companies that provide banks with audited financial statements generally can expect lower interest rates than companies that don’t have their statements audited. Of course, not all banks require an audit. A review provides less assurance, but for some banks that may be enough, and it’s a much less expensive proposition.
Most professionals agree that it’s not sufficient to simply rely on your banker’s interpretation of your QuickBooks files. The Bplans entrepreneurial site (run by Palo Alto Software) notes that some level of assurance is a good idea, and quite possibly a requirement at any lending institution. Ask if the bank requires or recommends an audit — it may be worth the thousands of dollars you’ll have to spend. A bigger business may already have audited statements that were done for other purposes, but smaller businesses may not. Your Baker Tilly advisor can advise you if and when a review may be sufficient for your particular situation.
Getting venture capital funding
A common question is whether there’s a need for audited statements when you’re seeking cash from venture capital (VC) firms. The answer is generally yes. A lot may depend on what stage the company is in. An early-stage company may not need an audit or review, because the venture capital firms are more concerned with potential. However, if it’s a more established company, and it’s relying on its history as an important basis for seeking funding, then it may have to show audited statements.
No matter what the VC firm requires upfront, however, you can expect that it will require audits going forward as part of the terms of its investment.
Similarly, if you’re at a later stage in your company’s life — for example, seeking to be acquired as part of a retirement plan — you may need to have audited financial statements to show any potential suitors, even if you’re privately held.
