Your Internal Controls Audit is Critical to Your Business, Here is Why
Since starting my career in finance as an M&A guy I’ve engaged with well over 450 companies, and they all had one common goal – to achieve high value in the eyes of prospective buyers. That is the purpose of the sale process after all – to sell to the buyer who agrees on the highest valuation. This doesn’t happen. It may get close from time to time, but all too often sellers either back out or have regrets at some point after a deal is closed – all because of valuation.
A theme began to emerge that became almost ubiquitous with every company I worked with – nobody took the right measures or care to properly build value each and every day with proper goals, controls and reviews. The problem? They rejected the notion that details matter and only wanted to believe that their vision outshines all else in the value equation. You have no interest in making this detrimental mistake.
As I worked with these business owners, many true entrepreneurs, I learned a great deal about what businesses could actually use, what was working, and because of the interactive nature of dialoging with buyers and investors, I learned what they needed help with. This became more and more relevant as the impact of the financial crisis of 2008 settled in for years to come. Strong businesses weakened and teetering businesses failed. What does the condition, status or stability of a business have to do with value? Everything. Want to learn more about what makes a strong acquisition target?
Strong businesses, well positioned for future growth, are valuable businesses. Period. So how do you build a valuable business? One of the most important elements of strategic, financial and operational strength is the right mix of internal controls that help to position your business for a bright future – sustainable revenue growth and quality of earnings.
The benefits of internal controls in any business are extensive. They are integral to our daily operations by providing protection from various risks including:
- Human Capital
- Product Liability
- Supply Chain
Businesses are fraught with risks. All businesses, even yours. This is why it’s so important to recognize the value of both the preventive and detective natures of internal controls. Establishing an internal controls program and implementing the ongoing process will compel you to think ahead, identify recurring problems and their causes, draw connections between unproductive activities and their financial consequences along with providing opportunities to reevaluate your business goals and processes.
Preventive Controls include creating:
- Conscious Cultural Environment
- Separation of Duties
- Proper Approval Process
- Clearly Assigned Responsibility & Accountability
Detective Controls include:
- Reviews & Reconciliations
- Audits & Adjustments
- Budget Variance Analysis
By designing tailored internal controls that support our unique ways of doing business, we benefit from thinking ahead and envisioning the best outcomes from our efforts. By establishing achievable goals and allocating resources responsibly we improve our chances of making progress, earning enough profit to keep going and most of all, creating a learning environment for ourselves and our team.
It gives us the ability to do more tomorrow with less than we did it with yesterday. Only by measuring, analyzing and adapting is this possible.