The Benefits of an Expense Audit

Why are we not breaking even? Why aren’t we making more of a profit? If these are the questions keeping you up at night, one thing you need to do is conduct an expense audit. Conducting an expense audit for a business can be an effective way to identify areas where costs can be reduced and savings can be achieved. Here are some steps you can follow to perform an expense audit:

1. Run expense reports for a specific period (e.g., the last 12 months).

2. Analyze recurring expenses: Review recurring expenses, such as rent, utilities, insurance, and subscriptions. Look for opportunities to renegotiate contracts, switch providers, and eliminate unused services. This is especially important for services that charge by the employee. As staff come and go, set up procedures to remove/add employees to these services to ensure you are only paying for the actual employees you have at any given time.

4. Evaluate variable expenses: Examine variable expenses, such as office supplies, marketing, travel, and entertainment. Identify areas where costs can be reduced or controlled more effectively using policies and procedures.

5. Review payroll and employee expenses: Analyze payroll costs, including salaries, benefits, and other employee-related expenses. Assess the need for any staff changes or adjustments to compensation and benefits packages.

6. Scrutinize one-time or irregular expenses: Look for any one-time or irregular expenses that may have been incurred during the audit period. Determine if these expenses were necessary and if they can be avoided in the future.

7. Identify cost-saving opportunities: Based on your analysis, identify specific areas where costs of goods sold can be reduced or eliminated without compromising the quality of your products or services.

8. Implement cost-saving strategies: Develop and implement cost-saving strategies, such as negotiating better rates with vendors, streamlining processes and procedures to create a more efficient environment, or exploring more cost-effective alternatives.

9. Monitor and adjust: Regularly monitor expenses and adjust your cost-saving strategies as needed. Continuously look for new opportunities to reduce costs and improve efficiency by making it a priority to the whole organization.

It’s important to involve relevant employees such as department heads and financial managers, in the expense audit process. Their input and cooperation can help ensure that cost-saving measures are practical and effective.

As with any procedure within a business, it is important to have a “One Truth” going forward in this area of expenses. Having a One Truth for expenses means that there should be a process for approval of all expenses getting paid, and that there are certain procedures and regulations guiding employees on which expenses are allowed. Always remember, it is not possible to grow a profitable business without establishing a One Truth for each part of the business.

In conclusion, the goal of an expense audit is not just to cut costs indiscriminately but rather to identify and eliminate unnecessary or excessive expenses while maintaining the operational efficiency and quality of your business. We at Studio98 can help you achieve your financial goals in this area of an expense audit. We would love to come alongside you with our Bookkeeping Services to better help you manage your financials and in this case, expenses.

If you have any questions, or like to know more, click here to schedule a call with Kaeio