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Each growing company has different goals in mind—but commercial goals can generally be summarized as either wanting to operate profitably or to be sold for profit. Either way, this makes robust financial reporting essential for achieving these goals, and audit readiness an important piece to complete the entire picture.
Some growing companies do not pay enough attention to audit readiness and allow themselves to struggle in completing external audits for various reasons—lack of personnel, incomplete data, processes that are not optimized, etc. As companies grow, it cannot be overstated that strong financial performance is heavily backed by robust financial reporting. Owners and management, lenders, as well as potential new investors, want to understand and rely on the company's financials to make informed decisions. A clean opinion rendered by an external auditor allows these stakeholders to be comfortable with the company's financials. Therefore, it is important for growing companies not to take audit readiness lightly.
Moreover, if the current owners are in talks with potential buyers planning to take over the business, more often than not, potential buyers will ask for financial due diligence (FDD) to be carried out. FDD helps the buyer firm up the proposed purchase price of the business, and it heavily involves the target's financial records, among other things.
FDD is different from an external audit, as it is a set of procedures the potential buyers and service provider agree to carry out using the target's financial data and other relevant information. And as such, if the target has been subjected to an external audit with a clean opinion, FDD procedures will generally be easier to carry out and will provide even more valuable results to the potential buyers. FDD could sound like a nightmare to companies that are not prepared for an external audit, but it can be a piece of cake if they are.
If you're navigating growth and need finance function guidance, contact VMC.
VMC's views are general insights—not one-size-fits-all advice. Every company's situation is unique.
