Annual financial audits are a cost of doing business for many tech startups. While they aren’t the most fun, they do provide great third-party validation of the books and oversight for how the business is being managed financially. Most entrepreneurs should not spend the $10k – $30k on an annual audit.
Here’s when an annual financial audit makes sense:
- Institutional investors (like VCs) or other sophisticated investors are involved — they’ll require it
- A bank line of credit or senior debt in the business requires it
- There’s a business goal to be able to sell the business in the next three years — most buyers will require three years of audited financial statements
Most of the time an annual financial review, which acts like a lightweight audit, but without all the guarantees by the accounting firm, is a much more affordable way to engage a third-party to review the books. Entrepreneurs should understand when it does, and doesn’t, make sense to pay for an annual financial audit.
What else? What are your thoughts on startups and financial audits?