At some point in your life—whether you mortgage a house, write a living will or prenuptial agreement, or plan your retirement—you will likely need to have a personal financial report compiled for you. While most individuals do not require a personal financial statement on a yearly basis, most will require several during the course of their lives.

Businesses require more frequent reporting. The greater the information and transparency of the business, the better a professional can tweak the business’s “engine” to achieve maximum efficiency.

The three levels of financials—compilations, reviews, and audits—are ranked from least in scope and price to greatest. Just as car manufacturers vary car dashboards according to make, model, and even options on a model, so businesses require individualized financials based on respective complexity and size.

Ultimately, the numbers in a compilation, the most basic financial, are just enough to carry out the basics of business—filing taxes, for example. Every business needs compilations at a minimum.

Reviews and audits, on the other hand, include special reports that can either reveal symptoms of financial weakness or indicate financial health. With these reports, a shrewd business owner not only gains valuable insight into his or her own business, but can also accurately forecast what profits or losses are expected from a business over a series of weeks or months. Reviews and audits also facilitate even more comprehensive reporting in the form of a financial analysis.

At Lawhorn & Associates, we recognize there are practicalities associated with reporting that an average small business owner does well to consider. First, a financial audit (which should not be confused with an IRS audit) is typically too costly in time, resources, and money to justify the reports obtained. They are so costly, in fact, that the Lawhorn firm itself made a key decision to cease performing financial audits over a decade ago.

Second, because time is of the essence in financial reporting, businesses naturally extract greater benefit from the prompt strategies of a review than they can from the raw data of a lengthy audit. In other words, a review’s strategic reports can be generated long before a laborious audit can even be compiled.

For this reason, Lawhorn & Associates recommends the more economical review. The review empowers the business owner to succeed without eroding his or her bank account. The individual who is driven to succeed in a volatile marketplace finds these reports indispensable and will not surrender the cutting edge to competition.

But another consideration is how well the business owner understands those reports generated in a review. While laws restrict those who cannot read a dashboard from driving a car, there are no such restrictions in the business world. Too often, a small business’s financial reports appear valueless to the owner, who does not know how to comprehend the meaning behind the charts and numbers.

There are two ways to look at this phenomenon of financial illiteracy: hide from it and lose to the informed, or learn and hit the jackpot. It’s the difference between a passenger and a driver.

Regulatory requirements by the government, financial institutions, and stockholders—or other third parties that carry a financial risk in relation to a business—constitute the primary motives for producing financial audits. This is because despite its costly and cumbersome nature, the audit carries the highest level of assurance on the client. Because an accountant assumes greater risk for an audit than either the review or the compilation; and because the audit requires third party verification through customers, vendors, banks, attorneys, insurance agents, etc., the audit represents an expensive process, both in time and money. Nevertheless, businesses will from time to time need to have an audit conducted. Lawhorn & Associates saves its clients money by outsourcing the actual audit process to affiliated specialists, then reviewing the audit for errors. Financial audits should not be confused with IRS audits. Lawhorn & Associates fully represents its clients in IRS audits.