According to recent data, there are 9.16 thousand startups in Saudi Arabia. And most of these startups often think of audits as something to deal with later…Once they’ve grown, raised millions, or gone public. Until then, many believe a startup audit is unnecessary or just another expense they can avoid. But that’s exactly where things go wrong.
An audit isn’t just compliance. It’s trust, financial stability, and (the obvious one) long-term success. Many startups don’t realize how much damage a poorly handled audit (or avoiding one altogether) can cause.
From losing investor confidence or misreporting finances, to even facing legal trouble. Getting audits wrong can be costly.
The main mistakes with a startup audit that usually occur
1. Thinking audits are only for big companies
One of the biggest mistakes startups make is assuming audits don’t apply to them. Many believe that audits are only necessary when a company is public or has millions in revenue.
But no!
Investors and lenders want to see accurate financials before committing money.
Without a startup audit, it may not even realize they’re making accounting errors. And if a startup waits too long to introduce proper financial controls, fixing problems later can be expensive and messy.
Even if a full audit isn’t required, startups should focus on early financial discipline.
This means:
- Keeping accurate financial records from day one.
- Implementing proper accounting practices, even if revenue is low.
- Preparing for future audits by organizing financial statements and tracking expenses properly.
2. Treating a startup audit as an afterthought
Startups often view audits as something they’ll deal with when they have to.
By the time an audit is necessary, financial records may already be a mess.
This happens for several reasons. Usually founders are focused on growth, not financial reporting. Because many startups prioritize fundraising, product development, and hiring, audit preparation is pushed to the bottom of the list.
Early-stage businesses don’t think they need audits. If there’s no legal requirement, many founders assume audits are unnecessary.
There’s also the issue of lacking financial expertise. The majority of startups don’t even have a CFO or experienced financial team, leading to poor record-keeping.
The consequences:
- Scrambling when a startup audit becomes necessary. Whether for investors, lenders, or even regulatory requirements, audits are often needed with little notice.
- Fixing disorganized finances last minute is far more expensive than maintaining clean records from the start.
- Investors and partners may hesitate if a startup can’t produce reliable financial statements which translates to missed growth opportunities.
3. Poor documentation and record-keeping
One of the biggest issues startups face in audits is incomplete or disorganized financial records. Without solid documentation, an audit can and does become quickly become a nightmare.
Common mistakes:
- Mixing personal and business finances.
This is especially common in early-stage startups where founders pay for expenses out-of-pocket without proper reimbursement tracking.
- Missing receipts and invoices.
If financial transactions aren’t properly recorded, auditors may question their legitimacy.
- Failure to reconcile accounts.
If bank statements don’t match financial records, it creates red flags during the startup audit.
Why this matters?
- Auditors need a clear financial trail. If records are inconsistent or missing, the audit process will be longer, costlier, and more difficult.
- Errors can lead to compliance issues. Poor record-keeping can result in fines, penalties, or lost funding opportunities.
- It impacts financial decision-making. A startup without clear financial records is essentially flying blind.
4. Underestimating the importance of internal controls
Another mistake we see too often is startups trying to handle audits themselves in an effort to save money. You’re tight on cash, and every penny counts.
But from experience, we can tell you this is a false economy.
Many startups focus only on growth, assuming they can figure out financial controls later. And what usually happens is that they might have a small team where everyone does a bit of everything…including “handling” money.
But without proper controls, startups leave themselves open to fraud, errors, and financial mismanagement.
By the way this doesn’t only happen to startups. For example, the collapse of cryptocurrency exchange FTX in November 2022 was partly attributed to inadequate auditing as the auditor “did not understand the crypto market.”
That’s why all businesses, but especially startups should implement basic internal controls early on, even if the team is small.
For example:
- Separate financial duties and don’t let the same person handle both money AND financial reporting.
- Use accounting software to track transactions properly.
- Have clear policies for approving expenses and financial decisions.
This doesn’t have to be complex, but even basic controls help ensure financial data is accurate and reliable.
5. Misunderstanding the purpose of a startup audit
One of the most common mistakes we see is that startups view audits as something they “have to do” rather than something they can learn from.
You’d be surprised to know how many people think audits are just for compliance. They don’t realize how valuable the feedback could be for improving operations.
Audits aren’t just about confirming if your finances are correct.
They can help you:
- Find patterns,
- spot areas for improvement,
- and gain a clearer view of your business’s financial health.
When startups don’t take the audit seriously or view it as a chore, they miss out on key insights.
Final thoughts
That’s why startups need to shift their mindset.
Audits should be seen as an opportunity for growth, not just compliance.
The results of an audit (if done correctly by a professional) can show where you’re losing money, what your margins really look like, and whether your tax strategies are efficient.
Things to remember from this entire article:
- Startups should prepare for audits before they become necessary.
- Strong financial documentation will prevents costly audit delays.
- Compliance requirements vary, and startups should know their obligations early.
- Rushing audits or cutting corners can damage credibility and funding opportunities.
We’ve seen businesses fail because they approached audits wrong, and we’ve seen others thrive by using them as a tool for growth.
Decide which one you’re going to be!