Who Needs Reviewed or Audited Financial Statements? Five Kinds of Businesses That Should Plan for It.

Consider a site-work contractor in Gwinnett County doing about $22 million a year. For years, their surety has supported their bonding program on reviewed financial statements. Then a $9 million distribution center project comes up, the biggest job they have ever bid. The surety is open to raising their limits. It also wants to see audited statements first.

That owner did nothing wrong. Their business grew, and the people backing that growth asked for more confidence in the numbers. That is how most owners first run into reviewed or audited financial statements. Nobody chooses an audit for fun. A bank, a surety, a franchisor, a buyer, or a government agency asks for one.

Most owners assume this only happens to large businesses. That assumption is understandable. It is also wrong. In our practice, we see the request show up for businesses well under $50 million in revenue, and it tends to show up in the same five places. Here is where it comes from, and how to get ahead of it.

 

Contractors Growing Their Bonding Line

If you are a general or trade contractor, your surety is likely the first party to ask for CPA-prepared financial statements. Sureties use your statements to decide how much work they will stand behind, both on a single job and across all of your jobs at once. As those limits grow, so does the level of assurance they want. A compilation (statements your CPA formats but does not test) may be enough early on. A review (statements your CPA analyzes and asks questions about) often comes next. An audit (statements your CPA independently tests and verifies) tends to follow as the bonding program gets larger.

Here is why the numbers matter so much. Many sureties size your total bonding capacity as a multiple of your working capital, often somewhere around 10 times. At that multiple, $1.5 million in working capital supports roughly $15 million of work. Raise working capital to $2 million and the same multiple points to $20 million. If your statements are not clean, or your work-in-progress schedule does not hold up, the surety may apply a lower multiple or simply decline the increase.

The good news for contractors is that this work comes back every year, and it gets easier each cycle when it is done well. Because we also advise contractors on job costing, cash flow, and tax planning, the year-end statements become part of a year-round conversation instead of a once-a-year scramble.

 

Nobody chooses an audit for fun. Someone you depend on asks for one.

 

Franchise and Multi-Unit Owners Adding Locations

When you own several franchise units, two parties start asking about your financials. Franchisors may want to see statements before approving new units, and banks want them before funding an expansion loan. For many owners, this starts with a compilation and grows into a review as the debt and the number of units grow.

Multi-unit owners also face a question single-location owners do not: whether the lender wants consolidated or combined statements. If each location is its own entity, the bank may want one set of statements that shows the whole picture. Setting up your entities and your books with that in mind saves real time later.

For these owners, the financial statements are usually one piece of a larger plan. Entity structure, tax strategy across several locations, and planning for the next round of growth all connect to the same numbers.

 

Manufacturers and Distributors With Lender Covenants

Manufacturers and distributors tend to carry large inventories, significant equipment, and bank lines tied to both. Those loans usually come with covenants, which are financial promises written into your loan agreement, such as keeping a minimum level of working capital. The bank wants statements each year to confirm you are meeting them, and the usual path is a review first and an audit later.

Inventory is where these engagements live or die. Clean physical counts, a costing method you apply consistently, and a cost of goods sold figure you can explain will make any review or audit go faster. When those pieces are weak, the work takes longer and costs more.

This is also where an internal controls assessment pays off. Growth often outpaces the processes behind it. A practical look at how cash, inventory, and approvals move through your business can tighten things up before an auditor ever shows up.

 

Owners Preparing for a Sale, Recapitalization, or Outside Investors

If you are thinking about selling your business, bringing in a partner, or taking on outside investors, expect to be asked for reliable historical numbers. Buyers and investors often want reviewed or audited statements, sometimes for two or three years, before they will put a price on the business.

This group also tends to need help with GAAP, which stands for Generally Accepted Accounting Principles, the standard rules most buyers and lenders expect. Revenue recognition, leases, and past acquisitions can all look different under GAAP than they do on a tax-basis return. Finding those differences during diligence, with a buyer watching, is the expensive way to learn about them.

Owners in this position benefit most from starting early. A review or audit done a year or two before a sale, alongside succession and transaction planning, gives you clean numbers and fewer surprises at the table.

 

The best time to get your statements ready for a buyer is before you have one.

 

Contractors With State and Local Government Work

If you bid on state, county, or city contracts, some of those contracts come with their own financial reporting requirements. An agency may ask for reviewed or audited statements before awarding work, or require them each year while the contract is active.

One point to check early: if a contract is funded with federal dollars, additional federal audit requirements may apply. Those are a separate and more specialized type of engagement. Before you bid, ask the agency where the money comes from and what reporting it expects, so you know exactly what you are signing up for.

What You Should Do Next

If you recognize your business in one of these five groups, the most useful step is a simple one. Ask whoever is requesting your statements three questions in writing: what level of service they need, what accounting basis they accept, and what deadline they expect after year-end. Then ask what would change their requirement next year.

Timing matters more than most owners expect. A review or audit goes far more smoothly when your reconciliations, inventory counts, and contract schedules are in order before year-end, not after. If your bonding line, loan, or deal is likely to grow in the next year or two, now is the time to plan for the level of assurance that growth will require.

RYBD has served Georgia businesses since 1957. We are independent and partner-led, and our tax, accounting, advisory, and assurance work sits under one roof, so your financial statements and your broader strategy work together.

 

Ready to Talk Strategy? If your surety, lender, franchisor, or a potential buyer has asked for reviewed or audited statements, or you think they will soon, we are happy to look at the request with you and tell you what it actually requires. We work with growing businesses across Georgia. Schedule a complimentary 20-minute conversation. The first conversation is always on us.