--- title: What I Look at First When I Audit a Small Business description: When I walk into a business, I look at the same five things, in the same order, every time. Here is the audit I run before I say a word. category: Advisory author: Shawn Duncan published: 2026-09-13 updated: 2026-09-13 canonical: https://businesscoachshawn.com/blog/what-i-look-at-first-when-i-audit-a-small-business site: Shawn Duncan Business Advisory --- # What I Look at First When I Audit a Small Business When I walk into a business, I look at the same five things, in the same order, every time. Here is the audit I run before I say a word. ## Key takeaways - The audit starts with the numbers, not the story the owner tells about them. - Labor as a percentage of revenue reveals more than almost any other single metric. - Pricing gets checked against margin, not against competitors. - Owner dependency is measured by asking who decides what when the owner is gone. - The review and referral trail shows whether the market actually values the work. Owners usually meet me with a story. "The market is slow." "I cannot find good people." "My competitors are undercutting me." I listen to the whole thing — and then I ignore it and look at the same five things I look at in every business, in the same order, every time. Here is the audit. ## 1. The numbers, before the narrative Twelve months of revenue, broken down by service line or job type. Gross margin on each. Net profit. Owner pay. That is the first hour. What I am looking for is divergence: revenue up while profit is flat or down, one service line carrying the others, the owner not drawing a market wage. Nine times out of ten the story the owner told me and the story the numbers tell are different stories. The numbers win. ## 2. Labor as a percentage of revenue This is the single most revealing number in a service business, and almost nobody tracks it weekly. I ask for it. If the answer is a guess, that tells me something already. If the number has drifted two or three points over the year, the entire profit problem might be sitting right there — not because people are overpaid, but because work is unscheduled, unmeasured, and re-done. Overtime, callbacks, and dead drive time are margin leaks you cannot see on a P&L unless you are looking. ## 3. Pricing, checked against margin — not competitors Every owner can tell me what the competition charges. Almost none can tell me their margin by job type. So I rebuild the price from the cost side: what does it actually cost to deliver this, including the labor hours nobody counts, and what is left. If the margin cannot fund overhead and a real owner wage, the price is wrong — full stop, regardless of what the guy down the road charges. He might be going broke too. ## 4. Owner dependency I ask a simple question: if you left for two weeks, what breaks? Then I get specific. Who approves quotes? Who handles the unhappy customer? Who decides on exceptions, refunds, hiring? If every answer is the owner, the business is not a business — it is a job with employees attached, and it is capped at one person's calendar. I also watch it live. On a ride-along or a shop visit, I count how many times the phone rings for the owner in a day. That number is the org chart. ## 5. The follow-up and review trail Last, I look at what happens after the work is done. Are reviews being asked for? Are estimates followed up on, or sent into the void? What happens to a lead that comes in at 7 PM? This tells me whether the market actually values the work and whether the company is converting what it already earns. Most businesses do not have a lead problem. They have a follow-up problem with a lead problem's symptoms. ## Why this order It runs from the inside out: money, then the biggest cost, then price, then the structural dependency, then the outside world's verdict. Fixing them in any other order is how you end up buying marketing for a business that loses money on every job it wins. ## What to do yourself, this week You can run the first three steps on your own with your bookkeeper's reports: margin by service line, labor percentage by week, and your own pay against a market wage. If any of those three numbers surprises you, that is your audit result. You just found the signal — now fix it before you buy anything else. --- Source: https://businesscoachshawn.com/blog/what-i-look-at-first-when-i-audit-a-small-business Author: Shawn Duncan, business advisor to established small businesses (Austin, Texas). Advisory: https://businesscoachshawn.com/ · Marketing: https://businesscoachshawn.com/marketing · Systems: https://businesscoachshawn.com/systems