Any owner of a small business knows exactly how many hours are in a day – and how many more they would like to add. When running a business, there is more than enough to fill the day-to-day.
Due to that overwhelming schedule, tracking financials are placed farther down on the list, or the owner simply runs out of time to work on them.
However, in the case of an upcoming audit, whether a scheduled internal business audit, an external audit, or an IRS audit, staying audit-ready is essential and can be an enormous time-saver long-term.
Prepare now for any potential audit using the following checklist to make the process as smooth as possible.
1. Keep Clear Records Of Revenue and Expenses
The most effective way to be ready for an audit is to maintain solid records that display healthy financials. This both gives your team the opportunity to notice and correct any discrepancies or errors in a timely manner, and show any auditor that your methods are honest and sound.
During an audit, you will be asked for records of all transactions, any revenue, and any business expenses. Beyond that, you will need to ensure the information is accurate by providing evidence. Lacking this essential information, or being unsure about it, can make your business appear deceitful.
2. Find an Organizational Strategy
As proof of your records, you will need to provide documentation for the auditors. This may include any contracts, debt agreements, payroll reports, bank statements, etc. You will want this information easily accessible so you are able to quickly show the auditors anything they request.
If you use physical files, the auditors will need a copy. If you are using cloud accounting software, this can be easily done by giving the auditor access to the software through a login. There, they can check the past year’s information. To make the process as efficient as possible, the data within the software should be organized and easily understood.
3. Close Your Books Routinely
Often, small businesses skip this integral step towards healthy finances. By setting a routine close for each month, you make sure your business stays on top of any potential problems right away, and ensure your data is up-to-date and accurate.
Choose a certain period of time, such as once each month, to ensure your books are sound and no data is missed or forgotten.
4. Stay Up-To-Date with Accounting Rules
Accounting rules and regulations can change from time to time, and new rules can be introduced. You need to be aware of the effective dates of these rules, because they may require changes that take time to work through.
5. Research What Is Considered a Deductible
One of the major sources of confusion when you own a small business is what is actually considered deductible. The IRS intends for deductions to be used on expenses that are generally needed for your business to run, such as computers and office supplies, and potentially a home office.
If you are unsure about an expense, make note of it to discuss with your accountant.
6. Contact Your Accountant
If you do get notified about an upcoming audit, calling your accountant will let you know what steps to take next, and bring you peace of mind moving forward. Accountants are extremely experienced when it comes to audit preparation, and can help make sure your small business is completely audit-ready.
When you own a small business, you fill countless roles every single day. Working with a seasoned accountant who knows the in’s and out’s of maintaining good records and keeping your information up-to-date and organized can save a lot of time and stress. Reach out to Executive Financial Partners for a free consultation.