5 Small Business Accounting Tips to Prepare for a Financial Audit
You don’t need to have your masters in accounting to know when your small business is about to be hit with an audit. When it comes down to it, the IRS will surely let you know when they are about to storm your offices and invade your books. It can be an invasive experience, but it can really help if you are prepared. Preparing for a financial audit is a little bit like preparing your business for a potential financial tsunami. If you don’t want your business to get hit too hard, you want to make sure that you batten down the hatches. Here are five small business accounting tips to prepare for a financial audit.
- Organize. Your first step in preparing for a financial audit is to make sure that all your books are organized. What the IRS will be looking for is overlaps, inconsistencies and signs that you under reported your annual taxes. However, if you keep detailed books that show the IRS that you reported accurately, there is not chance of getting a lien or a big tax fine. So, make sure that you get all your ducks in a row.
- Have your records digitized. It is a digital world and no one wants to sift through file after file of accounts receivables and payables to find inaccuracies in your accounting. So, make sure to continually keep digital records of your receipts, invoices and more. When it comes down to it, you also want to have a system that makes it easy to retrieve this digital records. One of the main benefits of digitizing your records is that you can use simple keywords to find items that you are looking for, which is a lot easier than searching through multiple files.
- Keep employees’ records in check. When it comes down to it, if you have employees, you want to make sure that all of their salary and pay history is recorded and accurate. You can easily look through statements and time cards to make sure that you have all of your employee payment history accessible and available. You also want to have a record of how much taxes your business has paid on behalf of employees. The last thing you want is to have to explain discrepancies in your payroll.
- Expect the worst and hope for the best. The IRS may or may not have a legitimate reason as to why they are auditing your small business. Sometimes, the IRS will conduct an audit as a fishing expedition, because a lot of small businesses don’t really pay their taxes. So, if you are about to be audited, make sure that you prepare thoroughly – there is a good chance that you will come up on top on the other end.
- Pour through all your records. Double checking your books is essential, especially if you don’t want to let any expenses slip away. When it comes to getting a financial audit, you want to make sure that your books are in tip top shape. At the end of the day, the cleaner your books, the more likely your businesses won’t get hit with a lien or fine.