Every small business needs to get its books checked now and then, and that’s where business audits come into play. Think of an audit like a health check-up, but for your company’s finances. An audit digs deep into your numbers, making sure that everything lines up with the accepted accounting rules, known as GAAP, or General Accepted Accounting Principles.
By giving your business a thorough financial check-up, you show everyone, from your customers to people who might want to invest in your business, that your company is on the up and up. Plus, it’s a chance to spot any weak spots in your financial game plan and set things straight.
So, what exactly is a business audit? It’s a detailed look at your financial records and business activities to make sure your money story adds up. Small businesses really need to pay attention to this process because it’s a proactive way to catch any hiccups in handling the finances. An audit can reveal if you’ve been overvaluing your stock, leading to inflated profit numbers, which isn’t something you want. Fixing those kinds of issues means your financial statements will be honest and follow the proper accounting rules.
Why go through an audit? Well, for starters, it keeps you in line with the law, making sure you’re reporting your money matters accurately and sticking to tax laws and regulations specific to your field. Audits can also reassure lenders and investors that your financial house is in order because it gives an unbiased look at your numbers.
There’s no one-size-fits-all when it comes to audits; there are several types, each with its own focus. Your business could run an internal audit with your own team to manage risks and smooth out operations. Or you might hire an external firm to make sure your financial records are spot-on. Then there’s the IRS, which could audit you to see if your tax information checks out. And financial statement audits? They’re all about ensuring the money data in your statements is free of mistakes or any mischief.
An internal audit can steer your business toward better risk management and operational efficiency. Your own folks will check over documents, chat with staff, and keep an eye on how things are running, ending up with recommendations on how to improve. An external audit, on the other hand, relies on an independent crew to verify your numbers and make sure everyone can trust your financial statements. And let’s not forget about the IRS audits, which are there to make sure your taxes are on point, often prompted by algorithms flagging something odd or if you do business with someone else being audited.
Getting ready for an audit might seem a bit like prepping for a marathon, but it’s really all about keeping things organized and understanding what to expect. For small businesses, this means having all your financial files in order, from digitized receipts to bank statements and old tax returns. Depending on the type of audit, you might need to focus on risk management strategies or the accuracy of your financial statements.
You’ll also want to be crystal clear about the legal hoops specific to your industry, which means brushing up on accounting and tax laws. Don’t be shy about asking a pro accountant or auditor for advice. They can give you the lowdown on what to look out for and how to show off your records best.
Make sure your team is in the loop about what’s happening, too. Assign roles for who will handle what and prep them for any questions they might need to answer. A mock audit, or self-audit, can help you find and sort out any issues before the main event.
What will you need on hand? The basics include financial statements, tax returns, and transaction records. Your financial statements are like the main course; they paint a picture of your business health in numbers. Tax returns must match up with your financial data, so auditors know you’re following tax laws, while transaction records back up your revenue and expenses.
After the audit, don’t just file the results away. Use them to make your business better. Get a grasp on the findings, figure out why the issues popped up in the first place, and make a game plan to fix them. If you stumble upon an urgent risk, act fast with a temporary solution, and keep everyone in the loop about what’s going on and how important it is to address the issues.
Teach your team if the audit reveals some gaps in how well they know their stuff, and keep tabs on how well your fixes are working. Follow-up audits ensure everything keeps running like a well-oiled machine. And remember, keep records of everything, so you’re always ready and transparent.
If you’re wondering how often to do an internal audit, once a year is a good rule of thumb. Common triggers for an IRS audit include not matching up your income or going overboard on deductions and credits. Disagree with an external audit? You’ve got to back up your stance with solid evidence. And yes, a
