Preparing for Your Small Business Financial Audit

Starting, owning, and operating a small business allows you to set your own schedule and do what you love as your own boss. However, one of the aspects of running a small business that you’re not likely to love is performing a financial audit. Since a financial audit will help you find problems and keep everything in line with your goals, here are a few steps to prepare for your small business financial audit.

 

Types of Financial Audits

There are many types of financial audits, internal, external, IRS, payroll, and others. As a business owner, you initiate an internal audit, but depending on the size of your small business, someone else conducts the audit. Some reasons to conduct an internal audit include monitoring effectiveness, ensuring that your business complies with regulations and laws, and verifying financial information.

 

An external audit is when you have an outside third party, such as an accountant or tax agency that has no connection to your business, perform the audit. While it’s potentially stressful, especially if the IRS audits you, it’s only to ensure that your financial information is fair and accurate. Below are a few ways to prepare your small business for a financial audit.

 

Backup Records

Before you start anything, make sure to back up all your records. You will have a backup for reference if you lose some information while performing the audit. It’s also a good idea to have at least one backup of your backup in case you can’t access your primary backup or it becomes corrupted; the “cloud” is an extremely useful option for safe storage.

 

Fiscal Year Budget

You’ll need to produce your fiscal year budget for the financial audit. The person conducting the financial audit will use this as a guideline to determine how well your business is doing and find areas of improvement.

 

Gather Payroll Records

You’ll need to gather payroll records, including employment records, PTO, holiday, and vacation records, as well as records of 1099 tax forms for independent contractors and consultants. Going through payroll records helps find discrepancies in pay and other mistakes.

 

Go Over Internal Control Policies

An internal control policy helps protect you from fraud and theft, such as separating accounting duties for those who work in accounting, password-protected accounting software that tracks who does what, and locked safes. By following internal control policies, you help to ensure that if you choose an internal auditor, they won’t be able to cover up any of their own mistakes or fraudulent activity.

 

Organize Records

Organizing records for the auditor makes their job much more manageable. Organize and separate records and receipts for all expenses, including business travel expenses, equipment, and even expenses for a business vehicle, if applicable.

 

A financial audit is a great tool to help your business, but you don’t have to do it alone. Our team of professionals prides itself on confidentiality, objectivity, and transparency, and we work with you on an individual basis to understand your needs. Reach out to us by filling out our online form or calling us at 410-465-460.