A business audit can help owners understand their financial operations and if their financial practices comply with the law. Business owners can choose to perform either internal or external audits. Both have their benefits, and both can help them identify areas where their business falls short in terms of operational efficiency, internal controls, and regulatory compliance.
Businesses have a lot to gain from understanding their financial operations. It can help provide increased risk protection from legal liabilities and can also provide access to more capital. However, conducting a business audit can be very stressful. Preparing yourself in advance can take most of the stress away from the process. Here are seven tips to help you prepare for your next business audit:
- Keep Track of your Financial Records
When conducting a business audit, keeping track of your complete financial records, including the transaction records and the ledger, is essential. Double-check your transaction records and your ledger to see whether the figures add up or not. Looking through the records and bank statements is not easy, especially if you don’t have the expertise in keeping accounting and financial records. You can outsource a CPA to help you prepare your financial records or become a certified accountant yourself.
Although taking a CPA exam is very difficult and stressful, inducting in the preparation course from Wiley CPA can help you pass the exam on the first attempt. You can take online classes from any device and from anywhere. It also offers time flexibility; you can take the courses anytime at your convenience.
- Get Accurate Numbers
One thing that is essential in financial audits is to provide accurate numbers. Round figures or estimates cannot give accurate assessments but can trigger a tax audit. To ensure accurate numbers, you’ll have to gather all your transactional records, including the bank statements, online transaction receipts, sales slips, and invoices. In addition to these bank statements, you should have proper paperwork for all the transactions you paid in cash.
- Pull out your financial books and records
Although small businesses are not required to keep a formal record of their business transactions, it can help in audits if you record your business transactions. For instance, if you record your financial transactions in a cash register or checkbook, you should also pull it out. But, of course, if you maintain a ledger, that’s even better.
- Keep appointment books, logs, and diaries ready
If your business keeps track of the business events such as business meetings and appointments, you should bring out your appointment log, diaries, or a calendar. Any entry in the accounting books justified by an entry can help you in your financial audit. Therefore, keep records of your appointments and business meetings to strengthen the entries in your financial statements.
- Pull out your business equipment and auto records
Small businesses usually use the business equipment (listed property) for personal and business purposes; this equipment requires you to keep certain records. For example, it can be a cell phone or a vehicle you use personally and for business use. It is necessary to clarify how much of the usage is personal and how much business-related. You should keep track of such information for any listed property your business has.
Your business vehicles are also something that you want to keep track of. Especially in case, your business vehicle is a listed property. You can keep track of vehicle usage through a log (a notebook) or an app.
- Keep a Record of your Business Travel and Meal Expenses
If your business requires you to travel a lot and dine out when traveling, you must keep track of all the business meals you have on your business trips. Keeping a log is the best way to keep track of all the out-of-town meals. Ensure you note the date, how long you stayed in a particular place, and how many people were there. Also, note your business relationship with the people you had with you. In the end, always keep receipts of such transactions. It is essential to justify the expense at the time of audit.
Businesses should keep track of their financial transactions and bank receipts and pull out their appointment and equipment books. It is also essential to bring out the financial books and other paperwork to facilitate the business audit. In the end, it is essential to keep the record neat and stored in an orderly manner that is also easy to understand.
Business audits can be pretty stressful for business owners, but they provide a thorough check of a business’s financial operations and whether these operations comply with the law or not. Conducting a business audit can offer several benefits to small businesses, such as providing a deep understanding of how much cash is available and how it is spent.