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How to Audit Your Small Business
(This is a contributed post)
Small businesses, they say, are the backbone of the economy. Based on that, it’s kind of a big deal for them to remain afloat, especially during the uncertain times we’re in. Sure, there is a lot you can do to really make a big impression, especially in your community, but the main issues you will encounter come from within. That doesn’t mean you should be oblivious to the competition and all they have to offer, but it’s good to have both fronts fortified.
Based on all this, there are a lot of ways and processes you can use to optimize your business. One major way is by conducting an audit. While big businesses and corporations have both internal and external audits, your small establishment will benefit greatly from an internal audit. If you are not quite sure how to do this, here are some pointers.
Understand what an audit entails
You really need to understand what an audit is before you start one up. It’s an important aspect of the lifespan of any business, whether it’s big or small. In a simple way, an audit is a way of checking or looking into information which is prepared by someone else. By conducting one, business owners (and the government) can get a full view of the state of the company to know if there are any mistakes or discrepancies. For some companies, it is actually mandatory to employ the services of a certified public accountant for the entire process.
There’s a whole lot of layers if you really want to understand what an audit is. So, get all the necessary literature and get in touch with professionals that can get you up to speed. Also, endeavour to know exactly why your company needs an audit. What’s the use of getting it done if you feel it’s just a way to ‘fulfil all righteousness.’
Take a look at your financial situation
Even if it’s a wholesome audit of your business, the finances are a touchy and vital area to look into. You really need to get a grasp of each element that has anything to do with your company’s accounting system. If you are not conversant with accounting itself, it’s easy to look at all of this as gibberish. In that case, a company like assuredaccounting.com.au will help steer you in the right direction. Either way, it’s important to get conversant with the areas you need to look at.
So, look closely at all the money going out and coming in, your general ledger as well as all your financial statements. Also, ensure that at the end of the day, all your accounts align. To make it all easier for you, use digital means to keep track of everything and drastically reduce the chances of any human error.
Outsourcing vs in-house
Sure, you are not running a conglomerate, but sometimes you’ll end up getting a wider picture if you outsource. If you can afford it and are looking to outsource, then you need to seek out a reputable company to help you out there. Chances are that if you are conducting an audit, you noticed that something was amiss. So, if you suddenly don’t trust the systems that you have set up to keep your business running, outsourcing is a good way to go.
There is really no need to trigger an IRS audit, so, getting your affairs in order is a must. On the other hand, if your business is still too young or cannot afford to outsource, you need to put things in place to ensure that the process moves smoothly regardless.
Tax records
Filing your taxes is a vital part of keeping your business afloat. In fact, it’s so important to handle these records with care. Mostly because there are a lot of things that can wreak havoc in terms of tax problems. Based on this information, it is vital that you take a close look at the internal and official tax records of your business.
For the most part, the lifespan of tax records can span up to 7 years, so that’s 7 years worth of records for you to peruse and analyze. That entails everything from the tax receipts gotten from the IRS, taxes paid as well as tax liabilities. Compare all these records and ensure that everything lines up because if they don’t, there is a problem somewhere.
It’s also paramount to take some time out to look closely at all your credits as well as any deductions you claimed on your tax returns. If anything fishy is going on, best believe that you will find it there in the form of over-exaggerated figures.
Know the type of audit you need
Audits cover a wide range, so you cannot just go in without knowing exactly what type of audit your business needs. For the most part, you will come in contact with three types of audits. The first is an operational audit, a financial audit as well as a compliance audit. Now here’s the basic gist on three of these. When it comes to operational audits, it’s more commonly referred to as an internal audit. You can choose to conduct one of these and the only pressure you will be getting is from yourself. For the most part, it’s you as well as your employees that are in charge of this.
Then there’s the financial audit which is usually carried out by an external body. Think of it as a way of checking out your accounts and ensuring that everything lines up. If someone is cooking the books, this the way you will discover it. Lastly, there are compliance audits which look more at the procedures and structures of the organization. At the end of the day, it looks at all of this to ensure that everything is in line with the policies set in place by your company.
Look at your internal policies
Your internal policies are the threshold on which your entire business is built on. As such, you really need to take a closer look at them while you are undergoing your audit. So, look very well at the internal controls put in place. Once you do this, you will help you understand better how vulnerable you are to external attacks like fraud. What exactly are internal controls?
You probably already know them, but here’s a recap. It entails things like passwords, safe codes and the ways you protect any information that could potentially render your company helpless. Once you get a hang of everything you have put in place to protect your business, you will know where you are vulnerable. This is one way you can ensure that you lead a healthy business and steer clear of anything that could open you up to attacks.
Examine your record-keeping policies
If there is one thing that most, if not all businesses need at some point, it’s proper documentation. Documentation can help you see the big picture when it comes to what goes on in every aspect of your company’s dealings. There may come a time when proper documentation could be the only thing that saves you from a very sticky situation.
So, try your best to develop record-keeping systems that are clear, concise and thorough as well. Perhaps you could try to go for something that’s chronological or filed based on urgency and importance. It really is up to you, just make sure you have put things in place to make it easy to file and find records when the need arises.
Also, be clear with your employees about what exactly you need them to document. Go down to every nitty-gritty detail to ensure that they know the consequences of not putting all these things in place. It’s not about putting pressure on them, but really drill it home that proper documentation is part of the job description.
Monitor everything
At the end of the day, you could have everything down to the letter, but if you don’t create platforms to monitor them, they are rendered null. At the end of the day, audits are conducted to expose weaknesses in the system. Once you are armed with that information, it is important that you first put systems in place to work on them. That’s not all, after working on them go the extra mile to get systems in place to monitor your progress. You have to remain accountable to yourself and your employees need to remain accountable to you.
If the weaknesses showed up in the accounting department, then delegate duties more. Making the operations more independent will close the room for error. Likewise, if the issues come in the form of controls, conduct training and drills to ensure that your employees stay in line. You also, need to amp up security on the external level. Then when it comes to documentation, you need to ensure that you perform periodical checks so that things do not get out of hand at some point.
