Small Business Financial Audits: Who Needs Them and Why
Audits provide valuable information about a business. Many times, businesses will conduct audits to determine areas of their business that could benefit from improvement. When done correctly, audits can help locate issues affecting operational efficiency and internal controls as well as identify errors in the books and records.
A financial audit helps business owners understand how their business operates, uses money, and assumes risk. This understanding is crucial to the success of any business, regardless of its size.
Audits involve a thorough examination of a company’s financial statements. The information collected can be used to prove to stakeholders that a business’s financial practices are sound. Audits can also be used to help companies obtain a small business loan.
The answer as to whether or not a small business should conduct a financial audit depends on a number of factors. It’s important to understand these factors before making this important decision. The following are the top reasons your small business might need a financial audit:
- Lender Requirements
One of the top reasons small businesses conduct financial audits is to obtain or renew a loan. Some lenders require an audit to determine eligibility for bank loans, lines of credit, and other types of loans. Even if it’s not required, a financial audit might make obtaining a loan easier and help lower interest rates.
- Partnership or LLC
Investors today have extremely high expectations. Regular financial audits are often required as part of a business’s Partnership or LLC agreement.
For companies looking to sell, financial audits can help make the process smoother. The information provided by an audit can help provide a clear financial picture to potential buyers and also help owners increase the selling price of their business.
- Good Business Practice
Performing regular financial audits sends a strong message about your business to investors, customers, and other parties. This helps build confidence in the financial stability of your company and provides the tools needed for growth.
Burdette Smith & Bish provides small business audits for a wide range of industries. Whether you own a catering company, pediatric dentist, local SEO, or moving company, winery, our team is well equipped to perform financial statement audits as well as reviews and compilations. Please contact us for more information about small business financial audits.
A step-by-step guide to help you if your small business gets audited:
- Your small business will get a letter from the IRS or state tax department informing you that your records are being “examined.”
- Call your accountant and have them draw up a special “power of attorney” form to be filed with the IRS or state conducting the audit.
- Your accountant will work with the agent to determine the necessary documents to be provided.
- Gather all the requested documents for your business including W-2s, 1099s, invoices, bills, bank statements, and other records of your company income and expenses.
- Send the documents to your accountant who will compile a binder of all the information and provide a space for the auditor if needed.
- Your accountant will help to answer questions. If the auditor requests an “on-site” visit to your business, your accountant will schedule the meeting with you and come along to ensure that the auditor does not delve into areas outside the scope of the examination.
- The examination report will be sent to you and your accountant by the agent with any proposed changes to income or taxes, along with instructions on how to appeal. You will usually have at least 30 days to decide whether to accept the report’s finding or appeal.
- You survived your audit.
If you have any questions regarding any of the steps or about your small business audit, please contact us at email@example.com or 703-591-5200.
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