Preparing your business for an audit

One of the most stressful, frustrating parts of owning a business is finding out you are being audited.It has the potential to throw you and your colleagues into panic mode.However, if you are prepared and organized, it will make this unfortunate situation a little bit easier.Here are some steps to prepare when your business is placed in this difficult position:

- First, the best thing you can do is prepare yourself from the beginning.Be ready for anything before it happens.There will nothing worse that finding out you are being audited and having no idea what to have ready and where the documents are.Be knowledgeable about the process and prepared with all necessary paperwork so that the audit will only be a small bump in the road, rather than a huge mountain you will need to carry your business over.

- When you find out you are being audited, the first thing you will want to do is review all of the tax documents that were filled out.If you choose to work with a tax preparer instead of doing it yourself, you will want to meet with them at this point and gain an understanding of what was filled out and with what information.You will need to be prepared to explain any numbers and figures that were produced should the auditor ask.The auditor will become very suspicious and wary if you are unable to clarify and explain the numbers on your forms and documents.
- Next, find out what paperwork and records they will want to see.Your best bet is to have every form and every paper that was filled out for your taxes completely accessible and comprehensible.Make sure you understand what each form is and what information it contains so you don't seem clueless when the auditor comes. The auditor will want to see that you are actively involved and capable of keeping correct records and reporting all information correctly.
- Be prepared to prove that any tax deductions that were made are completely legal.This is an especially crucial time to be preparing from the beginning.For example, if you have a company vehicle, it is wise to create a log of where the vehicle was driven, what it was used for, and how many miles were driven each day.You will need to prove it was used for the company, not for personal reasons and that is why it was tax deductible.Another example is business travel; keep logs of travel expenses and any meals and entertainment that were deducted.Be prepared to explain why they were business related.
- Something that will help you and your business, perhaps more than anything at this difficult time, will be to remain organized and neat.Have an orderly and efficient filing system.Put related documents in labeled binders that are easy to find and read.Keep all receipts, bank statements and checks throughout the year and make sure they are completely accessible and tidy.In a lot of cases, if a problem arises during the audit, the auditor may reward you for your neatness by giving you the benefit of the doubt.They will see that you obviously have your act together and capable of running a business the correct and legal way.

An audit can be one of the biggest burdens and problems your business may ever face.However, if you are organized, prepared and knowledgeable, you will be able to face the audit with confidence and know that you and your business will be okay.One of the best things you can do for your business is to run it with integrity and honesty, so that, should an audit arise, you will have the assurance that you won't have to face any bigger problems.