Problems with cash flow are the reason that 82% of businesses fail.
To prevent your business from being another failing statistic, you can implement programs that will catch and prevent cash flow issues before they become something bigger.
At the heart of every business are business finances. To run a business optimally, you need to conduct a thorough financial audit.
Keep reading to learn how.
Gather Financial Documents
The first step of conducting a financial audit involves gathering the necessary documents. You should have a system in place to transfer this information to the accounting department.
You’ll want to put together business invoices, sales receipts, and bank statements. The accounting department will process these documents when they receive them.
It’s important to keep track of all finances throughout the year to ensure your audits are reliable. Accounting records should stay up to date.
Look Into Record-Keeping Policies
What are your current record-keeping policies? Always look into them during an audit to check for proper record storage.
Businesses should always keep electronic copies of important financial statements. Make sure you have quick access to archived records as well.
Review the Accounting System
Each element of the accounting system should be reviewed during an audit. Specifically, check the following:
- T-accounts (debits and credits)
- Journal entries
- General ledger
- Current financial statements
All accounts should be present in your financial system. You should have a system in place that corrects human errors.
Review Internal Control Policies
A small business owner should implement internal control policies for heightened financial protection. A policy should include the following things:
- Separation of accounting duties
- Locked safes
- Password-protected accounting software
You can implement other policies that work well for your company’s specific financial system.
Compared Internal and External Records
Business finances need to be compared internally and externally. Check if internal records of cash are the same as the external records you have.
You don’t have to compare all transactions but check various different ones to ensure they match. For example, you can compare purchase receipts for a specific month to your internal purchase records.
Look at Tax Records
Business ownership involves paying certain taxes while handling your own internal tax records. Compare those against the official tax returns you’ve filed.
Businesses should keep tax returns for at least seven years. Take extra time to review deductions and credits your business claimed on your recent tax return. This will help you find inflated expense numbers if there are any.
If you work with an accountant or tax agent, consider a tax audit cover. What is tax audit cover? Click the link to find out.
Conduct a Financial Audit Now
Business audits can be performed monthly, quarterly, or once or twice a year. A financial audit is often done annually during tax season. However, if you find issues during an audit, consider doing it more than once per year.
When you need to conduct a financial audit, consider this guide for tips. Work with your accounting department or an outside accountant to ensure all financial statements are up to date.
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