By Lisa Schwarz.
Last year, the IRS announced that it had increased the number of small business audits by 50%. What used to be a long haul to be chosen, now has business leaders working to be audit-ready at a moment’s notice.
Instead of waiting for the letter from the IRS to arrive in the mail, small businesses are better off adopting an accounting system early on to effectively manage risk and ensure the accuracy of all tax filings. This is especially critical if the company aspires to go public. The sooner a system is in place, the fewer headaches there will be down the road.
With a change in mindset and approach, finance leaders can confidently embrace the unknown, knowing they are prepared. Here are three ways to prepare for the unexpected.
Stay on top of tax changes
Federal, state, and local business tax filing regulations and requirements are updated periodically. Staying abreast of tax changes means organizations can save money and time before an audit.
For example, when the CARES Act and the Consolidated Appropriations Act were passed, they temporarily offered incentives and repealed limits on deductions to keep employees on the payroll during the pandemic. Over time, the deductions have changed. As changes are announced, it’s important for small business owners to act quickly and thoroughly to stay compliant. The practice of proactively monitoring the future not only gives finance teams the visibility they need for accounting, but also provides valuable buffer time to notify employees, customers and other stakeholders of changes that will affect them. .
Tax planning should never be a one-time exercise done every year. Because tax laws are constantly changing, businesses that regularly maintain their filing systems avoid the last-minute rush to find deductions, credits, allowances, and exemptions to reduce their tax liability.
Improve accuracy with centralized data
The frequency of audits is shifting towards real-time as auditors are adopting excellent automation and artificial intelligence tools to traverse comprehensive datasets faster. The scope of audits will also continue to expand, making the mission of strong accounting and compliance systems essential to doing business.
The best way to ensure that all tax returns are accurate and delivered in a timely manner is to introduce accounting software early on in the business. This software will centralize your financial data in one place and play a vital role in running a business. It will help track expenses and income, enable compliance, and provide investors and management with financial information to help make informed decisions. It’s about finding tools to grow with the business and keep pace as accounting processes become increasingly complex. Although this is an initial investment, small business owners and finance teams can better manage business books and monitor financial health during tax season and beyond.
Go beyond accounting with technology
A key way to save time and money in this process is to adopt and integrate technology early. The difficulty of preparing for an audit is minimal with software in place that automatically updates the books while accounting for sales, accounts payable, accounts receivable, payroll, etc.
As a business grows and operations become more complex, having the right tools is invaluable and goes beyond accounting. Under this assumption, small businesses need to move from basic accounting software to a complete business management platform. This platform will streamline operations and empower executives to make informed decisions based on enterprise-wide data.
Software initially adopted for accounting purposes will eventually become the backbone of the business and give business owners the tools to spend less time managing the business and more time innovating and growing. With access to these tools, filing taxes and preparing for an audit becomes a less daunting task, and a small business can be ready anytime.
What’s Next – How to Prepare Year-Round
If a company is scrambling to prepare for an audit, it’s probably already too late. It is essential to prepare for the audit throughout the year, which involves collecting and organizing documentation for the auditor throughout the year. It also means that organizations must maintain proper schedules and regularly analyze, review and reconcile balance sheet accounts.
By staying on top of changes, adopting the right technology, and staying prepared year-round, companies can keep an audit running smoothly and on budget.
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Lisa Schwarz is Senior Director of Global Product Marketing at NetSuite.
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