If you are an entrepreneur of a small business then you most likely wear many hats. You are the head of finance, marketing, buying, advertising, plumbing, and refilling the soap dispenser. There are not enough hours in the day to do everything you need to (even with staff), so when you get a letter announcing that you are the lucky recipient of a "random audit," I don't blame you for being overwhelmed. I was.
I am generally known to be extensively precise, organized, and efficient. That is, I am not one of those people who have shopping bags and shoe boxes full of unentered receipts, but rather, have always submitted everything on time and accurately, as far as I was concerned. I have had my business for 12.5 years and have been audited twice (once for PST, and once for GST / personal income tax). Both of my audits have been complete hell and a massive cost to my business, not to mention extremely stressful, so I cringe at business owners who avoid their business' accounting. If it was hell for me, it most certainly will be worse for owners who are not organized. So, I guess my number one tip is to get going, get accurate, and learn to be the expert of your own business if you are not already.
Don't Do Your Own Bookkeeping
The best employee you can have is to hire a bookkeeper who is excellent at what they do. I have found in both audits that the auditor can ask the bookkeeper things directly, saving you stress and time. It is my guess that by paying a GREAT bookkeeper to do your books, it gives you a better reputation for not wanting to try "cook the books," as the movies say. With an independent, third party working on things, it should be easier for auditors to believe that you are not making mistakes that benefit you on purpose.
Big Accounting Firms Do Not Mean Better Quality of Work:
Like anyone who you bring onto your team, it is important to interview your accounting professional and/or bookkeeper. Get a commitment from them that they will work on your books rather than leave them to rot in a corner while still charging you huge fees. My bookkeeper is spectacular whereas an accountant that I hired about ten years ago from a large firm was horrible, expensive, and didn't do any work on my file. At the time, I kept chucking money their way as I was happy to just have someone else deal with that job. In the end, a letter from Revenue Canada wondering why I wasn't filing anything let me know that the accounting firm loved my money, but had no interest in getting any work done for me. From that point on, I had to face this area of my business and take charge. I pay much less money now and have an enjoyable working relationship with my bookkeeper who is honest, hard working, accurate, timely, and has been a complete savior in both audits.
Neatness Counts:
Imagine yourself as an auditor and having to weed through ever receipt and every piece of paperwork imaginable in order to ensure that a business' books are correct. YUCK! I believe strongly that the easier and more organized you make things for them, the better your audit will go. I submitted my audit material requests in lovely matching duo-tangs, complete with title pages and legends. Between my books or some other chump who submits their whack of receipts in a torn up lunch bag, I feel that neat accounts will probably be treated with more respect. Trust me, anything you can do to get treated with more respect in an audit is a good thing. When you get the packages back, they are also a concise collection that you can more easily store.
"Fighting" the Audit Results:
Some of your friends who are not entrepreneurs, will tell you that you should "fight" the results to lower your bill. Perhaps if something is ridiculous or if your results cost you a lot of money, that might be something you could consider. In my opinion, however, surviving an audit is like surviving business cancer, so I was not interested in reliving that stressful, worrisome time all over again. People fail to realize that all of your main work in keeping your business going every day still has to be done by you, plus you have to try find time to gather every piece of information that they want from past years. Being blindsided by an audit forces you to concentrate on your business' past instead of its future, which is costly in time, energy, sleep, and sales. Keep this in mind when you get the final results.
Avoiding An Audit:
My organization and timeliness didn't prevent me from being audited. I believe that no audits are "random," and either someone reports you or something weird on your account will trigger an investigation. I had received a large refund at tax time, and 5 weeks later received a letter that I was being "randomly audited." If you are late on anything, you can pretty much guarantee yourself an audit at one time or another, and the stationery they use to announce your fate is not even a pretty colour to look at.
Small business owners make communities thrive. Most business owners make very little money compared to the hours they invest in their business and communities. It is important, I think, for audits to better acknowledge the cost to a business owner when it takes such a long time to complete. It is also the scoundrels out there who wreck things for everyone, making honest business people targets for audits solely due to sharing the same industry as the small few who are dishonest. It was recently reported that a few businesses in Vancouver bought special software to purposely pay less tax on cash sales. I refuse to go to any of these businesses now, as they have successfully made things more difficult for all business owners due to their greed.
May you be able to run your business audit free and full of prosperity. If the day comes when you are faced with an audit, I hope that my experiences can help you out.
