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Getting ready for your first audit: what every small business should know

We can see the sweat from here. Your small business is up for its first-ever audit, and you’re concerned about how long the process will take, keeping cost down, and—above all—getting a clean opinion.

It’s natural to be concerned. We have helped many companies—from small businesses to going-public and already public companies—set up for the scrutiny of auditors. And while the workload involved varies from company to company, the main takeaway for a smooth first audit is always the same: it helps to be prepared. Just as you wouldn’t want an auditor to come by uninvited and without warning, you wouldn’t want to jump into the audit process in haste.

You may be anxious to start the audit process because of a pressing timeline—such as your need for financing and a lender that wants to see what the auditors have to say—but the effort will be prolonged if you’re not fully ready for the scrutiny. If you get stuck along the way and the audit gets derailed with delays, you’ve lost that much more time.

We suggest that, when setting out your plan, rather than viewing the audit itself as one big, overwhelming event, break it down into three steps:

1. Look inward.

Here’s where the streamlining of the audit process really begins. Some internal examination in these areas is required:

  • Where are the complexities in your accounting (revenue recognition and equity transactions are likely spots)?
  • Have you been good about reconciliations, or is some catch-up desperately in order?
  • How about your financial statements—are they current, or do you have some work to do?
  • Do you have documented policies/procedures and memos to support your activity?
  • Are your transactional records filed in an organized manner so you can quickly provide them to auditors for their sample selections?
  • Do you have adequate internal controls?
  • Has your accounting staff remained up-to-date on accounting standard changes, and have the books been modified accordingly?

Many fast-moving companies let their books fall into disarray while their priorities were on other matters—such as advancing the business, developing their products and landing sales. With some expert help, you can still focus on those areas while giving attention to this important part of the business. You’ll find out your trouble spots and pick up ways to get organized and operate more efficiently.

2. Get your act together.

A small business in the tech industry turned to us when they needed an audit to satisfy the terms of their bank loan and keep preferred shareholders happy. With business booming, they lacked the internal resources for cleaning up their documentation, finding missing pieces and going through several years worth(!) of reconciliation.

In such messy situations, a pre-audit review specialist can notice the missing gaps, which can minimize the questions raised by the auditors. They’ll do it with a top-to-bottom analysis of the company’s accounting methods and practices. And they’ll not just note problems but make recommendations for getting through them. The analysis will cover such things as revenue, cost of sales, expenses, liabilities, equity and more.

For the tech client with the books in a jumble, our specialists had to tackle complex inventory questions, address various technical accounting issues and prepare audit schedules. They needed audits that covered four business years all at once.

3. Invite the auditors in.

Give your auditors a preview. Let them know how your business works and clue them in on what to expect when they visit. Surprises are the enemy. Just as you’ve prepared everything to avoid sudden surprises until now, set the stage for what they can expect. At this point you’ll want to designate a point person for the auditors to communicate with and help the team track down any information that arises.

How long can all this take? First-time audits can take as long as eight weeks. It depends on whether you have unresolved accounting issues by the time the auditors arrive.

No matter whether it’s your first time before the auditors or your zillionth, preparation is key. To make sure you’ve done everything properly, that you have the right documentation and that you’re ready to roll, seek out accounting experts who understand the needs of small businesses.

Learn how to prep for your audit—and ace it—with Audit Time? Don’t Sweat It, a RoseRyan intelligence report of tips for conquering audit prep mountains.

As a RoseRyan consultant, Michelle Hall loves to help startups with getting their finances in order, meeting their compliance requirements, budgeting and forecasting, and more. Earlier in her career, she held roles at Netflix, Mercury Interactive, American Express and other firms.