No one ever looks forward to being audited—and most businesses will go a long time without the Internal Revenue Service poking it’s fingers into their financial affairs. Yet should it happen, it’s essential to be prepared.
There are three things every startup should do right from the start:
1. Don’t DIY
An audit’s primary purpose is to make sure the business is compliant with all relevant laws and regulations. For that reason it’s essential that tax documents be prepared by—or at least reviewed by—a professional who knows those laws and can understand how they apply to a given business.
In order to check for compliance an auditor will need access to a wide variety of documentation. Not having those documents on hand can lead to serious additional costs. Not only can a tax professional help make sure documents are properly prepared, they can also help the company decide how long to keep various types of information on hand.
The best way to keep the audit process simple and quick is to ensure everything an auditor will need is easy to find and neatly organized. Since much of the information they’ll need to access will be of a sensitive nature, using a secure virtual data room is a good way to keep documents accessible and organized without the need to store them physically in limited office space (perhaps that’s why so many companies are choosing digital cloud storage over physical).
Startups that follow these three steps will be prepared should the IRS ever look their way.