Small Business Bookkeeping Tips: Top Five Ways to Steer Clear of an Audit

by Christopher Spellman on July 27, 2011

Small business bookkeeping tips can help you avoid a big audit! Who wouldn’t like to escape that major headache? We’ve been sharing great bookkeeping tips for the past few weeks, so be sure to check out our series: “Small Business Bookkeeping – Getting Started.

We’ve also been publishing some great tips from CPA’s and small business owners nationwide.  Learn how to avoid an audit and keep your books in order with timely tips from Constance Hackbarth, CPA, a Milwaukee-area Certified Public Accountant.

Here are Connie’s top small business bookkeeping tips to help you steer clear of an audit:

  1. USE NUMBERED SALES RECEIPTS: Make sure all your sales receipts are numbered to avoid potential problems with the IRS. This way, you will be able to organize all your sales receipts quickly and easily.  You may need to get them custom printed, but for just a few dollars, you will save yourself from tons of trouble.
  2. (BUSINESS) CHECKS AND BALANCES: If you don’t have one, open a business checking account. All revenue collected by your business should go into that account. Also, make sure you have duplicate deposit slips. If you are depositing for more than one customer, make a note on the duplicate slip which customer goes with which amount. This will allow you (or your accountant) to reconcile your deposits to your sales receipts.
  3. WITHOUT RECEIPTS, DON’T GO INTO WITHDRAWAL: Keep all your receipts: even if you have set-up automatic withdrawals! If the IRS ever audits you, they will want the receipts. The only thing an automatic withdrawal tells them is that money went out of the account.  To avoid that infamous “shoebox stuffed with crumbled up receipts,” consider using an “app” on your smart phone to quickly snap a picture of each receipt and email it to yourself as a PDF.
  4. AVOID CASH—PAYING OR RECEIVING IT: Do not accept cash for services or pay people for supplies in cash. If you are a sole proprietor, part of an IRS audit is a request for your personal bank statement. Also, avoid paying for labor in cash or calling them “independent contractors” especially if they only do this kind of work for you. The penalties for wrong payroll classification are very steep, so do everything you can to avoid creating any suspicions.
  5. BOTTOM LINE—KEEP UP WITH YOUR BOOKS: You MUST have a system that will accurately capture all income and expenses. If the proportions vary significantly from other businesses in your profession, then you can expect an audit. Remember that an average tax audit will be 20 hours of accountant time if the records are not in order, but only 2 hours if they’re in order. Most audits can be avoided, but it takes consistent and accurate bookkeeping!

Thanks for these great tips, Connie!  If you’d like to contact Connie or her firm, please see below:

Constance Hackbarth, CPA
[email protected]
(262) 629-5442

Don’t forget to check out our recent series on small business bookkeeping!  It has great training exclusively from Best Small Biz Help, plus plenty of great tips for CPAs, bookkeepers, and veteran small business owners across the country!


And if you get stuck, don’t be afraid to hit the Panic Button.  It’s the only help desk for small businesses online.  No nonsense.  No kidding.

Don’t forget to watch our training videos.  Don’t know what a P&L is?  Don’t know how to prevent bankruptcy?  You can’t miss these videos, available to you 24/7.  Go to our Learn section to watch as often as you like.  Besides finding great small business bookkeeping tips, you’ll learn highly valuable tips you can’t afford NOT to watch!

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