Is Your Business Audit Ready? A Quick Guide for SMEs
When it comes to running a successful business, staying organised isn’t just good practice – it’s essential. Whether you’re applying for funding, attracting investors or preparing for a statutory audit, being “audit ready” can save you time, stress and more importantly staff time and company money. For many small to medium-sized enterprises (SMEs), audit readiness might not seem like a priority – until it’s too late or you’re scrambling around at the eleventh hour.
We’ll walk you through what it means to be audit ready, why it matters and how to make sure your business is prepared when the time comes.
Why Audit Readiness Matters
Even if your business isn’t legally required to have an annual audit, there are several reasons why you might need to be audit ready:
- Funding applications: Banks, venture capitalists and grant bodies often require financial transparency.
- Selling your business: Potential buyers will want to review reliable and accurate financial records.
- Regulatory changes or thresholds: If your company grows beyond the audit exemption thresholds, you’ll need to comply with statutory audit rules.
- Peace of mind: Good records reduce risk, support better decision-making, and demonstrate professional management.
Our Guide to Being Audit Ready
Keep Accurate Financial Records
Use cloud-based accounting software like Xero, QuickBooks, or Sage to maintain up-to-date books. All entries should be supported by source documents – receipts, invoices, contracts and bank statements.
Reconcile Regularly
Ensure your bank statements match your accounting records. Regular reconciliation (monthly or quarterly) helps catch errors early and gives auditors confidence in your internal processes.
Organise Tax and Payroll Documentation
HMRC filings, PAYE records, VAT returns and payroll summaries must be accurate and readily available. Make sure you’re compliant with Making Tax Digital (MTD) requirements if applicable.
Understand Your Balance Sheet
Liabilities, accruals, prepayments and depreciation entries must be properly calculated and justified. If you’re unsure, this is where your accountant adds real value.
Review Contracts and Agreements
Lenders, suppliers and customers’ agreements should be documented and filed. Auditors will want to verify revenue recognition policies, liabilities and obligations.
Have a Clear Audit Trail
All transactions should have supporting documentation. The easier it is for someone else to follow the trail from invoice to ledger, the smoother the audit.
Check in with a Professional
An experienced professional can help ensure you have everything in order. From reviewing your internal controls, performing a pre-audit check to preparing schedules that auditors typically request.
Exemptions: Do You Qualify?
In the UK, small companies are exempt from audits if they meet two of the following:
- Annual turnover of £10.2 million or less
- Total assets of £5.1 million or less
- 50 employees or fewer
However, some companies may still require an audit due to their articles of association, investor agreements or being part of a larger group.
Top Tip: Perform an Annual Internal Review
We recommend conducting an internal review or “mock audit” annually. This proactive step helps identify weaknesses before they become costly issues.
Even if you’re not legally required to undergo an audit, being audit ready is good business. It shows professionalism, builds confidence with investors and lenders and ensures you’re not scrambling if regulations change or an opportunity arises.
If you’re worried and want to check if you could be audited schedule a free 15-minute audit discovery call.
