The dreaded audit knock can interrupt the doorsteps of even the savviest of businesses. Sometimes, it’s the IRS, but in most cases, and you may find this surprising, it’s the state audit team that comes around for a visit. Regardless, an audit can be stressful for any small business.

But what leads to a small business audit in first place?

Well, the answer to this question is ever rarely straightforward. However, there are some practices and errors that have been commonly identified as the main drivers of a small business audit.

Let’s take a look at them one by one.

Businesses that handle lots of cash

If your business makes lots of cash transactions, it’s likely to be audited.

The reason?

It’s simple; cash is hard to trace, and businesses can easily manipulate their cash registers to save on their tax bills. Regulators are aware of this. When they see such setup, it gives them a pause.

When you have consistent issues with your staff

Disgruntled employees are the hotline for auditors. Employees call them up to report their employers for violations.

When compliant calls from disgruntled employees get “too frequent”, that’s when auditors get active.

Don’t take staffing issues lightly. Make sure you address them promptly. Because if the audit team gets a tip, and even if the tip may not be true, they are likely to come knocking at your door to check your records—employee and non-employee related.

Operating in a high-risk industry

Some industries have a higher rate of noncompliance. Businesses that operate in these industries are more likely to be audited than businesses that aren’t part of them.

Unfortunately, if your business operates in a high-risk industry, you can expect a visit from an auditor at some point.

Having a high volume of exempt sales

Exempt sales are those sales that aren’t considered taxable. Businesses that have high volume of exempt sales are usually at greater risk of being audited.

That’s because exempt sales have complex compliance rules and require extra documentation. As a result, businesses owners often end up making record keeping errors when handling exempt sales which can trigger an audit from the auditor.

There are many factors that can increase the risk of a small business audit, however, the ones discussed above are by far the most common.

If you need any help with your Florida small business compliance issues, feel free to reach out; A&B Accounting and Business Solutions will be happy to provide accounting and taxation services.