One of the most challenging aspects of running a business is keeping track of physical and digital documents throughout the year. Documents such as financial statements, bank statements, invoices, receipts, employee records, and contracts can quickly become overwhelming.
Additionally, businesses are required to maintain records for tax compliance and legal protection for specific time frames, measured in years. Plus, some documents, like corporate formation paperwork and general ledgers, need to be kept permanently.
This Huddle Business Capital document focuses on strategies for retaining business documents. It explains the importance of tracking both physical and digital documents and provides methods for effectively managing each type.
All businesses are required to keep certain documents for specific time frames. For example, the IRS states that all businesses must keep employment records for at least 4 years. It’s a good idea to consult an accountant to determine which types of business records you need to retain and for how long, as IRS tax laws and tax requirements can change without notice.
The following is a list of documents that all businesses should keep track of.
Financial records - General ledgers, income statements, balance sheets, cash flow statements, profit and loss (P&L) statements.
Expenses - Invoices, receipts (including those for online purchases), deposit slips, credit card receipts, canceled checks.
Bank statements - Business checking and savings documents, business credit card statements, documents related to business loans or lines of credit.
Employee records - Payroll information, employment contracts, timecards, W-2 and W-4 forms, and performance reviews.
Legal records - Real estate contracts and records, business insurance policies, business licences/permits, business vehicle registration, and intellectual property (company name/branding, trademarks, copyright).
Assets - Receipts showing date and purchase price, Section 179 tax deduction taken (if applicable), bonus depreciation (if applicable), and the date and price you sold the assets (if applicable).
Choosing an effective location for storing your business documents depends on several important factors, including your company's size and available space. In addition, it's necessary to find a place that provides both security and easy access to your documents, and that is inaccessible to employees and visitors.
When looking at storage solutions, consider investing in secure metal cabinets or a safe designed to withstand water and fire damage, and to protect against forced entry. As you shop for these options, evaluate both your current size and capacity needs as well as potential future requirements, especially if your company's document volume is expected to increase. Additionally, ensure that the cabinets or safe will fit properly in your designated space.
If your company has a significant number of documents, consider storing them off-site in a professional storage facility. Off-site storage can free up valuable office space, allowing you and your team to work more efficiently.
When selecting an off-site storage solution, look for providers that offer climate control, fire and water protection, robust security measures, and easy access to documents when needed. This way, you can maintain organization and compliance while safeguarding your important information.
In addition to managing physical business documents, you will likely also handle digital documents. A good rule of thumb is to store digital documents on multiple encrypted external hard drives in case one drive becomes defective. Additionally, consider storing your digital documents on a secure cloud-based server for extra protection.
Not all online vendors offer electronic documents, such as receipts, so you may need to scan them for storage on your hard drive and in the cloud. You can purchase a desktop scanner for your business, or use a scanning app on your smartphone.
You are likely managing various tasks daily. Consequently, you might postpone organizing and storing business documents you receive for a later date. If possible, avoid delaying this process, as it can lead to lost documents, disorganization, and unnecessary time spent searching for misplaced ones.
This strategy can also be helpful when tax season approaches. By organizing all your business documents and making them easily accessible, you will save time searching, scanning, and potentially missing any important ones. Plus, having up-to-date business documents can help ensure that your business tax return is accurate and complete.
Discarding business documents in the trash can create risks for your company. When sensitive information—whether about your company, your customers, or your vendors—is not properly disposed of, it may fall into the wrong hands. This may result in identity theft and fraud, as well as potential legal liabilities and harm to your company's reputation.
To properly dispose of your company's outdated documents, use a high-quality shredder that can handle multiple pages at once. Cross-cut shredders are recommended for enhanced security, as they cut documents into smaller pieces. If you need to dispose of electronic files stored on hard drives, use reliable data-wiping software that permanently deletes them.
This Huddle Business Capital blog article is purely educational and contains general information and opinions; it is not intended to provide advice or recommendations of any kind.