What You Need to Know About Small-Business Record Keeping

by Dave Clarke on March 3, 2014
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Three little words can cost you a lot more money than you might imagine — and they have nothing to do with “love.” When it comes to keeping your business’s records, saving everything “just in case” can prove to be an expensive proposition.

Maintaining records — legal, financial, employment, etc. — beyond regulatory requirements not only costs time and money, but also may unnecessarily expose your business to litigation.

If you are keeping every scrap of paper or email simply because you may need it later, it’s time to change your M.O. A far better approach is to develop a record-keeping strategy and execute it according to plan.

What’s Required by Law

The records you should keep vary based on your business, industry, and location. But Diane Carlisle, executive director of ARMA International, a leading authority on governing information as a strategic asset, offers these basic guidelines:

  1. Business documents — Records that establish your right to conduct business, such as articles of incorporation and associated by-laws and business and tax-collection permits.
  2. Financial data — Records that reflect your financial dealings, such as accounts payable, accounts receivable, payroll records, and tax filings.
  3. Business agreements – Records that demonstrate your company’s obligations to your customers/clients, suppliers, and vendors (such as contracts), as well as to your staff (such as employee benefit packages and individual selections).
  4. Executive decisions — Records that show how business decisions were made and commitments honored, including annual reports, dividend records, board of directors meeting minutes and actions, and company health and safety documents.
  5. Regulatory compliance — Records that show you have met legal and regulatory requirements.

When to Toss Other Records

Regarding records you are not legally require to keep, Carlisle recommends figuring out how long you need those documents to operate your business efficiently and keeping them that long. To make that determination, she says, answer these questions:

  1. Are the business transactions and decisions relying on this information concluded?
  2. Have all regulatory and statutory requirements for keeping this information been met?
  3. Are you involved in any regulatory or statutory actions that require you keep the information longer than your policies dictate?
  4. Are you involved in any litigation which requires you keep them for the duration of the action? If not, keeping records around after the fact can leave you exposed to accusations of selective disposition, undermining the credibility of your program.

Your business records tell the story of your company. More importantly, they help you drive your enterprise forward. Invest some time in putting together a plan to keep them safe and available as long as necessary, including having backups whenever prudent. Whether your records are hard copy or digital, Carlisle recommends you also take the necessary steps to protect records from natural or man-made disasters (such as flood or fire) and unauthorized access (by hackers, thieves, or company insiders who should not have access to those records). Take extra steps to protect confidential or personally identifiable information.

For more information about the ins and out of record keeping for your small business, consider picking up a copy of ARMA’s guide Organize Your Office: A Small Business Survival Guide to Managing Records. Additionally, information about state and federal tax record keeping can be found on Intuit’s website and in IRS Publication 583, Starting a Business and Keeping Records [PDF].

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