Maintaining Records Encourages Business Growth
Many business owners see recordkeeping as a necessary evil, something that needs to be done for tax purposes. They would rather put it off until the last possible moment. However, smart entrepreneurs recognize that recordkeeping contributes to the larger goal of business growth and strategic planning.
Accurate and updated recordkeeping empowers leaders to make wise business decisions and project growth. How much should a company spend on advertising each quarter? Does it cost more to gain or retain a client? Instead of taking a shot in the dark, smart business owners will invest in recordkeeping so that they can make accurate decisions based on accurate data. If a business knows its numbers, it can see where it is going.
Good recordkeeping also allows businesses to maintain customer satisfaction. Many businesses would like to send follow-up emails throughout the year but lose track of time and misplace contact information. Instead of reacting to customer issues and trying to resolve problems after they become major problems, smart businesses will stay in close contact with their clients to foster interaction.
From first contact to disengagement, it is essential to track whether matters have been handled professionally and thoroughly. Every business desires good customer satisfaction but not every business has developed systems to make it a reality.
What Records and How Long?
Today, recordkeeping is made easier thanks to bookkeeping software, but what kind of records should be kept? Requirements obviously vary depending on the industry, but here is a helpful starting point: Businesses should keep records to substantiate the amounts of income and expenses that will be reported on tax forms at the end of the year.
In other words, if the IRS audits a business that claimed $50,000 of income, ask whether that business has invoices, statements, or copies of customer checks to show how they came up with that number? Do they have receipts, sales records, or bank statements to justify business expenses?
If a business hires an employee, there are additional recordkeeping requirements. Keep copies of all hiring documentation, dates of employment, time cards, injury reports, evaluations, and tax records. As mentioned above, specific recordkeeping requirements vary, but records should generally be kept for at least three years, the window of time in which the IRS could audit a business, assess additional taxes, or accept an amended return. However, other records such as bank statements, sales records, and customer invoices usually need to be kept for seven years.
Speaking of bank records, make sure to download copies of bank statements since banks are only required to keep account records for five years. Check statements regularly for errors, missed deposits fees, or other issues. Make it a habit to catch these issues early and often.
Protecting Privacy and Disposing of Records
While recordkeeping is important, record disposal must also be considered. Find the balance between maintaining necessary records and avoiding unnecessary caches of documents, particulary those with Personal Identifiable Information (PII). Securely store PII, such as social security numbers and driver’s license numbers, in a locked file cabinet or encrypted drive.
There may also be licenses, permits, or posters that need to be filed or displayed, especially anything regarding employee safety. Handle data breaches and inadvertent disclosures as soon and as fully as possible. In 2020, fax machines are still in the industry and PII is still shared to unauthorized parties.
Remember to dispose of company records safely. Don’t be a business caught up in dumping records in dumpsters, leading to hefty fines and the exposure of thousands of people’s sensitive data. There are many free community shred events and places like Office Depot offer free shredding services as well. Develop a clear and secure way to properly dispose of company records. Memorialize recordkeeping policies and ensure that both employees and recipients follow these guidelines.
A business must protect information coming in as well as information going out, so take time to consider whether the business’ partners or vendors follow strict recordkeeping guidelines.
Document Retention Schedule
Recordkeeping for attorneys can look different, but is a helpful guide for both small businesses and consumers engaging in legal services. The Washington State Bar Association has an informative template for Document Retention. From leases to juvenile records, the schedule is a model that all small businesses should develop.
Know what records exist, where they exist, and how long to keep them. Reach out to a business attorney or do some self-research to make sure your business has a document retention schedule, as well as policy. Tailor a plan to your business and work your plan.
This is an essential part of smart business and owners should take pride in getting ahead of potential risks. As Sun Tzu wrote in The Art of War, “If you know others and know yourself, you will not be imperiled in a hundred battles.” When combined with solid market and competitor research, good business recordkeeping can equip business owners to make wise decisions for future growth, development, and success.