If you are a small business owner, you may find yourself dreading going to work or home because of the stacks of papers and documents you have lying around. If you’ve put everything you have into a business, you may sometimes fear that letting any piece of precious paper go may make you liable for something, or unable to argue your case. If this describes you then fear not. Here is a simple three-step process to determine which records to keep and which ones to throw away. You may want to have a shredder nearby to take care of all those documents you will be disposing of after you are done.
Step One: Organize the documents by type. You may have a system where you have been keeping things together by month received or created, but this is actually detrimental to you managing all those documents. At a minimum, categories that you will want to create are personnel records, tax records, bank records, contracts, accounting records, receipts, and miscellaneous.
Step Two: Cull, cut, and dispose of. Beginning with one pile at a time, begin disposing of items that are no longer needed. Each type has its own rules.
Personnel: Each member of your staff, including yourself, should have a personnel file. This should contain any performance evaluations, payroll information, and hiring and termination information. These records should be kept for at least 3 years after an employee leaves your business. Any records you have older than that should be shredded to maintain confidentiality for that employee.
Tax records: You should keep all tax records for 7 years. Any records older than that should be destroyed or shredded.
Bank records: Maintain bank records for a year. This means that records for 2003 would be maintained through 2004 and all the records would be destroyed in January 2005. Your bank will be able to provide you copies of bank records for a period of at least 7 years if necessary.
Contracts: While there is no set period for how long you should maintain contracts, there is not much sense in maintaining a contract for longer than 1 to 2 years after that contract is over, provided all elements of the contract were completed. If you are still disputing the completion of a contract, keep that contract as long as necessary.
Accounting records: Your accounting records should track debits including payroll, purchases, and investments as well as credits including income and investments. You should maintain all accounting records for at least seven years. If you are tracking capital equipment expenditures in your records, you may want to maintain records until that capital inventory has fully depreciated. After seven years the materials might be historically interesting, but they will play no part in running or preserving your business.
Receipts: Whether for purchases or credits, you need only to maintain receipts for one month to verify that the amounts match on either credit card, banking, or accounting logs. In the instance that you have purchased an item that you may return, then you may want to maintain a receipt longer. The only other time to maintain receipts is if you are itemizing taxes or expenditures to use as tax deductions. If this is the case, you would move the materials from the receipt pile and into the tax records pile.
Miscellaneous: These are all the other things that you may have collected over time and thought they were important to maintain. As you go through these documents, ask yourself if they have been used in the past year, if someone else would have a copy if necessary, and what the worst thing would be if you need this document and didn’t have it. In most cases, you should be able to get rid of the document.
Step Three: Organize. Once you have culled the documents, you should organize them. Whether in a filing cabinet or separate storage boxes, place like files together. At the front of each type of file, list dates that you should destroy the documents, and what should be destroyed. Once organized, examine files monthly to see what needs to be removed.
Knowing which business records to keep and which to discard is easy if you follow these three simple steps and keep a well-maintained set of files. Frequent review of materials will not only help you have fewer stacks, it will help you keep more in touch with your business.