Types of Records to Keep
It is important to determine the various types of records your small business needs to maintain for legal, tax, and operational purposes. Some of the key records include:
Financial records: This includes income statements, balance sheets, general ledgers, cash flow statements, bank statements, invoices, receipts, payroll records etc. Proper maintenance of financial records is critical for tax filing, audit purposes and assessing business performance over time.
Personnel records: Personnel files need to be maintained for all current and former employees which should include employment applications, resumes, performance reviews, attendance Record Keeping System, payroll details, tax documents like W-4 and I-9 forms etc. This helps ensure regulatory compliance.
Inventory records: For many businesses, inventory records are essential to track purchases, sales and stock levels. This includes purchase orders, receipts from suppliers, inventory count sheets etc.
Client and customer records: Records of all clients/customers served need to be maintained such as contact details, service/purchase history, payments received, correspondence etc. This helps with future references, repeat business and improved customer service.
Legal and compliance records: Businesses need to comply with various licensing, regulatory and legal requirements. Proper filing and documentation helps ensure this. Records include licences, permits, certificates, contracts, insurance policies etc.
Equipment records: Purchase, repairs and maintenance records of equipment, software, vehicles etc. are important to manage assets, track depreciation and plan replacements.
Setting Up Record Keeping System
Organizing the various records through effective filing systems is essential for easy retrieval and future reference. Some of the commonly used filing systems include:
Electronic filing: Valuable for digitally storing financial reports, correspondence, customer records through accounting software, databases or cloud storage. Searchable and easy to share.
Paper filing: Physical files are organized by type – personnel, legal, financial etc. in binders, folders or cabinets for easy sorting. Indexing and labeling helps find records quickly.
Box filing: Large volumes of older documents can be sorted into labeled storage boxes by year for archival. Boxes are marked clearly and stored off-site if space is a constraint.
Subject filing: Groupings based on topic, project or transaction for more contextual reference compared to just chronological order.
Implementing Record Retention Schedules
Equally important as creating and filing records is having a standardized retention policy to determine how long different documents need to be stored and archived based on statutory requirements and business needs. Some guidelines:
– Financial records like invoices and receipts are generally retained for 7 years for tax purposes.
– Employee records involving pay stubs and tax forms are kept for at least 3-5 years after employment ends.
– Contracts are retained for the duration of agreement plus additional years based on statute of limitations for related claims.
– Client records are maintained as long as the client relationship exists plus additional years for reference needs.
– Compliance documents need to be filed for the time period specified in relevant regulations and licenses.
Having a planned destruction process using shredding or digital deletion ensures older documents don’t accumulate unnecessarily over time taking up valuable storage space. Regularly reviewing records prevents non-compliance due to accidental loss or damage.
Ensuring Accuracy and Integrity
With multiple persons potentially accessing and modifying records, it is important to institute controls to maintain accuracy and integrity of the information. Some best practices include:
– Assign clear roles and permissions for editing, approving and authorized access to sensitive files.
– Institute version control and audit trails for any changes made to financial or compliance documents for traceability.
– Cross-check important figures across statements by different preparers periodically.
– Back up digital records routinely to external drives or cloud to prevent data loss in case of system failures.
– Keep duplicates of critical paper documents at an offsite location for disaster recovery.
– Consider digitizing paper documents through scanning for easier accessibility and to minimize manual errors.
Proper training and documentation of established policies ensures all staff follow standardized procedures consistently for maintaining fully compliant and error-free records over the long-term. Periodic internal and external audits help identify gaps for continuous enhancement of the record keeping system.
*Note:
1. Source: Coherent Market Insights, Public sources, Desk research
2. We have leveraged AI tools to mine information and compile it.
