As one year comes to a close and another is about to begin, it's time to sort through your small-business paperwork and decide what stays and what goes.
It's a process that has actually become more complicated thanks to technology, according to the American Institute of Certified Professional Accountants. Never before have business owners had so many options for storing their records, and as a result, paperwork can pile up.
One easy way to get in front of all that paperwork is to implement a records-retention policy with clear guidelines for what to do with all the emails, spreadsheets, databases, receipts and documents that exist around the office.
To implement a records-retention policy that works for you, the first thing you need to know is how long to hold on to your paperwork to satisfy most business reporting requirements. Use the following guidelines when deciding what to keep and what to toss.
Keep These Forever
The document management experts at ILM Corporation recommend that their customers keep their cash books, chart of accounts, auditors' reports, and end-of-year financial statements and general ledgers permanently. Deeds, mortgages and bills of sale are other documents that should go into permanent storage as should insurance records and cancelled checks for large or important purchases or payments.
Save For Seven Years
Other types of cancelled checks should be saved for seven years. Accounts payable ledgers, invoices to customers and vendors, vouchers for payments to vendors and employees, payroll records, and accident reports in cases that have been settled should also be saved for the same amount of time.
You should also keep inventories of products, materials and supplies, property records, and expired contracts and leases for seven years.
Save For Three Years
Sales records and petty cash vouchers only need to be saved for three years. The same goes for employment applications, personnel records of terminated employees, insurance policies that have expired and general correspondence regarding the business.
Save For One Year
After one year, it'ss safe to get rid of bank reconciliations and duplicate deposit slips because that information is contained within the company's books. Purchase orders and receiving sheets don't need to be saved for more than one year either.
Save For The IRS
The IRS advises taxpayers to keep copies of tax returns forever. As a general rule, the agency also recommends keeping records that support an item of income or a deduction on a tax return until the time of limitations on that particular return expires. That period of limitations is the time in which you could amend a return to claim a credit or refund or the IRS could assess additional tax. That time frame can be anywhere from three to six years from the date the return was due.
What To Toss
If you have a records-retention system in place, it makes it easier to see which documents are ready to be thrown away or deleted based on the one-, three- and seven-year guidelines.
Another option is to have a system in place for changing paper files to digital files. The American Institute of CPAs warns that even if the files are digital, they should still be deleted on schedule. While it can be easy to convert them to digital files and forget about them, it can also be costly to pay for space to store them.
Maintaining organized and accurate records allows you to retrieve information about your company with ease. Having a policy in place that defines what you should save and how long you should save it, and then following a regular schedule to move, delete or toss will help keep your paperwork and documents from taking over your office.
Carla Turchetti is a veteran print and broadcast journalist with a passion for money matters and the stories behind the world of small business and personal finance.
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