As a business owner, keeping accurate and up-to-date records is essential. Not only does it help you manage your finances, but it also ensures that you stay compliant with regulatory requirements. However, knowing what records to keep, for how long, and what to throw away can be challenging. Here are some general guidelines for business record retention to help you stay organized and compliant.
Business Records to Keep
Some of the most important records to keep include financial statements, tax returns, payroll records, and legal documents such as contracts and leases. You should also keep a record of all employee information, including hiring and termination dates, performance evaluations, and disciplinary actions.
In addition, you should keep any records related to licenses and permits, insurance policies, and vendor contracts. These records can be crucial in case of an audit or legal dispute.
How Long to Keep Records
The length of time to keep records varies depending on the type of record and the industry in which you operate. Here are a few examples:
- Permanently: Contracts, Financial Statements, and Tax Returns
- 7 Years: Invoices, sales records, and inventory records
- 3 Years: Bank statements, payroll time sheets, and sales commission reports
- 2 Years: Bank reconciliations, duplicate deposit slips, and general business correspondence
- Employee Records: Keep employee records, such as personnel files and performance evaluations, for at least 7 years after termination.
It’s important to note that these are minimum retention requirements, and businesses may need to keep records for a longer period if required by law or if it’s in their best interest to do so. Additionally, it’s recommended that businesses consult with an accountant or other financial professional to ensure they are meeting all necessary record retention requirements.
Business Records to Throw Away
Once the retention period has passed, you can dispose of the records. However, it’s essential to do so securely and responsibly. Shred any physical documents or use a secure digital disposal method to prevent sensitive information from falling into the wrong hands.
Acceptable Business Record Formats
In general, both physical and electronic records are acceptable for businesses to maintain, as long as they meet the required record retention periods and are available for inspection if necessary. However, it’s essential to ensure that electronic records are properly backed up, secure, and accessible.
Electronic records have become increasingly popular in recent years due to their convenience and ease of use. Electronic records can be stored on a cloud-based system or on a local server. They can also be easily searched and organized, which can save time and improve efficiency.
If you choose to maintain electronic records, it’s important to have a backup system in place to ensure that the records are not lost due to technical failure or other issues. It’s also important to ensure that the records are stored securely and can only be accessed by authorized personnel. Consider hiring outside IT support if you can’t do this yourself.
Physical records are still a viable option, particularly for small businesses that may not have the resources or need to maintain an electronic system. Physical records can be stored in file cabinets or offsite storage. However, physical records are subject to damage, loss, or destruction, which can be costly and time-consuming to recover.
Working with Haworth & Company
Keeping accurate and up-to-date records is essential for any business. By following these general guidelines for business record retention, your small business can stay organized and compliant with regulatory requirements. Working with a professional firm like Haworth & Company can help you handle your accounting, tax, and payroll needs while ensuring you also keep up with your record keeping duties. Contact us today to get started.
Disclaimer: This blog content is for general informational purposes only, should not be considered professional advice, and does not establish a client relationship. Haworth and Company is not liable for the accuracy of this information or the content of external links. Please use this information at your own risk, ensuring it suits your specific needs, and consult with a certified tax professional for your own personalized guidance.
