Setting up a record-keeping system

Whether you're a one-person operation or a large company, keeping business records is very important. A complete record-keeping system helps you find your documents easily and keeps them safe. For example, if you have well-organized business records, you can provide requested documents (like proof of expenses for grants or profit and loss statements for loans) to the government or banks. Clear records are also help you understand what your business needs to run every day. However, knowing where to start your record-keeping system can be a bit overwhelming. 

There are some key records that all businesses should keep, no matter their size.   For example, you should keep your state and federal tax returns, along with all supporting documents. You should keep names and addresses of all current and former employees, time sheets, and pay stubs. You should also keep bank statements, insurance documents, contracts, loans and mortgages, purchase receipts, customer bills, profit and loss statements, and balance sheets. 

In general, you should save all paperwork related to you business, including licensing and regulation documentation. 

Some other records that are helpful to keep, depending on your organization type. For larger organizations, you might need a depreciation schedule. Nonprofits or corporations with a Board of Directors should keep meeting minutes, documentation, and incorporation paperwork. 

Start by listing different types of documents you have for your business. Some common examples include: 

• State and federal tax forms and returns
• Supplemental and backup documentation like receipts, payroll reports, etc.
• Any tax forms or communication submitted to the IRS
• Employee names, addresses, and contact information
• Employee timesheets
• Employee paystubs
• Bank statements
• Insurance documents
• Contracts, including loans and mortgages
• Purchase receipts
• Customer invoices
• Financial statements
• Business registration documents
• Licensing records
• Board of Directors meeting minutes (if applicable)
• Legal files
• Emails 

Keep all business records for at least three years. Depending on the type of record, you may need to keep it longer.  It's a good idea to keep all tax records for up to seven years, just in case, especially if you claimed a loss on your taxes.  

Accounting documents, like invoices and checks, should be kept for five years. Payroll records and time cards should be kept for three to seven years. Nonprofits or corporations that have audit reports should keep those records indefinitely. Annual statements should also remain in your records indefinitely. 

It can be helpful to create a record retention schedule outlining how long you're keeping of each document, such as the following example: 

Sample Record Retention Schedule (depending on business-specific requirements): 

Use your list of documents to write down how long you'll keep documents in each category. 

Now that you know what to keep and for how long, you need to decide how and where to store your records. It's a good idea to have at least two sets of records. You could keep one set at your center or home (if that's where your business is), and another set at another location, like a business partner's home.  

Alternatively, you could keep one set of paper files and the other could be stored digitally. Regardless of what you choose, digital records are good to have in case you lose the paper ones, and they're easy to share by email. . A paper backup protects against technology failures or mishaps. 

Digital records 

The perks of maintaining digital records are that they don’t take up space and there are many free or low-cost options. Setting up your digital records can be as simple as saving digital copies or photos of your documents on your computer. You can also save copies in a cloud-based system such as Google Drive, OneDrive, or Dropbox. These systems are generally free to use. You can even email yourself on a service like Gmail with the digital files attached to the message. Whichever system you choose, make sure you use a clear labeling system so you can find files easily. For example, label folders on your computer or cloud drive with the type of document you are storing in each folder (tax returns, paystubs, etc.) and label individual documents with the year. This will help you to quickly find specific documents as you need them. 

Paper records 

A paper system is easy to set up but needs to be organized and labeled so you can find your documents when you need them. Consider these tips and tools for a paper-based system: 

• File folders allow you to group loose papers together for organization and can be purchased almost anywhere. Label each folder based on what’s inside.
• Hanging folders can group numerous file folders together.  For example, a hanging folder might be labeled “Clients” and contain several individual client folders.
• Cabinet storage can store multiple hanging folders.  It comes in a variety of sizes and can be locked when not in use for security purposes.
• An accordion folder opens like an accordion to reveal separate compartments for storing documents.  Each compartment can be labeled.  These folders are designed to store documents without a filing cabinet, in a closet or on a shelf instead. 

Setting up any record-keeping system will take some time. However, investing a few hours and some file folders can give you the peace of mind of knowing your records are in order and easily accessible. 

Records index 

In addition to having at least two sets of records stored, we strongly recommend also having an index. An index is a way you can easily look up, find, and reference your files.  In its simplest forms, this could be a file folder system, with each section labeled to make finding what you need easier.  For more complex records, you may want to put together an index on a spreadsheet, indicating where each important record can be found.  For example, payroll can be found in QuickBooks, but there is also a printout of payroll in your home files as well.  This not only helps you find your files when you need them, but in the event of an emergency, someone else could locate this vital information as well.  Keep in mind, as you create your filing system, key records and data like social security numbers and addresses also need to have privacy protections. Be sure to lock up sensitive information kept on hard copy. There are options to lock digital files with password protection or to use multiple encryption technology on cloud servers. Whether your files are on paper, on your hard drive, or in the cloud, add the maximum reasonable amount of protection you can so as to mitigate the risk of a data breach. Keep the people who you permit access to this data to a bare minimum. 

Now that you know what records you want to keep and where to keep them, you need to make sure you set up a system to maintain them. After all, a comprehensive record system is only useful if you continue to maintain records and use the system that you set up. The following tips will help you to stay up to date. 

Get in the habit of filing 

Decide when and how you'll file your records. Some business owners may file records right away while others may collect records and file them weekly or monthly. Whatever you choose, get in the habit of filing your documents and updating your index to keep your system up-to-date and complete. 

Setting up a "tickler" system 

Your filing system does more than maintain historical records. You can also use it to prepare for upcoming events with what is called a “tickler” system. You create a folder, either digitally or in paper folders, that has upcoming activities or to-dos by month or quarter. For example, you may want to have a tickler folder for June that tells you it’s time to send in your quarterly taxes and includes an estimated tax form. You could also have a folder that you rotate once a month to remind you of bills to check, upcoming renewals, or necessary call-backs. 

Create a backup 

Your records are crucial to your business. Being able to access them easily can save you frustration, time, and money. Whatever record system works for you, plan to regularly maintain or backup your important information. For example, if you keep two sets in separate locations, you could also print paper backups of whatever digital records you have. Or if your financials are in QuickBooks or you are using a CCMS, we recommend printing out key information at least once a quarter, if not more often. While it may seem like a waste of paper, it’s important to have these records accessible and up to date. If there was a problem with your computer or the cloud system, this would ensure you still have the data you need to perform your business activities. Again, these systems do not have to be complicated, but they are necessary. 

Using the information in this guide, write down the records you want to keep, how long you will plan to maintain them, and how often you want to update them. Creating a simple log can help you organize your record-keeping system as you get started: 

In some cases, you may not have the bandwidth to handle your records entirely on your own. However, it's still critical for your business to maintain an accurate record-keeping system. If needed, there are a few additional avenues of support that may be available to you. 

Hiring outside bookkeeping help 

Some businesses may wish to look outside of their organization to hire a bookkeeper to manage records. Most small or new businesses don’t have the ability to hire a bookkeeper, which means having a record-keeping system you’re comfortable with is essential. When you can afford to hire bookkeeping help, it doesn't mean you can let your records go. Ultimately, bookkeeping and accounting records are the responsibility of the business owner. Even if you have a bookkeeper to handle some functions, you should maintain knowledge of general best practices and awareness of your business’s record-keeping practices. 

Bookkeeping software 

Apps and software are available to help business owners maintain their important records, from invoicing and tracking time to paying bills. If you're thinking about adding bookkeeping or accounting software to help with your records, here are some considerations: 

• Look for apps or software that have features that meet the specific needs of your business
• Utilize trials or demos to find platforms you are comfortable using and are easy to navigate
• Consider benefits of something that’s accessible on a mobile device or by other team members
• Find the tools that fits your budget and cash flow, now and in the future 

Disclaimer

The information contained here is for educational purposes only and is not intended to constitute legal, tax, or financial advice.