Did you know that a business is twice as likely to be audited by the IRS than an individual? Business owners that earn well into six-figures are also likely to face an audit.
You could be the target of a labor dispute or a lawsuit. Your industry may have standards in place for recordkeeping. These are all threats to your business, and the only way to protect yourself is through a good record management system.
Keep reading to find out how you can protect your business by utilizing these records management tips in your business.
1. Know Your Recordkeeping Responsibilities
What does the law say about keeping and maintain records? Unfortunately, not a whole lot. There aren’t laws that dictate what you should keep and what you should throw out.
If you’re in the healthcare industry, the Health Insurance Portability and Accountability Act does tell health providers how long they need to maintain patient records and safeguard them.
The financial services industry has its own standards as well. Your industry may have its own regulations and guidelines as to how data is collected, kept, and protected.
There are guidelines provided by agencies like the IRS and Department of Labor that advise how long you should hang onto business records.
Since there are so many guidelines to follow, it can get confusing. Some regulations suggest 5 years, while others suggest 4 years. The IRS suggests that you maintain documentation regarding taxes and finances for about 7 years if certain situations apply to you.
For example, if you claim a business loss on bad debt, you’ll need to hang on to your records for 7 years. If you don’t report all of your income, then you’ll need to maintain your records for at least 6 years.
If you don’t file a return or filed a fraudulent one, you need to keep your records indefinitely.
Your best bet is to maintain your records for 7 years. That will be long enough to protect you and your business from any labor or financial audits.
2. Decide Which Records to Keep
Which records are going to be the most important ones to keep? It depends on your business and the industry you’re in.
At the very least, you need to maintain all records that have to do with your tax returns. Those records include but aren’t limited to expense receipts, payroll records, W-2 forms, W-4 forms, pay stubs, and timesheets.
If you were to face an IRS audit, you have to show them more than bank statements to prove that you paid for an item that you claimed as a business expense.
You may also need to keep client contracts, loan documents, interest reports, and profit and loss statements. Go through all of your documents and decide which ones are the most important to keep.
3. Develop a System
It’s entirely possible to have several systems in place for your records. You can have one system for paper records, another for electronic records, an email archive, accounting systems, and document systems.
Ideally, you want to be able to minimize that to one place. You can have backups of your data stored in the cloud. You can also print copies of your records and file them in a physical cabinet.
It all depends on how much data you have and what you need to keep. The goal is to have a recordkeeping management system that’s simplified.
4. Create a Company Record Management Policy
Your document management system won’t work if only a few people within your organization use it. You need to have a formal written policy that outlines what documents are kept, where they’re stored, and how records are destroyed.
Your business may prioritize security, but there is still a chance that your systems can be compromised. Part of your policy should be dedicated to data breaches. You should have a response plan in the event of a security breach.
This policy should be distributed to every employee. You can enlist the help of your IT team to enforce it. For small businesses with limited staff, you may have to be the one to enforce it.
5. Maintain an Electronic and Paper System
Since there are so many different ways to receive records, you may elect to have a paper and electronic system for record management. The good thing about having two sets of records is that they can serve as backups in case a record gets lost.
If you have an important document that you received electronically, you can screenshot the whole page and then print it out. You can then file the electronic and physical copies of the document for safekeeping.
You can elect to have your electronic documents stored in the cloud and have them backed up as an extra measure of protection. Most IT professionals would agree that you can never have enough backups.
6. Privacy and Security Issues
One of the biggest concerns surrounding records management best practices has to do with privacy and security. Companies are targeted by hackers every single day and many data breaches can go undetected for months.
Your record management system has to put privacy and security front and center. You can limit the access that employees have to certain documents. You can also train employees on security best practices.
A Record Management Guide for Your Business
Record keeping can be confusing because there are so many different regulations and guidelines. The bottom line is that if you don’t follow record management best practices, you can put your business at risk in the event of a lawsuit or audit.
You need to have a record management system that focuses on privacy and security first. You also need to have a way to easily capture and file the document. It also needs to be retrieved quickly.
Once you find a system that works for your organization, it becomes easier to find all of the documents you need quickly. For more tips to manage your business, head over to the Business section of this site.