Running a business means paperwork, paperwork and more paperwork. Sometimes knowing what to keep and how to best organize it is one of a company’s biggest struggles. If you keep everything, then you run the risk of being overtaken by paperwork, but if you don’t, you run the risk of not having the right evidence in case of an audit. So how can you protect yourself? The right organizational system is key.

Create a Filing System

To keep documents organized, you need a system. Create a filing system that is easy to use and retrieve. This way, should the IRS come knocking, you can get the documents needed to prove your income, expenses and taxes. Here are some practical tips to make your file system easy and secure:

• Invest in a fire and theft-safe file cabinet.
• Consider storing files off site at a third-party records management company.
• File by year, month or quarter — depending on your record keeping methods.
• File on a regular basis.
• Consider digital options.

Your filing system needs to be intuitive so you can file and find things easily. Create a system that works for you, and insist that it is used regularly to avoid future problems.

Know What to Keep and for How Long

Next, you need to know what to keep. A good rule of thumb is this — if the document relates to your business operations in a material way, it needs to be kept in some form. Employment data, insurance paperwork, medical coverage information, legal paperwork and all receipts and other financial documents should also be kept.

Additionally, you need to know how long to keep various documents. This depends on what the documents are and if there is anything out there still tied to that document. For instance, if the document has the potential to show up in a lawsuit, you need to keep it, even if the time frame required for taxes has passed.

So what documents do you need to keep? Consider these specific categories:

• Records of taxes – While the IRS recommends keeping income, employment and sales tax information for a minimum of three years, some tax experts advise keeping them forever — at least in a digital format. If your business has employees, plan to keep those records for seven years, and maintain extensive records for all sales taxes. This will help protect you if you are selling to or buying as a tax-exempt business.
• Records of purchases and expenses: In order to deduct expenses on your tax returns, you need a proof of that expense. For purchases, keep the canceled check, receipt or invoice. For other expenses, keep receipts, account statements, invoices and cash register tapes.
• Records of income – Gross receipts show what you have earned. The form these records take vary depending on how you earn your money, but hang onto them.
• Records of assets – Do you have assets that depreciate or do you have gains and losses from sales? Hang on to the documents that will help you prove this, such as Section 179 of your tax return.
• Records of legal documents – Your attorney will be able to tell you which legal documents you need to keep, and for how long, to be in line with state laws and regulations.

As you can see, this is a rather lengthy list. Keeping all of these paper documents can become unsustainable long term. Businesses need to find a solution that will help them manage, store and organize this paperwork.

Go Digital

Many documents, including receipts and tax return forms, can be stored in a digital format. By scanning and digitally filing those documents, your business can rid itself of the paperwork trail weighing you down.

Some documents cannot be stored digitally, though. For instance, if you have paperwork that requires an official seal or an original signature, you must keep the paper copy. Yet a large amount of your business paperwork can be stored in a digital format, so talk to a financial or legal professional for advice. Once you have them sorted, scan them yourself or choose an electronic document imaging company to scan and file the documents for you.

Keeping paperwork properly filed is essential to running a business well. Choose a system, stick to it, and you will be in good shape no matter what comes your way.

Author Bio

Denny Hammack is currently the President of FileSolve, an industry leading supplier of document management services & solutions. He has been in the records management business for over 25 years.