As an entrepreneur, the last thing you want is for your small business to be caught on the wrong side by the taxman. That means being on top of your companies financials and taxes. While getting a tax professional helps you manage the taxman and other tax issues professionally, your record-keeping also comes into play.
And it is not just about the taxman. In business, you need to have a robust record-keeping system. All the documentation and transactions your company has with other stakeholders, like customers, investors, and vendors, require safekeeping for future use. In the event the other party questions anything, you can easily provide proof.
Most importantly, good record-keeping helps you monitor your business’s health, hence increasing the likelihood of your business success. In general, there are many reasons for retaining business documents and records.
In this article, we have all the facts you need to know on what business records are, how to keep and store them, what to do if you lose the records, and more importantly, how long you should keep business records.
How Long Should You Keep Business Records?
Business Tax Returns
In many instances, the revenue authority bodies in different countries will perform various audits on business. Yours might be one of them, and a great record-keeping system and availability of the necessary information make the whole process seamless.
- Profit and loss statements
- Ledgers
- Sales Receipts
- Invoices
- Balance sheets
- Purchase orders
- Tax payment records
These documents may also help when it comes to applying for loans or grants, in case of any legal disputes, and during lease applications.
How long you should keep these tax records will depend on the rules of your government of the revenue authority. Some require one to keep these records for three years while others have a limit of five to seven years.
Whichever option you have, it is best to keep records longer than the expected timeline. Some years down the line, you might need such documents, and if you destroy them, you might have a hard time getting other copies.
Payroll Tax Records
Timesheets, wage calculations, pension payments, tax deposits, benefits, and tips all fall under payroll records. Check how long the revenue authority in your country requires you to store this information. Also, confirm the same with the labor offices in your country.
Again, it is important to keep records for long, including payroll tax records and other employees’ documentations.
Human Resource Files
Depending on the type of business and location, you might have a variety of HR records. Generally, employee records, job application records, performance reviews are some of the typical HR files.
You will need your employees’ full names, Social Security Numbers, ID copies, and other relevant information. Most countries require retaining their current employees’ files for at least seven years after an employee leaves. In case an employee has any work-related accident, maintain those records for five years.
Job applicant records should be kept for no less than three years, even if the applicant never got an opportunity to work in the organization. If you want to be thorough about your employee records in the future, you can also keep these records for longer than this period.
It’s important to keep sensitive employee information such as Social Security numbers locked away and take measures to protect such sensitive personal data.
Key Business Documents
Crucial business documents such as articles of incorporation, partnership agreements, business licenses, tax ID Number, shareholder agreement, and resolutions should be readily available and retained permanently.
Generally, ownership records, minutes from important meetings, by-laws, stock ledgers, and property deeds are important business files you will have to keep indefinitely.
Accounting Records
In most countries, you need to keep accounting service records for no less than seven years. Nevertheless, some accountants often urge that you keep financial statements, profit and loss statements, and audit reports permanently.
Luckily, a perfect accounting software system allows you to run these reports at any time, saving you the hustle of creating paper files for them.
Operational Financial Records
These include bank account statements, credit card statements, cash receipts, copies of canceled checks, and documents related to other assets’ purchases.
These are useful when your business is required to prove tax deductions. It’s also essential to keep all records of business-related expenses.
The seven-year rule might apply in this case. Still, it never hurts to keep all these business records and tax returns for a more extended period, as we’ve guided.
How To Store Your Business Records
Business records should be kept organized and easy to find. Digitizing these records is the most appropriate way to keep track of them.
Digitization of business records keeps it safe in case of water and fire damage. Plus, you don’t have to worry about renting extra space to save large files intact. Many governments digitize their services and do not mind getting digital copies of documents as long as they are legible and original.
You can save your digital copies in the following ways:
- Cloud storage services such as Google Drive and Dropbox.
- For invoices, transactions, and other financial records, online bookkeeping software such as Quickbooks and Wave will get you covered.
- External hard drives.
- Leading cloud data warehouses like Microsoft Azure and Amazon Web Services (AWS) allows you to access your data at any place and anytime.
With a password-protected computer, these ways also offer safety and security against identity theft. Digitizing your business records may require some work initially, but in the long run, if the revenue authority or your bank requires these documents, you will be glad you chose this path.
What To Do If You Lose Any Business Records
Your revenue authority might catch you unawares, and at the moment, you don’t have access to the necessary documents. Well, your bank keeps a record of all your transactions. You can easily download records from your bank account.
However, some banks only keep downloadable copies for a specified period, after which you will have to request them for records. This will take longer to get the documents and probably cost you some money. Ensure you save such statements every month and keep them organized in a folder.
Your accountant can help you regenerate all of your missing records while advising you on dealing with the revenue authority.
