This is a question many small business owners ponder. What to keep and for how long?
Documentation is a word we accountants use that means paper backup for each sale or expense that you report. It could be a receipt from a store, an invoice copy, or an email receipt for a purchase. Whatever the business transaction, you need documentation. This is a very important piece of small business accounting.
If the IRS ever came calling, any expense without proper documentation could be denied. So, yeah, it’s important.
In a previous post, I discussed setting up files for your small business. Check out that post here. I talked about Current Files and Reference Files. Current Files are things you work with every day, or at least weekly, like payroll information, quotes, purchases, deposits, sales invoices, etc. Reference Files are for information you only need occasionally, things like loan paperwork, contracts, employee files, vendor files, etc.
It’s important to keep your business paperwork together, and in some kind of order where you can find it as you need it. So whether you’re just starting a business or have been in business a while, an organized office will help you focus on your business.
The main thing to remember when thinking about what paperwork to keep and for how long is that you want to prepare accurate, well documented financial statements, and you want backup (documentation) for all revenue and expenses for your tax return.
That’s the point of a good office management system. When your office runs smoothly, and everything you need is at your disposal (meaning you don’t have to root around for days looking for something) you will feel freer to focus on actually running your business, not your desk.
This is also a good argument for using a bookkeeping service. Letting someone who knows accounting handle your books will take that load off your shoulders and free you to spend more time bringing in revenue. If you need help, give me a call. Or check out my website here.
So here’s a list of what you should be keeping in your files, and how long to keep it.
Keep the following for 3 to 7 years:
**sales invoices, deposit slips and receipts
**copies of bills or receipts for purchases, as well as credit card statements. Remember that many receipts are made with heat transfer paper, and fade over time. Consider photocopying them for longevity.
**basic accounting reports you print out for each month. You should be printing or storing a copy of your cash receipts journal, cash disbursement journal, payroll journal, sales journal, accounts payable and receivable journals, and your general ledger and financial statements. If you aren’t sure what these journals are, you should definitely think about hiring a bookkeeping service. Give me a call and let’s see how I can help your business be more profitable.
Keep the following as long as you are in business:
**tax returns – as well as any correspondence with your tax preparer, and any taxing authorities, too, be it the IRS or your state and local tax department.
**dealings with attorneys, and any legal documents or lawsuits.
**payroll information, including payroll taxes and W-2 forms – you never know when you’ll need something in there, trust me.
**employee benefit information
**loan agreements, lease agreements
**receipts and paperwork on any asset purchases , including furniture, computers, cars, buildings, or equipment, as well as any building improvements.
When setting up your office filing system, I suggest you keep your current year and last year paperwork somewhere within arms reach. I try to keep the current year in my desk or close by, and last year in a file drawer nearby. Get some file boxes and keep previous years in another file cabinet or a closet or storage room. You may need to access it but not often.
With a firm idea of what small business accounting info to keep and for how long, you should be all set. If you’re keeping paper files, be sure they’re in a secure location, preferably in a locked filing cabinet. If you keep stored documents on your computer, make sure you back up often and have your computer set up with a strong antivirus and malware protection.