How long you must keep a document varies based upon the type of document that it is. Tossing (or deleting) some documents too soon can have serious consequences, ranging from disallowed tax deductions to sanctions for failure to comply with regulations. What should you do about all those documents without clearly defined retention periods? That answer varies, based on the nature of your business and your level of comfort with discarding items.
But, don’t fall into the “save everything forever” trap. Why not? Three reasons: cost, convenience and consequences. Storing documents costs money. While this is particularly true of hard-copy documentation, electronic storage can add up as well. Convenience is another factor. Essential documents can be lost in a sea of miscellaneous documents. Finally, keeping documents unnecessarily can lead to adverse consequences. Keeping any information that you don’t need to keep could potentially expose you to liability in a lawsuit and make you more vulnerable to data breaches and theft of business information.
Here are three simple rules that can help you retain the documentation you need and avoid keeping too much.
1. Have a policy in place.
Policy-writing can feel like an unnecessary hassle, but it saves time in the long run. Documenting the “shelf life” of every type of document frees you from researching the retention requirements over and over again. With a policy, you will know when it’s okay to dump (or delete) papers, forms and emails. Plus, a record retention policy helps avoid allegations that you destroyed records in response to a lawsuit against your business.
2. Know the minimum retention time.
The length of time you must keep a document varies depending on whether it is legally required, essential to your business operations, or a record of a temporary or non-essential transaction, project or conversation.
As a general rule, documents relating to the business structure, such as Articles of Incorporation, Articles of Formation, Bylaws, or Share Transactions should be kept indefinitely.
CT tip: Corporations and LLCs are required by state laws to keep certain books and records—and to make those books and records available for inspection.
Documentation that supports items on your tax return (income, expenses, and credits) must be kept for seven years, while that returns themselves must be kept indefinitely. Most information related to employee payroll and taxes should be retained for at least 7 years. Leases and contracts should be kept a minimum of four years after the lease or contract period ends.
Of course, these are general guidelines and many businesses have additional or more stringent requirements. Your accountant or attorney can help you with the nuances the affect your company.
3. Store and discard safely.
If your business involves medical records or requires you retain significant amounts of personally identifying data, you should work with a professional to ensure that your storage and disposal plans comply with federal and state regulations. But, even if you’re not in a highly regulated industry, you still do not want information falling into the wrong hands. Arrange for fireproof and waterproof storage of paper documents and ensure that they are shredded when it is time to discard them.
For electronic records, password protect them to ensure only authorized individuals can access them. In addition, make sure that you have back-up files—and that you periodically test the integrity of your backup processes. Simply pressing the Delete key is not sufficient to dispose of an electronic file—arrange to have the files overwritten or the actual storage media itself destroyed by a professional document storage management company.
Although the number of documents generated by a business over the course of a year can be immense, following these three rules can help you stay on top of your record management responsibilities.