Starting and maintaining a business requires a lot of paperwork. From loan agreements to mortgage contracts, vendor contracts, and all sorts of employee paperwork – a startup has a long paper trail to manage and organize.
The good news is that you don’t need to keep everything. For example, after the seven-year mark, you can shred certain tax documents, but there are specific documents that you should keep. There are also records only founders and investors should be aware of; keep this in mind when setting up permissions for employees to view financial records and other documents.
But what else do you need to keep vs. shred, and how do you keep all those records organized and easily accessible? Let’s take a closer look.
How Long Do You Have to Keep Business Records?
Business documents preserve vital information regarding business operations, vendor contracts, employee contracts, and other financial information.
Business owners often believe that they must keep these types of records indefinitely. That is true to an extent, but there are categories of business records that don’t need to reside in your company storage or servers beyond four to seven years.
Below, we’ll discuss the various types of documentation and how long you should keep them in your records.
Tax-Related Documents
Startups and small businesses should keep documentation of a loss filed on lousy debt deduction or worthless securities for seven years. Any employment tax records can be shredded after four years. Keep all tax-related documentation if you have not filed a tax return.
The IRS can request up to six years of financial statements. Although they keep records of all returns, other financial documentation may be needed during a tax audit, such as receipts or payment records. It’s best practice to keep all financial records involved in tax deductions and tax filings for up to seven years. That way, your company can provide necessary documentation without hassle should the IRS need additional information.
HR Records
Human resource departments tend to get overloaded with records as your company grows. There are a variety of records necessary for each team member hired. Some documentation must be kept for a specific time due to employment law, while others have a shelf life dictated by the company itself.
Business records with a minimum of one-year retention:
- Employment offers, handbooks, contracts, and other non-tax documents signed by the employee
- Medical information, disability records, drug test results, health insurance enrollment paperwork, and accommodation requests. (Note: store medical files separately)
- Exit interviews, termination paperwork, resignation letters, severance, and any documentation regarding separation from the employee and company.
- Non-medical benefits records
Records with a three-year minimum retention:
- I-9s and copies of identification (3 years from hire date)
- Position descriptions, screening tests (non-medical), resumes, and advertisements.
- FMLA
- Disciplinary records, attendance records, or awards.
Records with four to seven-year minimum retention:
- All payroll and w-4s
- Accident/Injury
The only records employers legally must keep for an extended period are any hazardous exposure records with a suggested minimum retention of 30 years.
Why Are Certain Business Records Kept Indefinitely?
Startups should keep specific records indefinitely. There are many reasons or scenarios in which records from several years past may be important.
1. Law Suits
While no business ever imagines being involved in a legal suit, supporting documentation in a lawsuit, civil case, or contract renegotiations will be needed if situations arise. For example, any signed document from vendor contracts to employment agreements legally binds both parties to the terms stated. Disputes can arise, and the only solid, legal proof of the previous agreement is within the records kept by your company.
2. Future Fundraising
Investors may want to review sales records, profit and loss statements, and other financial documentation during a fundraising round to assess the company’s profitability. Having a record of a balanced net and gross profit trend, for example, shows possible investors your company is managing its money well and bringing in revenue.
As such, a founder’s best interest is to keep the following permanent records organized, labeled, and free of error:
- Sales
- List of assets
- Vendor contracts
- Financial ledgers
- Leasing agreements
- Shareholder meeting minutes
- Credit card and bank statements
- Permits
- Loans
- Insurance policies
- Ownership records
Digital Files Are A Must
Depending on how your business operates, all or most of your business records are likely digital-only. But receipts, bank statements, credit card statements, and other financial documents could come in paper or digital, depending on the vendor.
No matter how your files begin, having a written and digital copy is the best practice for founders. Uploading the document, receipt, and statement assures there are stable copies in case the paper version is destroyed or lost.
There are several apps and online tools to help you digitize records for many areas of your business:
- Employee Records / HR Software
You should also back up your files. Digital files get corrupted, or systems shut down, erasing everything. Backing up files regularly in multiple locations, such as on a USB or external hard drive, can save you from salvaging documents. Cloud storage is another alternative.
How To Keep Financial Records Organized
Nobody wants to spend an hour sorting through financial records when time is of the essence. Access to your financial records requires an organized and ready-to-use system.
Zeni’s automated bookkeeping software breaks down all your financial transactions and reports into categories and subcategories accessible with a single click. Transactions in and out are updated in real-time and stored on your personal Zeni Dashboard.
We work with Quickbooks* and many of the other digital tools listed above to ensure your financial records are fully integrated into your Zeni dashboard. All your company’s records are accessible 24/7 to whoever has authorized access.
*Quickbooks is a partner of Zeni.
