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by Mark Roy Long | Updated Aug. 5, 2022 – First published on May 18, 2022
Image source: Getty Images
As a small business owner, there are plenty of unexpected situations you may suddenly find yourself in: undergoing an IRS audit, responding to an Equal Employment Opportunity Commission (EEOC) complaint filed by a past or current employee, dealing with a vendor who insists you didn’t make a payment, or resolving a workman’s comp claim.
In each of these cases, you’ll be required to provide business records to show exactly what you did or did not do. If you can’t, you could easily face hefty fines or other penalties. That’s why it’s critical to create and maintain a document retention policy.
Document retention is the process by which records required for ongoing business operations are identified and maintained. A document retention policy provides guidelines for the review, secure storage, and periodic destruction of unneeded records.
Your records will generally fall into the following categories:
The amount of paperwork and digital records generated will multiply over time as you add more customers, employees, products, and vendors.
An effective document management system will allow you to efficiently store and access records, reduce the cost of document production during legal cases, and follow all laws for the preservation of certain records.
Plus, if one or more of the situations in the records management checklist below sounds familiar, you definitely need to set up a document retention and management system as soon as possible.
Documentation retention guidelines will help you avoid all of these problematic situations. Image source: Author
While a document retention policy will aid your internal business operations, it can also help externally. For example, customers want to know their data is being securely stored, so you might highlight the security and maintenance of your records as part of your website marketing.
Creating and using your document retention policy is not a one-time endeavor — it’s an ongoing activity. It’s not part of the (perhaps more exciting) front-line activities you’re likely more focused on, such as sales and customer service, so it may help, as you work through the steps below, to use one of the best productivity apps available to help keep your record-keeping on track.
First, you need to comprehensively catalog all of your existing documents to see exactly what you have as well as the quantity of physical and digital records you’re dealing with.
The key strategy with your initial document inventory is to be methodical. And while you may know — or think you know! — where everything of relevance is, you need to talk to all of your employees to discover any other formal or informal physical and digital repositories you may not be aware of.
While a document may have been relevant at one point in time, that doesn’t mean it always will be. With a few exceptions — deeds, patents, auditor reports, and annual financial records — almost every document has a limited lifespan, usually no longer than 10 years.
Keeping records any longer than necessary has the potential to create legal liabilities for your business. For example, the discovery process during litigation could find additional damaging information in your records that should have been already deleted.
Plus, you don’t want to be responsible for any confidential customer information being accessed that also should have been destroyed. That’s why establishing a clearly defined document retention schedule is the backbone of your document management policy.
Effective storage of documents is critical to preserve records as well as ensuring access to them as necessary in a timely manner.
That includes everything from locking file cabinets and storage rooms at your business, to using a “secure drawer” as part of your website management, to other offsite options.
Digital documents require less storage space than their physical counterparts. On the other hand, you may have legacy paper or wet signature documents you want to maintain as hard copies.
Offsite storage of digital records in a data center can increase security and lessen the chances that documents are stolen, lost due to natural disasters, or accidentally destroyed. Image source: Author
Just as you need to keep necessary business documents, you also need to destroy them according to your retention schedule. That will keep storage costs down and reduce the chances of business and customer data being accessed illegally or inappropriately.
Minimize the chance of future legal issues by explicitly documenting chain-of-custody procedures when destroying paper documents and electronic files.
Even the best document retention policy won’t have a net positive effect if none of your employees know about it. That’s why using effective communication strategies will be key, especially as the policy is updated over time.
Your document retention policy also won’t be particularly effective if there’s only a printout of it in a three-ring binder that’s sitting on the top shelf in a seldom-used storage closet. Instead, make it available online for easy access by your employees.
Don’t wait until a critical event occurs — an IRS audit, natural disaster, or lawsuit — to realize you need a robust record retention schedule. Instead, begin the process outlined above to develop your document retention policy now.
Sure, you’ll have to build the cost into your business budget, but over the long haul, it will definitely pay for itself — and more! — by saving you both time and money.
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Mark Roy Long is a technology journalist and workflow expert writing for The Ascent and The Motley Fool.
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