Business Financial Records: What to Store, What to Scan, and What to Shred

Every business accumulates financial documents, from invoices and payroll reports to tax records and bank statements. Over time, these files can consume valuable office space and make it harder to locate important information when you need it.

The solution is developing a clear strategy for deciding what to store, what to scan, and what to shred securely. Once you have a clear approach to dealing with your business financial records, it will be easier to stay organized, improve efficiency, and support compliance.

Table Of Contents:

• Why Proper Financial Records Management Matters
• What Financial Records Should Businesses Keep?
• Which Financial Records Are Good Candidates for Scanning?
• Which Financial Records Should Continue to Be Stored Physically?
• When Is It Safe to Securely Shred Financial Records?
• Creating a Financial Records Retention Policy
• Common Financial Records Management Mistakes
• Keep Records Secure With a Clear, Dedicated Strategy
• How Corodata Helps Businesses Manage Financial Records
• FAQs

Why Proper Financial Records Management Matters

Record management is not a glamorous part of running a business. When you’re busy, focusing on proper financial records management can even feel like an unwelcome distraction from the rest of your work. But neglecting your financial records is a mistake.

Your business financial records are key to understanding how your business is performing. With clear, organized records, you have insights into your business’s cash flow and profitability, so you can make adjustments as needed.

Other benefits of financial document storage include:

• Preparing for audits:  If your business gets audited, the auditing agency will require your financial records. Having those records stored and organized will make it much easier to get through the audit.
• Supporting tax reporting: Proper financial records retention and organization make preparing your business taxes less stressful.
• Improving operational efficiency: Too many or too few business records can slow down your operations. Improve operational efficiency by only keeping the records you need with a business document retention strategy.
• Protecting confidential financial information: Most businesses have pieces of sensitive information, including financial data, in their records. A business records management strategy helps you store or dispose of those records securely to protect confidentiality.
• Reducing office clutter: Only keep the records you truly need and get rid of the rest to cut down on clutter.
• Supporting business continuity: Strong business records storage strategies take disasters into account. In the event of a disaster, you’ll know where your most important documents are and how to access them to support business continuity.
• Lowering storage costs: Getting your records down to what you need can save you money on storage for unnecessary documents.
• Speeding up document retrieval: You’ll spend less time looking for the documents you need when they’re all stored and organized according to a clear system.

What Financial Records Should Businesses Keep?

Each business is different, so the financial records your business keeps may not look the same as another’s records. However, there are some commonalities. You will generally want to keep the following records:

• Tax returns
• General ledger
• Financial statements
• Accounts payable records
• Accounts receivable records
• Payroll records
• Bank statements for all your business bank accounts
• Canceled checks (where applicable)
• Expense reports
• Purchase orders
• Vendor contracts
• Loan documents
• Fixed asset documentation
• Audit reports
• Insurance documentation

Which Financial Records Are Good Candidates for Scanning?

Physical documents take up space and are at risk of water, fire, and other damage, so scanning them is a great option. Scanning your business financial records removes the hassle of securely storing a physical copy while still providing access to the information.

Not all documents are good candidates for scanning, though. Generally, you should scan documents that you don’t need a signed original copy of but may need to reference in the future.

Examples of records that benefit from digitization include:

• Paid invoices
• Vendor files
• Purchase orders
• Expense receipts
• Monthly financial reports
• Budget reports
• Historical accounting records
• Accounts payable documentation
• Accounts receivable documentation

Digitizing these records allows you to search the documents much faster by searching by date or relevant terms. With optical character recognition (OCR), the scans of your documents become text that computers can read, so you can search their contents.

In a disaster, you don’t have to worry about your online records getting damaged. Scanned copies stay safe in secure online records storage. Fewer physical documents on-site means you don’t have to keep as many filing cabinets taking up space.

Which Financial Records Should Continue to Be Stored Physically?

You don’t need to digitize all of your records. Some organizations maintain original paper records for operational, legal, or historical reasons. Examples of records you may want to continue storing physically include:

• Original signed contracts
• Certain loan agreements
• Corporate governance documents
• Documents requiring original signatures
• Records subject to organization-specific policies

Often, these types of documents aren’t ones you’ll need to refer back to frequently. If you need physical copies of some records but don’t need to access them often, secure offsite records storage services are an ideal solution. Offsite storage allows you to preserve important originals while freeing up valuable office space.

When Is It Safe to Securely Shred Financial Records?

Part of business records storage is safely getting rid of the records you no longer need. Secure document shredding eliminates the records without compromising the data.

Examples of records that are commonly destroyed once eligible under company policy and applicable regulations include:

• Accounts payable and receivable receipts
• Bank deposit slips
• Routine transaction slips
• Expense report backup documents

But before you destroy any records you’re ready to get rid of, make sure you have an approved records retention schedule you’re following. Records retention for businesses outlines what you keep and for how long, so you don’t accidentally shred any documents you may still need in the future.

Confirm applicable federal, state, industry, and legal requirements and only move forward with secure records destruction after you meet these retention requirements. And when you destroy documents, make sure you follow these best practices:

• Maintain a documented chain of custody showing who has control of the document and where it is.
• Get certificates of destruction confirming the documents have been destroyed.
• Protect confidential financial information by destroying the documents yourself or through a trusted secure shredding services partner.

Securely destroying documents reduces identity theft and fraud risks by eliminating sensitive data that could get lost or compromised.

Creating a Financial Records Retention Policy

Every business needs a records management program. Follow these steps to build yours.

1. Inventory existing records: Look at the paper and digital financial records you already have so you know exactly what you’re working with.
2. Categorize documents: Group records by function and retention requirements. For example, your categories could be income, expenses, banking, payroll, and assets.
3. Establish Retention Schedules: Decide how long you’re going to keep documents in each category based on legal and operational needs. Develop clear policies that outline these retention schedules to avoid misunderstandings across your team.
4. Determine Storage Methods: Decide which records belong onsite, offsite, digitally, or in hybrid storage depending on how often you’ll need to reference them, how much space you have, and how much security they’ll need.
5. Schedule Regular Reviews: Conduct annual or semiannual reviews to identify records eligible for secure destruction.

Common Financial Records Management Mistakes

Understanding the common financial records management mistakes others make will help you avoidthem in your own business. Watch out for common pitfalls, such as:

• Keeping every financial record forever: Instead, regularly review your records and destroy the ones you’re sure you no longer need to free up space.
• Destroying records too early: On the flip side, destroying records too early can leave you without information you need later. Stick to an established records retention schedule and refer to compliance resources for determining how long you should hold on to your documents.
• Using unsecured storage rooms: Secure your financial records either on site, with locks and restricted access, or through secure offsite business records storage.
• Storing confidential financial files in shared office areas: Reduce the risk of compromising sensitive data by storing confidential files offsite or in a secure on-site area.
• Poor document indexing: Use consistent file names and categories to make your documents much easier to find later.
• Mixing accounting records with general business files: Keep accounting records separate from general files like meeting minutes and business plans that generally don’t require as much security.
• Not documenting destruction activities: Keep certificates of destruction for important financial records so you know exactly what was destroyed and when.
• No disaster recovery plan: Make a disaster recovery plan that outlines how you will protect and access your important business documents in the event of a disaster to maintain business continuity.

Keep Records Secure With a Clear, Dedicated Strategy

Financial records are among a company’s most valuable assets. A thoughtful strategy for deciding what to store, what to digitize, and what to securely destroy helps organizations reduce risk, improve efficiency, and maintain better control over sensitive information.

Review your financial records program periodically to ensure it continues to support your operational and compliance goals.

How Corodata Helps Businesses Manage Financial Records

Working with a reliable records management partner like Corodata can help you improve your document organization while protecting your critical business information.

FAQs

What financial records should a business keep?

Generally, businesses should keep income records, such as sales invoices and merchant account statements showing money coming in, and expense records, like vendor bills, paid invoices, and credit card statements. Also keep records of business assets through receipts or bills of sale for equipment, inventory, or real estate, and include depreciation as applicable.

If your business has loans, store records of your financing agreements. Make sure you have records of employee payroll, including wage rates, hours worked, benefit contributions, and employment tax withholding forms for each worker. Also, keep copies of your filed federal, state, and local tax returns with any additional supporting documents.

The simple answer is that you should typically keep all records of money moving in or out of your business.

Can businesses scan financial records and throw away the originals?

Yes, you can often scan business financial records, keep the digital copy, and throw away the original. You typically won’t need the physical copy of financial documents, with some exceptions. Keep physical copies of things like original loan documents, signed contracts, and other documents requiring original signatures.

How long should financial records be kept?

For tax purposes, the IRS recommends keeping financial records for at least three years beyond the date you file the associated tax return. The IRS can go back as far as necessary to address significant errors, but most audits don’t go back more than six years. So, a good rule of thumb to be safe is to store financial records for at least seven years.

Check whether any specific federal, state, or industry requirements apply to your business’s financial recordkeeping. You may need to keep some records forever.

For internal use, keep business financial records long enough to verify the information and identify any errors so you can address them. That might be two, four, even 10 years or more of records, depending on your business needs.

Which financial documents should never be shredded immediately?

Never shred any financial documents you may need in the future until you’re sure you have a secure digital copy. Once you confirm digital copies, you’re generally safe to shred documents you don’t need in their original physical form. These documents may include original signed contracts, loan agreements, and corporate governance documents.

What’s the safest way to dispose of old financial records?

The safest way to dispose of old financial records is through secure shredding services. Before shredding, make sure you have met your business’ retention requirements and no longer need a physical copy of the records you’re shredding.

Should financial records be stored onsite or offsite?

Many businesses store financial records offsite to reduce storage space onsite, keep sensitive data secure, and protect their documents from local disasters. Onsite storage may also be a good option if you frequently need to reference hard copies of your financial records.

How often should businesses review financial records for destruction?

Regular reviews of your financial records will help you identify documents that you may no longer need. The exact schedule depends on your business needs. Set a schedule for how often your team will review your records, set aside documents you no longer need, and destroy them securely.