Records Management for Your Small Business

In the business world, organizing paper and electronic documents is commonly referred to as records and information management (RIM). Businesses have (or should have) systems to create, store, archive, and dispose of their documents according to rules and regulations pertaining to their specific industries.

What are Records?

A record is any information a business creates, receives, and keeps (regardless of format) to conduct business or meet legal obligations. Records are comprehensive and include more than what you submit to the Canada Revenue Agency (CRA) to prepare your tax return. Examples of records in your business might consist of:

• Paper bank statements delivered by mail.
• Electronic credit card statement you download from your bank.
• Email receipt for annual software renewal
• Photo of a client’s check you deposit in the bank.
• Text messages from a sub-contractor regarding their invoice.

Why Records Management Is Important

Maintaining orderly records is essential because you can find what you need when you need it. However, there is more to records management than an efficient filing method. You should have a records management program in place. A solid records management program will allow you to:

• Comply with applicable laws in your area. Are you meeting the CRA requirements for maintaining and keeping financial and tax records? Does your jurisdiction require a business license? Are your contracts (client, team member, etc.) signed and dated?
• Protect private and confidential information. Is your computer password-protected? Who has access to your online files? Are your backups encrypted? Do you keep your paper-based client files under lock and key? Who else can access the key?
• Ensure record integrity. Can you still open and read your electronic documents when you upgrade your software? Could anyone edit your electronic documents without your knowledge? Are your paper-based files at risk of water, heat, or other damage?
• Retain or dispose of the appropriate records at the proper time. You might know how long to keep tax documents, but what about client contracts or business policies? Have you deleted multiple copies of files? Do you need a paper shredder? Do you keep a list of records you deleted/destroyed and the date you did it?
• Maintain transparency and accountability. If anyone asks how you maintain records and who is responsible for the program, you will have an answer. You and your team members will know what information you must document and where and how to keep it. Additionally, if you are ever subject to an audit or involved in any litigation process, a records management program will show that you perform your due diligence.

Types of Records

The first step in developing a records management program is identifying your records. Let’s look at some definitions first. There are four basic types of records: Active, Inactive, Vital, and Archives.

• Active records are the ones you need to perform your day-to-day activities. These could include a client intake form for next week’s appointment, the email your bookkeeper sent, and a text message from a subcontractor confirming your meeting.
• Inactive records include the information (documents, emails, etc.) you need to keep for a specific period but will not likely refer to often, if at all. Often, these include your previous income tax returns or client contracts from last year. Many business owners I’ve worked with incorrectly call inactive records “archives,” but that is a misnomer.
• Archives are a curated collection of inactive records that you keep forever. You don’t keep all inactive records forever, just significant ones. For example, once the CRA retention period is over, you can shred your records, but you should retain your year-end balance sheet, income statement, and cash flow statement in your archives to compare over time. You can – and should – keep information related to significant milestones or events, such as a copy of marketing collateral, media coverage, etc. Hot Tip: Use the Internet Archive to save copies of media coverage (web pages) and your own website for posterity.
• Vital records contain information essential to your business’s continuing and enduring function should a crisis (fire, flood, computer virus, etc.) occur. Vital records preserve your business’s legal and financial status, support critical business processes, and ensure your reputation remains intact. For example, vital records include your certificate of incorporation, contracts, inventory records, policy manuals, and likely everything in your archives.

Building a Records Inventory

Before you start to organize your business records, you should do an inventory to determine the following:

• what records you have (financial, administrative, etc.);
• the types of records (active, inactive, vital, archives);
• the record format (electronic, paper);
• where you store the records (hard drives, filing cabinets);
• the age of the records.

Do not organize the records at this point; use a spreadsheet (paper or electronic) to note down the information about your records. This information will become the basis for your Retention Schedule. The Retention Schedule shows all the records you maintain and dictates how long you need to keep each type of record and what happens to the record at the end of its life.

Creating a Retention Schedule

Creating a Retention Schedule is among the most challenging steps for many business owners. You’ll need to research because different jurisdictions, agencies, and industries have different records retention requirements and recommendations. Here are some places to start:

• Your country’s taxation centre. The CRA provides information about document retention for small businesses and personal records. (Visit the Internal Revenue Service (IRS) in the United States.) Depending on your business structure and whether you claim household expenses (e.g., internet services) on your income tax, your personal records might fall under business records retention guidelines.
• Your Insurance Company. If your insurance provider covers you for work you did in the past, you may have to keep certain records (e.g., contracts, expired policies, etc.) in your archives for as long as you were in business and sometimes long after your business has closed.
• Department of Labour. The federal and provincial labour departments can provide retention guidelines for certain types of contracts, occupational safety and health records, and team member training records.
• Accountants, bookkeepers, notaries, lawyers, etc. Be sure that the professionals you consult are in the same legal jurisdiction. Ideally, book appointments with these experts to discuss your specific situation. As the old saying goes, “An ounce of prevention is worth a pound of cure.”

When you have determined the retention period for each record series, add it to your spreadsheet along with the reference. The reference is evidence you researched how long to keep specific records. In the Records Management field, your collection of references is called a “Citation Guide.”

It’s important to note that if two citations state different retention periods, you must keep the records for the longer period. For example, let’s say you buy a label maker for your business and claim the cost on your taxes this year. The CRA retention requirement for the receipt is six years. However, the label maker is one of your business assets, and you would claim it on your insurance if it were stolen. Therefore, you must keep the receipt as proof of ownership for as long as you own the label maker, which is much longer than six years.

Developing Records Management Policies

Before sorting and purging your records, create a records management policy and procedure. It will ensure that you have put care and thought into your records management program and are consistent in your actions as you execute your policy.

Your policy should include:

• how you create and maintain records, including your file naming scheme;
• which records are paper and electronic;
• record security protocols and who has access, and when;
• how and when you move records from the active to the inactive phase;
• which records get moved to your archives, and why;
• how and when you delete/destroy records;
• who is involved in updating the records management policy and how and when it happens.

Include your Retention Schedule, Citation Guide, and Report of Record Disposition in your appendices.

The Report of Record Disposition is a form listing all the records you will destroy. It includes the records’ names (or computer file names), the destruction/deletion date, and the method of destruction. In larger corporations, the form also lists the department, the employee performing the tasks, and the authorizing records manager. Printing and signing your name on the completed form is likely sufficient for a solopreneur. However, if a team member destroys the records, the business owner should sign the form, too.

Organize Your Records

Finally, you can organize your records according to the policy you have just created. As you progress, make notes of files you rename and re-arrange so you don’t lose anything. Do not delete or shred anything yet! Next, move all the paperwork you want to shred to one box and move all the digital records to one folder.

Once you have organized the records you are keeping, turn your attention to disposing of what you don’t need. First, confirm with your citation guide and retention schedule that you can delete or destroy everything in your “to destroy” folders. Then, fill out your Record Disposition Form as you go through your files. Note: If you are involved in an audit or litigation process, do not delete any records, even if they are scheduled for deletion. Always wait for authorization from the auditors and/or legal team before proceeding.

Once you complete the form, sign it and save it in a non-editable format (e.g., pdf). Then, file it in your archives with the other records you need to keep. Your policy will dictate how often you need to review your inactive records and move them to your archives or through the disposal process. For most businesses, an annual review is sufficient.

This post originally appeared on Metropolitan Organizing as Records Management for Your Professional Organizing Business. It is reprinted with permission.

Looking to build your Records Management Program? Check out my basic records management package.