Being in business means keeping up with a lot of varied information. Oftentimes business owners are confused as to what they should keep, for how long and how to store it. This short blurb should take the mystery away and give you a few simple rules to follow.
The What – here is a list of items that should be kept and for how long
- Contracts – Contracts, licenses, signed agreements, corporate and partnership documents, corporate meeting minutes, should be kept indefinitely. Expired contracts that are not relevant to the business any longer, such as a lease from a previous location, can be shredded after 4 years.
- Transaction documentation – Documentation of transactions that occur on your financial records, including sales receipts, deposit slips, checks, bank statements, vendor invoices, purchase orders, mileage logs, petty cash records, payroll records, all of these should be kept for a minimum of 4 years.
- Income tax returns – both federal and state, should be kept indefinitely.
- Financial statements – including general ledger, balance sheet and profit and loss statements, should be kept indefinitely.
- Contracts and other agreements should be kept as long as they remain in effect. You never know when you might have to support the way something was handled, or refer back to determine how something should be handled.
- Transactions that support your financial statements and tax returns are kept for at least 4 years because of the potential for an IRS audit. The IRS can audit tax returns up to three years after the date you filed the return. At audit, you will be required to produce supporting documentation for income and expense items, proving that they are legitimate transactions. Tax returns due dates can be extended, so actual filing dates may vary from year to year. Rather than keeping up with the date you filed and counting forward three years, a simple rule of thumb is to keep records for 4 years, and you will be covered regardless of when you filed.
- Income tax returns are kept indefinitely not because you are required to by the state or IRS but because they are a good reference for you later on if you want to see how your tax situation has changed over the life of your business.
- Financial statements are kept indefinitely for the same reason as tax returns. Financial statements are the history of your company and important for analysis and understanding the financial changes over time.
You are likely already storing your records electronically; it’s the easiest and least expensive storage option. Many accounting software programs will allow you to store documents with individual transactions. For example, when you enter a vendor bill into your accounting system, you can attach a scan of the invoice to that transaction. This is super handy; much easier than searching through files if an issue comes up around that bill. Most banks offer the opportunity to download your bank statements, deposits and checks electronically, no scanning required.
The only exception to storing information electronically is signed originals of contracts. Store these electronically for quick reference, but keep paper copies as well. You may be required to produce an original, executed document at some point in time. Best practice is to put them in a fireproof file cabinet.
Lastly, it goes without saying that if you store your documents electronically, a reliable back up system is a must. There are a few options for electronic storage; my personal preference is storing in the cloud as this will save you the expense, maintenance and worry of an in-house system.
Proper documentation is an essential piece of running your cannabusiness and is easy if you make it a part of your daily routine. Adequate record retention will assure that you have data available when you need it and as a practical matter will insure against the angst and time you will spend looking for things.