As a business owner in the 21st Century, you will need to make the decision whether to keep physical (paper) or digital records.
While we at Anson Avery, CPA, PLLC recommend that clients keep physical records, we understand that there are many ways to reliably keep one’s records digitally.
Both methods, physical and digital, have their respective advantages/disadvantages and they are as follows:
You can also create a hybrid system that utilizes both methods of record keeping to suit your needs.
Physical Record Keeping
Use colored files to organize your business’s documents.
- Red Files – For VENDORS that you do business with.
- Green Files – For YOUR WORKING FILES, company information such as employees, insurance, taxes, forms…etc.
- Manila Files – For YOUR CLIENT FILES AND WORK PROJECTS.
Indexing inside of the files
- Use a STANDARD FILE INDEX on the left side of Red and Green files, or use “cover sheets” on both sides.
- Manila Files are indexed by your system (HAVE FUN DOING THIS).
Outside of the files
- All files are labelled and kept in ALPHABETICAL ORDER for ease of locating.
Digital Record Keeping
The greatest disadvantage to keeping one’s files solely in digital form is that many vendors do not allow their customers to retrieve digital versions of their records after three years (some even less, e.g. Comcast).
This could pose a great deal of problems were you to be audited by the IRS as they require actual physical copies of all source documents for the purpose of substantiating business expenses.
In order to protect yourself from an audit and have your business’s source documents easily accessible we recommend the following:
- DOWNLOAD AND SAVE ALL DOCUMENTS pertinent to your business (statements, invoices, reports…everything).
- BACKUP ALL DIGITAL BUSINESS FILES to a thumb drive or a cloud based server.
- Perform the backup at least once per week and more often if you record business transactions throughout the week.
Anson Avery, CPA