Accounting FAQs: A Business Guide to Retaining Documents
Updated: May 24, 2021
Document retention is something that every business needs to do to run successfully. From taxes to employee records, every company needs their details on file. If you’ve only just gotten started, there are a few things you may be wondering about document retention. Here are a few common questions that most people ask when it comes to important files:
How Long Does a Business Need to Retain Documents?
The brief and slightly annoying answer to that is it depends. Not every document follows the same timeline as the rest: some need to be retained indefinitely, and some need to follow the seven-year principle. The count begins from the day they were created.
What is the Seven-Year Principle?
The seven-year principle is based on the law that requires most documents to be on file. While this applies to many essential documents such as employee records, it doesn’t apply to other forms such as deeds and intellectual property rights. Here is a general timeline of most of the documents needed in the system of a business:
Income and Expenditure - any document related to these in any way is subject to five years of retention.
Employee records after termination of employment - companies must hold this information for seven years starting from the day of termination.
Deeds - deeds have a limitation period of twelve years.
Intellectual property rights - patents and trademarks are kept retained indefinitely. The estimated time is ten years to someone’s lifetime.
Retaining these documents requires proper system management. Your storage solution must be completely secure for confidentiality reasons.
How Do I Store these Documents?
This much information is often stored in a records room managed by a bookkeeper. For small businesses with few employees and not a lot of paperwork, a filing cabinet with a lock and key could work. They need to be sorted properly and labelled so that you can easily find files when they are needed.
Other companies that don’t want to keep too many hard copies in their space can opt for a digital filing system where all the information is backed up in a private server. Personal cloud storage could also work. You will, however, have to allot expenses for security solutions. Confidentiality and privacy is always a priority when it comes to legal documents.
Why does it Matter to Know these Things?
Knowing how long to retain documents lets you know how long they matter. Storage issues or business expenses for security may seem inconvenient for your business, but it is necessary (and legally mandated) to have these documents. Not having these documents in your possession is an offence that could result in legal action. When it comes to the law, it is in your business’s best interest to comply.
When it comes to sorting through documents, you can’t set the task aside. Be a responsible business owner and get the paperwork done as soon as possible. You’ll save yourself trouble in the future by doing it right away. When you know where things are stored, it makes things easier to find. You’ll never know when this information will be useful or necessary for your endeavours.
Not all businesses have their accounts together, and some CEOs spend their time on operation rather than administrative work. If this is your mindset, you should probably look for a small business accountant on the Gold Coast. New Wave Accounting is an end-to-end accounting and bookkeeping service that can help your business succeed through tailored solutions catered to your industry. Schedule a meeting with us today!