Basic records for your small business
We all know that it’s important to keep business records, but it’s not always clear what that entails. In fact, the SBA dedicated an entire education module to record-keeping as part of their Financial Education Curriculum series for small businesses.
For example, you probably know to keep tax and accounting records, but did you know that you should also keep good human resources records as well? Here’s list of some of the records that you may need, depending on your business’s type, size, and complexity.
Tax records are extremely important and will help ensure that you’re meeting the legal requirements when it comes to federal, state, and local taxes. These records will also come in handy in the event of an audit, or if you need to amend your taxes after filing.
- Tax returns: Tax returns, including all related schedules and worksheets, should be kept permanently. Depending on your business, these documents may include business returns, personal returns, and even employee-related filings. You should also keep all documents used to complete your tax returns for at least six years.
- Employee withholding forms: If you hire employees, you’ll be required to withhold taxes out of their paycheck each period. Each employee should fill out a W-4 form prior to their hire date, and the IRS requires every business to retain these forms for at least 7 years.
- Tax-related letters, bills, and statements: It’s important to keep all tax-related communications from the IRS or your state or local tax authority. You’ll want to hold onto these records permanently for reference or in case of an audit.
- 1099 forms: A 1099 form is used to report contractor or other non-employee compensation. You may provide these to your contractors or receive them in connection with work you have done for others. Either way, be sure to keep copies of these forms indefinitely.
- Sales and other non-income tax records: Depending on the nature of your business, you may also be required to withhold and pay taxes on sales or other activity. If so, make sure to keep copies of whatever reports or other documents you file in connection with these tax payments.
Accounting records can encompass a wide variety of forms and statements that need to be maintained. While this may sound daunting, there are lots of different software options designed to make record-keeping easier and more organized. Here are a few of the accounting records you’ll want to keep on hand.
- Invoices and receivables: Invoices and receivables allow you to keep track of the services, merchandise, or credit given to your customers for which they owe payment. These documents will vary depending on what kind of business you’re operating. Any kind of invoice or accounts-receivable document should be kept for at least 6 years.
- Checks and payables: These are records of checks written or accounts payable, including purchase orders, document outside business expenses or money owed to a supplier. Keep these records on hand for at least 6 years.
- Audit reports: As your business grows, you may get to the point where you engage a private auditor to assess your finances, including your assets and liabilities. You should retain all audit reports permanently.
- Financial statements: Financial statements are periodic reports that give insight into your business’s financial performance, current assets and liabilities, and other financial activities. These may be just for you, or they may be shared with shareholders, investors, and other interested parties. Either way, you should keep these reports permanently for reference and comparison with future statements.
- Inventory: If your business maintains and sells inventory, you need to track it. Many businesses keep track of their inventory using specialized inventory-tracking software. You’ll want to keep these records for at least 4 years.
Business records will contain all of the pertinent and legal information specific to your business entity. It’s important to maintain these records and keep them organized in case of any audits, as well as to protect your business.
- Annual meeting minutes: Most states require business entities licensed to operate within the state to hold regular shareholder/member meetings to make and approve major business decisions; the state may also require that you keep minutes, or records, of these meetings. Not only is this a legal requirement, it’s a good business practice because your meeting minutes can provide a record of business decisions that may be invaluable in the event of a tax audit or litigation.
- Contracts: Like employee contracts, you’ll want to keep copies of business contracts for the duration of the contract plus at least 5 years. You’ll likely run into many different kinds of contracts as a small business owner, including agreements for services, sales, financing, leasing, or purchasing. It’s important to keep a record of these to refer back to, and it’s always a good idea to keep original, signed copies of each document if possible.
- Copyright records: If you have any registered copyrights, trademarks, or patents for your small business, you’ll want to keep these on hand permanently. They are usually archived online as well through different copyright databases.
- Correspondences: This category can encompass a wide variety of communication methods between different parties such as other businesses, clients, or employees. It can include memos, emails, and other written mediums that contain important information or informal agreements. These correspondences can be very valuable if a legal dispute or error arises, and they should be kept for at least 3 years.
- Leases: Like contracts, leases are important to keep so you can refer back to the terms and agreements for practical reasons and for any potential legal issues that may come up. Again, it’s important to keep the original copy for the duration of the lease plus at least an additional 5 years.
- Property records: Property records for your small business may include assessments or tax documents. You should keep a permanent record of any information or forms that you receive in this category.
- Licenses and permits: Depending on what kind of business you’re operating, local, state, and federal governments may require you to hold certain licenses and permits. Some examples include a city business license, a DBA statement, food-preparation permit, or a seller’s permit. You may also need to acquire proof of licensure from contracted employees as well.
- Insurance policy: This will usually include a commercial general liability policy. You’ll want to keep a copy of your policy on hand to know exactly what it covers in case of an accident, bodily injury, or property damage.
- Accident/incident reports: It’s a good idea to keep incident reports on hand in case of an injury or equipment mishap that may occur involving either employees or customers. You’ll want to keep blank copies as well as completed incident reports. Most businesses with over 10 employees are required to keep a record of serious work-related injuries and illnesses for at least 5 years. Your insurance company may also require you to keep records of on-the-job accidents.
- Business formation documents: If you structure your business as a corporation or an LLC, you’ll want to hang on to your formational documents, such as your Articles of Incorporation or Organization, Operating Agreement or Bylaws, and your organizational meeting minutes. Often you’ll need these documents to open a business bank account or get a business loan; they are also important in case you later decide to sell or dissolve your business.
Personnel and human resources records
If you’re planning to hire employees, you’ll need to keep track of the following records:
- Payroll: Payroll is one of the most important and extensive areas of record-keeping, and you are legally required to maintain all payroll-related records for 6 years. Payroll records include wages paid, taxes and other deductions withheld, and employee data (such as contact information, hiring dates, and social security numbers). It can be a lot of work to manage these records, so it may be more practical to use a professional payroll service or hire through a third-party employment agency.
- Contracts: Employee contracts are legally binding agreements made with the person you’re hiring. These documents will outline the terms and conditions of the services being exchanged and should be kept on file for the term of employment plus at least 5 years.
- Personnel files: Personnel files can contain a variety of information specific to each employee. Some of the documents kept in these files include performance evaluations, licenses and certifications, medical information, and hiring documents. These files should be retained for the duration of each person’s employment plus 3 years.
- Insurance records: If your business offers employee benefits or insurance, you’ll want to keep records for each employee for at least 5 years. This will help you keep track of important policy information.
- Timecards: If you are hiring hourly employees, they will be required to keep either a paper or electronic timesheet. You’ll need to retain records of how many hours your employees work for at least 3 years.
- Retirement plans: If you’re planning to offer retirement benefits (such as 401k options) to your employees, you’ll need to keep good records of the deductions and enrollments. There are many online programs and electronic tools you can use to maintain these records. You’ll want to keep retirement-related records for at least 6 years.
- Employment applications and resumes: You aren’t legally required to keep these documents, but keeping good records on each of your employees, and even job applicants, can come in handy. For example, you might want to call that former applicant back for a different position. Your employees’ original applications, job descriptions, and resumes are all useful additions to their personnel file.
- Workplace posters: While this isn’t necessarily a record that you’ll file and retain, you’ll want to keep up-to-date workplace posters up in your business for compliance purposes. The U.S. Department of Labor and State Labor Offices can help you determine what’s required.
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