To Shred or Not to Shred: The Finances of Business Records

Wednesday, November 14, 2018, 6:00 AM | Leave Comment

Nearly every office comes with a desire to go paperless and get rid of the large file cabinets in the corner. From the medical industry to accountants and tax professionals, offices are moving into the paperless age as fast as technology will allow.

However, there are still records a business must keep, and some of those are paper records. There are several reasons for this, including legal obligations, client and customer privacy when it comes to personally identifiable information, and other best practices.

However, besides keeping you out of legal trouble, there are also other reasons keeping good business records can potentially save your company money. Doing so can protect your intellectual property, prepare you to deal with the IRS in case of an audit, and actually help you establish the value of your business when you are applying for a loan.

When it is time to get rid of those records, how do you go about it? Do you have to shred physical records, or can you just throw them away? Is deleting them from your server and computer enough, or do you need to do more? What does it all cost?


  • Legal Obligations

    There are some records it is your legal obligation or at least a good idea for you to keep. Often there are statutes of limitations tied to these records, and you need to hang on to them for at least that period of time.

    Here are some record keeping guidelines:

    • Business Tax Records: Experts say you should keep these indefinitely, just to be able to prove that you filed in case the IRS asks. Supporting tax documentation should be kept for at least three years, but most experts say to hang on to them for six years from when you filed or when the taxes were due.

    • Bills and Receipts: Unless it supports a claim on your tax return, you can shred most bills as soon as the payment clears your bank account — or at the very least by the end of the year.

    • Real Estate Records: These must be kept as long as you own the property, but save them for three years after that to be sure.

    • Securities: As long as you still hold the investments, you should keep detailed records of all security transactions including broker fees.

    • Employee Records: Do not shred these records until three years after the employee has left the company.

    • Time Cards: These must be kept for at least three years legally, but most experts advise you to keep them even longer.

    • Sales Tax Returns: This varies by your state law, so check with your state tax commission.

    This sounds like a lot of records, and it is. Not all of them can be stored digitally. So how do you store them properly and protect them at the same time?

    Also, what about customer credit cards and purchase data? Parts of this, such as the amount of the transactions, must be kept for three years as they support your business income tax claims, but you can get rid of credit card and buyer personal information sooner. This is not a bad idea to prevent credit card fraud and identity theft, but you still want the customer data to inform web personalization and provide better customer service, and security for this data is much stricter.

  • Record Management Systems

    Records management is two pronged. First, you have the obligation both legally and practically to keep some physical records, while you can keep others digitally. Second, both types of records must be kept secure, not only to protect your own privacy but also that of your customers and clients.

    There are a couple choices when it comes to managing these records. You can either establish an in-house records area and records policies or outsource record storage and management. Another approach is a hybrid one, in which you store some types of documents but outsource others. What are the pros and cons of these approaches?

    All types of record management come with a cost. For off-site storage, you must pay a company to store the records for you. If you store them on-site, you will have to use valuable office real estate for storage, and that area will have to be protected with extra security. The hybrid method will have a bit of each cost involved.

    Off-site records management offers a few big advantages. Records are less likely to be misused or abused, as they are not available on-site. As mentioned above, it does save storage space, and it serves to protect files from environmental damage should there be a flood or fire.

    On-site record management offers two primary advantages. The first is that records that need to be frequently accessed are readily available. Also, if you are working with single copy records, you can ensure that the latest version is the one filed, especially if it is a document that is updated often.

    The hybrid approach stores some records on-site, while others do so remotely. That way you have the records on hand that are frequently accessed, but those you need rarely during daily operations, if at all, are stored off-site.

    Digital records have the same option. A digital records management system can even allow remote access when you need it, but servers and hard drives are off-site, encrypted and secure. These are all important requirements to protecting your business data in this digital age.

  • Best Disposal Practices

    All business records should be thoroughly shredded before being disposed of. There are shredding services that will pick up your records, shred them, and then recycle the paper afterwards. Alternatively, you can shred them yourself and send the paper to a recycling facility.

    Digital records are a little tougher. Just hitting “delete” in file manager does not remove them entirely, and for them to be truly gone, a hard drive must be wiped several times or must go through a specific software process to “scrub” the records.

    Often these shred and recycle services are free, and if you use off-site record storage, they may include a certain amount of shredding as part of their services so that you can purge records as they are no longer needed.

To shred or not to shred? In general, shred all of your business records once you no longer need them. Just be sure you don’t shred them too soon. Count the cost of keeping records for longer than you need, no matter what kind of record system you adopt.

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