To keep your business running smoothly (and avoid extra stress or legal consequences at tax time), you’ll need an organized filing system for paperwork. You need to save everything that has to do with spending money (no matter how small the amount): records for income (receipts, invoices, deposits and contracts), expenses and the property. Think mileage, training or education, and government programs too.
While organizing paperwork in the moment can seem daunting, keeping things organized allows your accountant to easily process the information and potentially maximize your refund. When you're on top of filing, you have up-to-date information on cash flow. If you have unexpected costs during the week or month, you know if you're still making a profit, if you can still afford to pay your staff and if you're still on track for saving for the equipment on your shopping list.
Get in the daily habit of putting things in order so you won’t be scrambling or charged extra bookkeeping fees later. In other words, avoid throwing receipts into a shoebox or a neglected drawer. For extra support, use an application like QuickBooks to keep track of daily spending.
Physical vs. digital files
Every business’ needs for file storage will be different. It’s important to use a method that works for your business so you’re confident when it comes time to recall important documents.
The Canada Revenue Agency accepts records that are produced and kept in:
- paper format
- paper format and later converted to and stored in an accessible and readable electronic format
- an accessible and readable electronic format
If you opt to keep electrontic files, schedule regular backups and keep those in a safe location, away from threats like magnets and moisture.
While digital files don’t take up space and can be backed up, you may lose access to them if your Wi-Fi stops working or your computer is compromised.
Physical files aren’t affected by internet issues and are necessary for some lines of work, but they can take up a lot of space and could be lost or damaged in a disaster.
Keep it simple, consistent and intuitive
Keep labels consistent and stick with the file naming system you implement. Folder categories could include payroll, accounts payable, accounts recievable, bank/credit card statements, pertinent company information, employee information, client information, vendor information, marketing, taxes, assets, legal, operations/training and human resources.
You might need subcategories for different accounts or tax types, for example. If a document doesn’t fit into a current category, create a new folder with an easy-to-remember name. Within those folders, you could organize alphabetically, by date or by invoice number.
You could also hire someone to be in charge of administrative tasks, like keeping the filing system efficient (deleting duplicates and minding the document retention policy, for example). Establish permissions to access files, whether physical folders are in a locked cabinet or an employee needs a password to access a file on cloud storage.
Document retention
Generally, keep your records for six years (from the end of the last tax year they relate to, according to the Canada Revenue Agency). If your business files taxes late, opt to keep records for seven years.
Payroll and employment records must be stored for at least three years, according to the Canadian Federation of Independent Business. Meet with your accountant or lawyer to stay up to date on Alberta document retention laws.
Shred and securely dispose of any documents you throw out to protect your business data, employee information and sensitive materials to prevent fraud, theft or other crimes.
Boring but important
Find a system that works for you and use it! Some might consider filing boring, but having an ongoing record of what's going in and out of your business is essential for its success (and your peace of mind). You can use the productivity hack of eating the frog first to stay on top of your records. File and digitize documents immediately, continuously back up electronic files and maintain your system daily (ideally) or weekly (still good).