It goes without saying that your company's financial records are very important. But how long should you keep them for? The required record retention period for financial records must be closely adhered to. Here are some reasons why not complying can have a seriously negative impact on your business:
Broken business deals
In many cases, an important business deal can be contingent upon certain elements of your company's finances. If your record retention period for financial records isn't properly managed, then you could accidentally destroy these documents, putting the deal at risk. For example, if you are a small business seeking a significant infusion of cash from an investor, they will want to know what the financial health of your company looks like. If you have missing financial records that should have been kept within their retention period, this will make it impossible for you to prove to the investor how healthy your business is.
Lost lawsuits
Whether you run a small startup or a Fortune 500 monolith, lawsuits can happen. In order to protect yourself, you need to have all of your records in order, including your financials. If an employee sues you for wages owed that you actually paid, for instance, you should be able to prove this. Improper record retention could cause this proof to be destroyed prematurely.
Reduced insurance claims
No matter how friendly and professional their agents are, your insurance company is looking for a reason to pay you as little money as possible – if anything at all – in the event of a claim. For example, if your equipment is damaged in a fire, they may try to minimize the value of your lost property if you are unable to prove its value with receipts and depreciation figures.
Problems with your taxes
Your taxes are some of your most important financial records. Even though you don't need to keep them forever, you do need to hold onto copies of your complete returns for at least six years. Here are the problems that could occur if you get the retention period for your taxes wrong:
Failed audits
When it comes to taxes, this is a dreaded word for businesses and individuals alike. A tax audit is even scarier when you don't have the documentation to support the information in your initial tax filing. This can result in increased taxes or even allegations of tax fraud for your company, or members therein.
Rejected amended returns
If you discover worthless securities -- or anything else that will create a deduction -- on a previously filed tax return, you need to be able to prove how these changes affect your taxes. If you have preemptively destroyed some of your financial records before the end of their retention period, however, you may not be able to prove a thing.
How do I make sure that my financial records are in sync with government retention periods?
Keeping up with each record retention period for financial records isn't always easy. Fortunately, you can make things a lot easier with the right document management software (your records should already be converted to digital). It will allow you to streamline your document management for better record retention.
Make sure that you can keep up with each record retention period for financial records
It is critical for your business that your record retention practices are on point, especially regarding your financial records. Instead of assuming that they are taken care of, and putting your company at risk to problems like the ones discussed in this article, streamline your financial records management with the right tools.
