By Lisa Ricciardi of Marcum LLP
Originally published January 16, 2024
For construction contractors navigating the fast-paced and project-driven construction industry, keeping organized records is a critical component of your business’s functionality and paves the way for future prosperity. Not only does effective record management help you stay compliant with legal requirements, it also provides valuable insights that can help you make more informed decisions. Let’s take a closer look at some smart record keeping practices, as well as reasonable retention periods for various important documents.
1. KEEP IT NEAT AND TIDY
Your records are the heartbeat of your business, allowing important details to flow to various internal departments, as well as outside regulators, lenders, and other important partners. Keep them well-organized, easily accessible, and logically categorized. Establish a consistent filing system, whether physical or digital, that suits your business needs. This will save you precious time and prevent headaches when you need to locate specific documents.
2. CAPTURE THE ESSENTIALS
Your database of records or filing system should contain essential information like invoices, receipts, contracts, financial statements, tax returns, employee records, licenses, permits, and other documentation related to your business operations. Be diligent in recording important events and milestones, as these details can be invaluable later.
3. BACKUP, BACKUP, BACKUP
Technology is a powerful ally when it comes to record keeping. Digitize hard copies of documents for posterity and make regular backups of all digital files to protect against accidental loss or damage. Consider utilizing cloud storage or an off-site server for secure and convenient access to your data from anywhere. Remember, redundancy is your friend when it comes to safeguarding critical business information.
4. SHRED THE UNNECESSARY
While keeping vital documents is important, don’t hold on to unnecessary clutter. Dispose of outdated and irrelevant records responsibly to free up space and maintain a clutter-free environment. However, be responsible when disposing of sensitive information and destroy documents that include privileged information. That’s one way to protect the privacy of your business and its customers.
SUGGESTED RETENTION PERIODS
Now, let’s take a look at suggested retention periods for certain types of documents. Remember, these are general guidelines; consult legal professionals or industry-specific regulations for specific requirements.
1. TAX RECORDS
Retain tax-related records, including returns, deductions, and supporting documents, for at least seven years. Some jurisdictions may require longer retention periods, so verify the requirements applicable to your business.
2. FINANCIAL STATEMENTS
Keep financial statements, such as balance sheets, income statements, and cash flow statements, for at least seven years. These records provide historical insights into your business’s financial health that can be valuable during audits and when seeking financing.
3. EMPLOYMENT RECORDS
Maintain employee records, including contracts, performance evaluations, payroll information, and benefits records, for at least seven years after termination. Retaining these documents helps with employment-related disputes and ensures compliance with labor laws.
4. CONTRACTS AND AGREEMENTS
Hold onto contracts and agreements for as long as they remain in effect, plus an additional seven years after termination. These documents are essential for reference, renegotiations, and resolving potential legal disputes.
5. INSURANCE POLICIES
Keep insurance policies and related correspondence for the duration of the policy term, plus an additional three to five years.
CONCLUSION
Good record-keeping practices are the backbone of a well-organized and legally compliant business. By following simple guidelines and retaining essential documents for reasonable periods, you’ll stay on top of your business affairs and gain an edge over less attentive competitors. So, get organized, stay diligent, and empower your record keeping so it becomes an asset as you grow your business. Happy record-keeping!
Article is reprinted with permission from Marcum LLP and originally appeared on marcumllp.com.
Lisa Ricciardi, CPA, CCA is a Partner in Marcum's Accounting Services Group, providing auditing, accounting, consulting, and tax services to individuals and businesses. She is an expert advisor to clients in construction and construction-related industries and has a strong background serving manufacturers, nonprofit organizations, professional service firms, and wholesalers. She can be reached at lisa.ricciardi@marcumllp.com or 631.414.4315.