The document provides guidance to CFOs on retaining important business documents. It recommends saving documents related to taxes, business operations, employees, and finances. State and federal laws dictate retention periods that range from 1 year to indefinitely, depending on the document type. The document stresses the importance of an organized storage system to facilitate document retrieval and compliance with legal requirements.

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The CFO’s Definitive Guide
To Document Retention
What Records to Keep and How Long?
As Chief Financial Officer, you must organize all financial paperwork in
order to protect the business from penalties, civil lawsuits and criminal
charges. As the company grows, the amount of paperwork can be over-
whelming; it is important that you and your team understand what types
of paperwork to save, how to save it, and for how long it should be saved.
Records related to setting up the business as well as tax records, receipts
and invoices, employee documentation and other pertinent information
should be saved. State and federal laws vary about how long each type of
record must be kept – if you don’t have an organized storage system you
might end up drowning in paper.
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What Types Of Records Should Be Saved?
There are few hard-and-fast rules about what type of records to keep. However, you need to save
all papers related to your taxes as well as papers demonstrating that your business is legitimate and
follows all applicable laws.
Articles of incorporation and business registration. Keep copies of this type of paperwork
for the entire life of the business. Articles of incorporation contain all of the pertinent legal information
about the business, and may need to be referred to from time to time. In addition, in the case of an
audit, a company must demonstrate that the business was incorporated properly. It’s important to
also keep copies of any registration forms such as the DBA form if a demonstration of legal rights to
operate business under a chosen name is required.
Licenses. Many businesses must be licensed by the state, county or city where they are located.
Some licenses must be displayed prominently in the business location while others may simply
be stored.
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Copyright and patent notices. These notices give important intellectual property rights, so they
should be held onto.
Year-end financial statements. It is required that these statements be available for investors
and auditors to look at.
Tax paperwork. In addition to tax returns, copies of all receipts must be kept if it is intended to
take any deductions for the business with them.
Invoices and payments. It is necessary to keep track of how much money the business is taking
in and how much it is owed.
Personnel records. Save all current and former personnel records and information related to
hiring, firing and promoting employees. Each employee or candidate should have a record. Save any
disciplinary action reports, background checks and test results.
General correspondence. Keep copies of all correspondence with customers, other businesses
and anyone else of importance. It’s especially important to keep copies of correspondence
regarding complaints.
These are only a few of the standard types of records that businesses keep. Depending on the
business and its needs, it may be necessary to keep other records, such as records of mortgages and
deeds, insurance policies and purchase orders. If any of your employees are injured on the job, keep
copies of accident reports and settlements.
What’s The Proper Length Of Time To
Store Documents?
The amount of time to keep records differs by type. Some records need to be kept for only a year or a
couple of years, while others need to be kept throughout the life of the business.
Records related to the incorporation of the business should be kept for as long as the business is in
operation. Any legal records, such as licenses, patents, registration forms and tax ID forms should
also be kept throughout the business’ life.
Tax records have to be kept for a minimum of three years, however, these records may come in handy
to your business in the long run so it does not hurt to hold on to them indefinitely. You can safely
shred general correspondence, inventory logs and expired insurance policies after three years.
Some records should be kept for seven years. These include bank statements, personnel records for
terminated employees and purchase orders.
See Chart “Document Retention By Years” on pg. 6
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What Happens If I Fail To Keep Accurate Records?
There are financial and legal consequences for not keeping accurate records. Most record-keeping is
related to tax laws, so be careful to keep records appropriately. If not, you might face the
following consequences:
Pay Extra Taxes. If you don’t keep records of estimated tax payments or don’t keep receipts for
planned deductions, you won’t be able to claim these items on a business tax return and will have to
pay more tax than is owed.
Tax adjustments after audit. If you get audited and don’t have paperwork to back up claims,
the IRS may decide that you need to pay more taxes than you originally had to pay. There may also
be costly penalties for the failure to file taxes appropriately.
Audit failures. Failing an external or internal audit can lead to large fines or even the closure of
your business.
Criminal penalties for improper licensure. Without copies of licenses, a person can face jail
time for operating without the proper license.
Inability to protect your business from theft. Without the right paperwork to justify claims,
you may not be able to sue someone for copyright infringement or patent infringement.
Employee lawsuits. If an employee claims you acted in an illegal manner – i.e., a wrongful
termination or a refusal to pay worker’s compensation – you won’t have much recourse if there is no
paperwork to prove that you complied with the applicable laws.
Deals fall through. Losing or misplacing an important document can cause a major deal to fall
through. Something as small as an old employee contract can hold up a transaction greatly reducing
your chance for success.
In order to prevent these negative consequences, it’s important to find a storage system that works
for your business. It should be a business requirement to have some kind of system in place in case
you are audited.
Storage Solutions
Keeping track of these different records and the length of time to save them can get confusing so it is
important to be organized from the very beginning. If you don’t find a suitable means of storing all of
your records, they can quickly take over your office space. In addition, if you store them in a way that
is not organized, you won’t be able to find records when you need them.
Records may be retained in hard copy or electronic storage. There are advantages and disadvantages
to both, and many businesses use a combination of storage solutions to help themselves
stay organized.
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Electronic Storage Solutions
The number one advantage of these solutions is the quick and easy access authorized users have to
urgent or important information. There are different types of electronic storage solutions to choose
from. Which solution to choose is dependent on the use case.
Free Solutions
Storage systems like Box.com or DropBox, are good for non-private documents when doing
collaborative work; you can share marketing and promotional documents amongst different groups
within the company. The advantage to using these types of solutions is that they cost you nothing.
However, these solutions often lack extensive - if any - security. You do not want to store the
company cap table or financial reports in an insecure storage space.
TIP
As a general rule, if you would shred physical copies of a document, you
should not store it in an online storage facility that you don’t pay for.
Paid Solutions
When document storage and sharing occurs during financial transactions that involve many outside
parties (lawyers, venture capital firms, auditors, etc.) it is a best practice to use an online service that
you pay for. These services services generally have more security options and much better protection
against security breaches.
One electronic solution you can purchase is a virtual data room / online sharing space with secure
sharing capabilities. This software allows you to scan documents into the storage system, organize
them and give select authorized parties inside or outside company walls the ability to access them.
Virtual data rooms are designed for transactions like audits, mergers, acquisitions, equity investment
rounds, 409A valuations, patent management and equity investments.
Online document storing and sharing software services are cloud computing applications, which
means that your documents are stored on a secure server elsewhere rather than in your office. You
and your employees can connect to the server and upload, download, or share sensitive information
from anywhere and on any device that has internet access.
There are several advantages to using this type of software but it is important to do your due
diligence before selecting one to make sure it will fit your general use and security needs. One
advantage of these solutions is their filing system which can keep documents organized in an indexed
or customized way for the user.
You may be able to dispose of a large percentage of paper copies of non-essential documents, too,
once the documents are stored on the server. This allows the company to cut back on the amount of
paperwork stored in the office and general paper supply costs. This is not only good for organization,
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but also good for the environment. If you use electronic document storage appropriately, you will use
far less paper.
Security Is Another Advantage Of Paid Solutions
If storing or sharing important and sensitive business information it is necessary to treat web security
the same as physical security within a company. If sensitive information is being shown to potential
investors you do not want information to fall into the wrong hands.
Here is a checklist of must have security features of your storage solution:
1) SAS 70 certification. This ensures the data servers are protected in a heavily secured physical
location with 24/7 security.
2) 256-bit encryption. This level of encryption is certified for top-secret government documents
to keep your information private and protected from hackers.
3) Two-factor authentication. It is easy for malware or an ill-intending individual to detect or
steal passwords. Just like your bank, your data room should require two-factor login.
4) Permissioning. Only authorized users should have access to specific files that involve them.
With permissioning you avoid worrying about the wrong people having access to sensitive files.
5) Audit logs. Know who is looking at what documents and when. Keep people accountable.
There are other additional security features that can give your company an advantage including
watermarketing to ensure accountability and privacy, so be sure to ask questions when deciding on
a service.
Dealing with all of the paperwork, filing, and organization related to properly running your business
can be a headache, to say the least. However, if you use an organizational system that is secure and
makes sense, you can easily keep track of paperwork. You’ll never have to worry about financial or
legal penalties for losing important paperwork if you stay organized.
About the Author
AppFolio SecureDocs is a highly secure, virtual data room to store and share sensitive corporate
documents with parties outside the company during fund raising events and other critical legal, real estate
or accounting events.
References
IRS Publication 583: Kinds of Records Should I Keep?
http://www.irs.gov/publications/p583/ar02.html#en_US_2011_publink1000253168
Bankrate.com: What Financial Records to Keep and How Long to Keep Them
http://www.bankrate.com/brm/news/biz/Biz_ops/19990714a.asp
Information Week: Electronic Document Storage for SMBs
http://www.informationweek.com/news/218600260
Baylockcpa.com: Storing Tax Records
http://www.blaylockcpa.com/tax-retention-guide
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DOCUMENT Correspondence with Customers and Vendors
Duplicate Deposit Slips
RETENTION 1 YEAR
Purchase Orders (other than Purchasing Department copy)
Receiving Sheets
BY YEARS Requisitions
Stenographer’s Notebooks
Stockroom Withdrawal Forms
Employee Personnel Records (after termination)
Employment Applications
Expired Insurance Policies
General Correspondence
Internal Audit Reports
3 YEARS Internal Reports
Petty Cash Vouchers
Physical Inventory Tags
Savings Bond Registration Records of Employees
Time Cards For Hourly Employees
Accident Reports, Claims
Accounts Payable Ledgers and Schedules
Accounts Receivable Ledgers and Schedules
Bank Statements and Reconciliations
Cancelled Checks
Cancelled Stock and Bond Certificates
Employment Tax Records
Expense Analysis and Expense Distribution Schedules
Expired Contracts, Leases
Expired Option Records
Inventories of Products, Materials, Supplies
7 YEARS Invoices to Customers
Notes Receivable Ledgers, Schedules
Payroll Records and Summaries, including payment to pensioners
Plant Cost Ledgers
Purchasing Department Copies of Purchase Orders
Sales Records
Subsidiary Ledgers
Time Books
Travel and Entertainment Records
Vouchers for Payments to Vendors, Employees, etc.
Voucher Register, Schedules
Audit Reports from CPAs/Accountants
Cancelled Checks for Important Payments (especially tax payments)
Cash Books, Charts of Accounts
Contracts, Leases Currently in Effect
Corporate Documents (incorporation, charter, by-laws, etc.)
Documents substantiating fixed asset additions
Deeds
Depreciation Schedules
Financial Statements (Year End)
General and Private Ledgers, Year End Trial Balances
Insurance Records, Current Accident Reports, Claims, Policies
FOREVER Investment Trade Confirmations
IRS Revenue Agents. Reports
Journals
Legal Records, Correspondence and Other Important Matters
Minutes Books of Directors and Stockholders
Mortgages, Bills of Sale
Property Appraisals by Outside Appraisers
Property Records
Retirement and Pension Records
Tax Returns and Worksheets*
Trademark and Patent Registrations
* Tax records are not required to be kept forever, but situations may
arise in the future where the documents could come in handy.
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