By: Alicia Caldwell, AMC Literary Services
When you make the transition from owner to investor, and yes there’s a difference, there are many things that can cause stress to the novice investor. In situations where you are lacking knowledge, we at Carod Properties cannot stress vehemently enough, ask an expert. The consequences and penalties can be too high…and expensive by assuming or relying on inaccurate or outdated information.
One such area, is record keeping. New investors often find themselves in a quandary over what to keep and what to throw away. Neither the “keep everything” nor the “probably don’t need it” attitude is very effective or recommended when it comes to matters of business. Now, if you have sensitive information or unique situations, they may need to be handled in a sensitive and/or unique way. However, for general-purpose records retention, there are a few “best practices” that can be used as guidelines on what to keep or throw away and essentially help you to develop personal criteria for record keeping:
- Some items should NEVER be thrown away. If an item/document cannot be duplicated or reproduced, a good rule of thumb is to establish a system for “permanent records” filing. You should take further precautions, such as backing up copies in the cloud, and/or securing in a protected safe or lockbox.
- Examples: Income tax returns; legal documents; vital records (birth/marriage certificates), trusts and audits.
- Business records should be considered as “permanent record.” Businesses are held to a much more stringent standard than an individual. To add insult to injury, many individual industries have their own set of standards, making some things/documents more important in one industry whereas it may be insignificant in another. ASK AN EXPERT…THEN LISTEN TO THE ANSWER(S)!
- Keep tax records for 6 years. The IRS may go back as far as 6 years for errors and/or incorrect claims and deductions. Therefore, you must place the utmost importance on thorough, tax-related record/document keeping. This includes:
- Bank, personnel and payroll, vendor invoices, accident claims, and records on purchases and sells, to name a few
- Keep everyday paperwork for 3 years. NO one probably wants to know how much your electric bill was on a given date, but there are some non-essential, non-tax-related documents that may warrant retaining for as much as 3 years:
- Monthly financial, credit card statements; utility records; and, medical bills.
- ORGANIZATION is KEY! When developing your personal system for record keeping, for your business or your home, organization should be the cornerstone of whatever method you choose. Day to day, week to week a myriad of documents will potentially cross your desk. The only way to make heads or tails of this influx of paperwork is to first establish a well-thought, all-inclusive system, before even the first doc hits your desk.
You will find, once you have your system in place, that knowledge of all of these best practices is invaluable. When your hobby, passion, accidental venture becomes a business, everything, especially your thinking will need to shift. Success will depend on how effectively each area of your business is handled. And, the area of record keeping lends itself to almost every other aspect of your business. Take the time to do it right…or, suffer the consequences instead of reaping the rewards.
