Storing documents can be a nightmare for most start-up companies. On a daily basis, operating a legitimate start-up involves various kinds of transactions, products, services, and often several different parties. As a result, these kinds of operations necessarily generate hundreds of files, purchase orders, receipts, invoices, and other forms of documents.
Trying to store and keep track of all these documents is painful. Sometimes you may even have thoughts of deleting all of your files in the cloud and shredding every physical document you have not looked at since 2010. While this may seem tempting, developing and maintaining a system of accurate record-keeping is essential for a variety of legal and practical reasons. Some of the most important of these are discussed below.
Records are essential for determining tax liability
This may seem like a no-brainer, but accounting for all of a start-up’s income and expenses throughout a given period is extremely important when it comes time to file your taxes. This is true whether you file your taxes yourself or you use an accountant or accounting company. Keeping accurate and organized records can make determining your tax liability much easier and less time-consuming. Especially as your company grows, accurate record-keeping will help you avoid many headaches during tax season.
Furthermore, the Internal Revenue Service (IRS) is always lurking. Should you be audited, you will be required to produce records supporting all of the information that you provided on your tax return. If you are unable to do so, you risk being subject to significant penalties or even allegations of tax fraud or evasion. Just ask actor Wesley Snipes, task evasion is no fun. Surely you would much rather your start-up make millions instead of losing it all due to poor record-keeping.
Employee-employer disputes are a nearly inevitable part of operating a business, especially when employees leave your company. Sometimes, employees claim that they were discriminated against at work or that they were the subject of a retaliatory action by an employer. The last thing you want as the owner of a start-up is for an employee lawsuit to derail the company you spent years building up.
In these circumstances, it is extremely helpful to have detailed records regarding an employee’s performance, conduct, productivity, and attendance justifying any adverse employment action that may have been taken against the employee. In addition, detailed records can easily quell disputes that often arise over payroll or wage and hour issues. By keeping detailed records, you can ensure that any disputes that arise are resolved quickly and efficiently and that you have evidence supporting your position should your business become the subject of an employee lawsuit.
Disputes with clients or customers
It is important for start-ups to keep both paper and electronic files regarding their interactions and agreements with clients or customers. For example, records should be kept regarding any contracts into which you have entered as well as regarding any work you have done for a particular client. Not only is this helpful should you have a dispute with the client, but from a practical standpoint, keeping thorough files regarding the work that you have already performed can often make working with future clients easier and more efficient.
Keeping accurate business records is a necessary evil for the success of your start-up company. While it can be confusing, an experienced business attorney can help you determine what types of records you should keep and advise you as to how to implement policies to limit your legal liability. If you have questions regarding any matter related to business law, do not hesitate to call the Law Offices of Nate Kelly today at (310) 228-6215 in Beverly Hills or (415) 336-3001 in San Francisco. If you would prefer to send us an email, please do so through our online contact form.