Digitization is the wave of the future, right? With so many documents born digital in today’s world and businesses often feeling the crunch when it comes to adequate storage space, converting important documents to digital files with secure backups can seem like the best option. However, when it comes to financial documents, the situation is more complicated. Digitization has some benefits, but also a number of drawbacks.

One of the biggest problems with the push for digitization is that it overlooks some of the very real reasons why keeping hard copies of documents is necessary. Before you toss any originals, here are a few things you need to know about digitization.

Staying Organized

One of the most convenient things about paperless practices is that items born digital are generally searchable in multiple ways. For example, if you download a document but can’t remember where you filed it on your computer, you can search your files with the click of a button, saving you valuable minutes (or hours) searching for a misfiled paper.

Of course, plenty of people keep digital files that are almost as messy as their physical ones, with things poorly labeled or never put into folders, so going digital doesn’t mean you don’t need a good organizational system. Companies still need a standard digital filing system, particularly for shared items. One person can completely muck up the contents of a shared server by failing to follow protocols, so make sure everyone is clear that staying organized is still a priority.

Consider Time Constraints

If you think it’s time for your office to go paperless, one of the biggest decisions you’ll need to make is about whether or not this practice applies retroactively. Do you plan to digitize all of your old documents? If so, how soon? Digitizing documents can take a long time, since it requires a lot of physical labor to scan each item and label all of the new digital files. You may also need to shred the originals if you plan to get rid of them, due to privacy concerns.

For those offices planning to digitize old materials, sorting is the necessary first step. Just because you filed something as important ten years ago doesn’t mean it’s still important now. Go through everything before you convert it – it takes less time to decide whether to keep or toss something than to needlessly digitize things you don’t need.

To Reduce Or Eliminate

Some offices today are completely committed to having a paperless office for environmental reasons, and this is a noble goal, but not always realistic. First, depending on your business, a certain amount of paper will likely be inevitable – delivery invoices or hard copies of legal documents don’t seem to be going away any time soon.

It’s also worth recognizing that some people prefer to have paper copies of important documents. Working individually with both employees and coworkers can help you to determine how realistic going fully paperless is. It’s important to notify clients if you are going to eliminate paper notices, and it is preferable to give them a choice about how to receive information.

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Financial Documents As Special Case

In reality, no company is ever completely paperless, and no company ever should be. This is because when it comes to financial documents (a component of any business), hard copies are vital. In order to handle tax claims and potential audits, certain items must exist as original paper documents. This doesn’t mean you can’t digitize them for ease of use, but don’t throw out the paper copies.

To properly manage financial documents, you’ll need to know the major guidelines about what to keep and for how long. For most major documents, the rule is seven years because the IRS has six years to challenge tax claims suspected of underestimating income by 25% or more.

Not all financial documents abide by this seven year rule, however. Obviously certain items are longer commitments, such as IRA contributions, but you may overlook the importance of saving the bills or receipts for major purchases. While these may cease to be a tax issue after the first year or two, having the bills is important in the event of a theft; they allow you to make financially accurate claims about your losses.

Handling Receipts

Receipts are abundant and sometimes complicated, especially when considering going paperless. Any receipts relevant to business write-offs need to be kept, and most importantly, need to be kept in physical form. IRS audits and charge disputes will almost always require physical copies of important receipts.

Be judicious when handling receipts though, as they add up quickly. The best way to manage them is to decline receipts whenever possible – you don’t need to save evidence of your four dollar Starbucks purchase – and when you have to accept receipts, assess them quickly and toss the ones you don’t need. If the item is returnable or has a warranty, keep the receipt for that period. And if you know you never bother with warranties, toss it now. With receipts, the best option is whatever will motivate you to keep the fewest of these scrap papers.

Staying Safe

Finally, if you’re interested in going digital with the majority of your documents, you’ll need to make sure your computer network is secure. You should have a qualified IT person check for weaknesses that might make sensitive information vulnerable. If information leaks, your company could be subject to fines and litigation.

The Best On The Books

If you’re concerned about the state of your business’s financial management, Shockley Bookkeeping & Tax Services is here to help. Our tax preparation professionals understand the ins and outs of business finances and can help you make decisions about the digitization that will keep you in good standing – what to keep and what to toss. Whether you’re flummoxed by bookkeeping and payroll or need a trustworthy tax team, Shockley Bookkeeping is on your side.