Keeping Paper in a Paperless World
Even though the personal computer is relatively new, dating back to the mid-1970s, the B.C. (before computers) era seems like ancient history with the wealth of information and tools now available at our fingertips; and so, it would make sense that paper also seems obsolete in this age of modern technology. Yet paper still possesses the ability to transcend time and technological advancements to connect cultures and generations of people across the world.
In today’s more climate-conscious society, however, entrepreneurs are adopting the paperless business model. This can be beneficial in quickly locating certain documents and electronic communications without sifting through hundreds of pages or storage boxes. Still, when a business adopts this model, there are important paper documents that every small business owner should have on hand or stored in a waterproof or fireproof container. This guide references these documents and discusses the importance of paper copies.
Head, Shoulders, Knees, and Tax IDs
Similar to a driver’s license number or bank account number, the IRS assigns a taxpayer identification number to individuals and businesses to establish proper administration of tax laws.
An EIN, or employer identification number, is a type of tax identification number. This nine-digit number identifies business entities rather than individuals. If a business hires employees, withholds taxes, operates as a corporation, or conducts business with a non-profit organization, an EIN must be acquired to ensure tax compliance. An EIN serves as a unique identifier because multiple businesses can operate with the same name. This tax identification number is used by the federal government as well as state and local governments to identify your business. Creditors, vendors, and banks can also identify your business with the EIN.
A determination letter, also known as a tax exemption letter, is issued by the IRS to validate a business’s 501(c)(3) tax-exempt status. This letter provides several key pieces of information that allow tax exemptions and deductions, such as the effective date of tax-exempt status, end of the accounting period, other tax-exempt groups, annual filing requirements, and tax-deductible contributions. This determination letter is subject to public disclosure upon request, so having multiple hard copies is strongly advised.
Do You Know The Muffin Man…That Has an Equipment List?
Hard copies of equipment lists are particularly important for businesses that utilize big appliances such as refrigerators or ovens. An accurate equipment list, with model and/or serial numbers, becomes especially important in the event an appliance suddenly becomes non-operational or a part breaks off. A sudden flood, fire or structural damage could make equipment useless and you would need a list for your insurance company. Restaurants that cater need to have an equipment list handy so items are not left behind and so you can easily note if something isn’t working properly.
A supply list hard copy can also be beneficial in submitting or verifying supply orders, determining need and the condition or amount of supplies needed each month.
Red Rover, Red Rover…Bring Your Accounting Books Over
Keeping hard copies of financial statements on hand is valuable in determining business performance at a certain point in time or comparing numbers across multiple reporting periods. At the end of a reporting period, transactional information is reformatted into three documents: income statement, balance sheet, and cash flow statement.
The income statement can be a tool to measure a business’s ability to operate efficiently and draw customers. A net loss or net profit is presented after incurred expenses are subtracted from revenues in the reporting period.
The balance sheet is useful for establishing a business’s financial position as well as discerning said business’s ability to pay its bills. The assets, liabilities, and difference between the two (equities) are recorded in this document.
Cash Flow Statement
The cash flow statement reports the sources and uses of cash during the accounting period. This document is particularly important for businesses that practice accrual accounting, or if the net income on the income statement does not match the change in cash. Revenue that is recorded with the expectation that the transaction will be paid in the future can clarify any discrepancies in a cash flow statement.
Don’t forget your Tax records!
Keep a hard-copy of your last tax return, even if you have it on your computer. Tax records are always needed for bank loans, audits and to have a firm grasp of your year-to-year earnings.
Business Plan, Stan!
Keep a hard copy of your business plan. You may need it if you go to get a loan, or if your computer crashes and it can’t be retrieved from the cloud.
TAG, You’re IT! (You have an auditor at the door!)
Paper copies of items an auditor might ask for are especially important and key personnel will need to know where those paper copies are kept. Depending on your industry, here are some documents that you might need if an auditor or governing body drops by:
Material Safety Data Sheets required by OSHA. MSDS records are for hazardous materials in your workplace and how to handle them safely and properly. You may be surprised at which items you’ll for which you’ll need an MSDS sheet; even something simple like ink toner or white-out may require an MSDS sheet.
The Food and Drug Administration has a list of records that must be kept readily available and how long to keep them.
Health Inspector Report:
Have your latest health inspection ready and available.
Some businesses require placards or other “papers” that must be visible to the public. Extra copies of these can come in handy if one blows away or gets destroyed.
Your license to do business is often required to be posted publicly, depending on your area and type of business. Have an additional hard copy, just in case.
While you may have access to your business’s insurance policy online, copies of your agent’s name, number and policy number may come in handy if there is an emergency.
Having hard copies of all of the documents discussed in this guide is especially important in this modern technological era. You never know when the internet will go offline or a computer might crash, so you can think of these paper resources as the ancient method of backing up your files.
For additional resources on the important documents to keep in a paperless world, or other tips for managing your small business, please contact us at the Small Business Development Center – SBDC – serving Paris and Northeast Texas.