4 Factors to Consider When Establishing Your Record Retention

by | Jul 11, 2022 | Accounting

As a small business owner, you likely know the importance of keeping company records organized. Whether it is invoicing clients for your service-based business or recording operating expenses, proper record retention is essential to the financial health of your company. In this article we will discuss  four factors to consider when establishing your record retention processes and procedures. 


Why Is Proper Record Retention Important?

There are several reasons why proper record retention is important. First, establishing standardized procedures about how and where to store your records makes retrieving them much easier and more cost effective. These savings can be passed on to clients or be used on other areas of your business.

Second, proper record retention helps drastically reduce lost or stolen information. Accurate information is the backbone of every small business, and having retention procedures in place to eliminate loss and fraud ensures your service-based business makes decisions only on proper information. 

Third, proper record retention helps your company’s compliance department. Businesses are required to retain certain types of documents, and not doing so in the proper way can lead to penalties. Record retention procedures ensure that necessary documents are stored properly and for the required amount of time. 

Now that we have discussed a few reasons why having a record retention policy is important, let’s look at the most important factors to consider when establishing your record retention policy. 



Cost is likely the first factor that comes to mind when you think of establishing a record retention procedure. Cost can be a function of the type and size of your business.  

For example, suppose you run a service-based business that specializes in designing websites. Your gross revenue for the previous three years averaged $500,000, and you are looking at ways to develop your record retention. 

The first option is an “all in one” enterprise resource planning (ERP) software package that comes ready to use right out of the box, but at a yearly cost of $50,000. The second option is to hire a freelance database designer to build and train employees on how to use the database for a one-time cost of $5,000. 

In the example above, it is likely too costly to spend 10% of your revenue on an ERP system for record retention. The database design comes at a significantly less cost, and as your business grows you can revisit the ERP option if necessary. 



Establishing a record retention policy can be complex, especially if your business uses a wide variety of documents. In this situation it can be helpful to establish a general record retention policy and develop more specific policies for each department.

For example, part of your retention policy can be that all files need to be stored on a shared drive on the cloud that requires a security code to access.

Each department has their own folder and subfolder on this drive that only members of that specific department can access. This prevents unauthorized access and files from being mistakenly placed in an incorrect folder. 


Regulatory Compliance

While cost and complexity is important, many businesses consider proper regulatory compliance to be the most important factor when establishing record retention policy.  Each business is different and must conform to laws specific to their industry.  

For example, small businesses are required to conform to the Fair Labor Standards Act, which establishes recordkeeping procedures for full and part-time employees.  Consulting with an expert on this area is a great way to ensure your record retention policies properly conform with this and other laws.  


Emergency Recovery and Disaster Plan

One of the most important factors to consider when establishing your record retention procedures is whether your emergency recovery and disaster plan is effective. There are many risk factors in today’s interconnected world including hackers, system malfunctions, and other data loss events.

Establishing a disaster plan in the event of emergency ensures that your service-based business can recover from the event relatively unscathed and still fully functional.

A good recovery plan includes the following:

  • Backup data storage area 
  • Consultants to help with emergencies, such as attorneys and CPAs
  • Workers trained in multiple company departments that can guard against an employee’s unexpected absence.

We always hope that we will never need to implement a disaster recovery protocol, but having a plan in place ensures that business can go on with as little interruption as possible. 


We hope this discussion of the importance of record retention has been helpful.  For more information on how we can generate a robust record retention procedure, check out the rest of our website or call us for a consultation.