Keeping detailed business records for your LLC or corporation is probably the least exciting part of running a business, and yet proper record keeping is essential for both legal and strategic reasons. The ushering in of the digital age now means that corporate record keeping doesn’t have to be mounds of paper and rooms full of filing cabinets. Digital record keeping helps corporations and their investors to efficiently monitor the progress of the business, identify sources of income, keep track of deductible expenses, prepare tax returns, and many other important aspects of corporate governance.
There are many benefits to going digital, from saving resources to boosting security, but most importantly digital record keeping offers corporations a quick reliable way to maintain their important corporate records.
What Are the Pros of Keeping Digital Records?
Secure Document Storage
In order to comply with laws such as Sarbanes-Oxley, the Paperwork Reduction Act of 1980, and HIPAA, companies must retain information in a manner that lets it be quickly retrieved, which is why digital record keeping is so important. Instead of sifting through file cabinets of hard paper copies, proper digital storage allows a company to quickly recover the necessary information. The implication of this requirement is that any digital record keeping must be complete and available for retrieval as requested for regulatory or business purposes. As an added benefit, installation and implementation of document management software also allows corporations to streamline communication with investors, leverage electronic signatures, redact confidential information, and create important audit trails.
Compliance With Government Regulations
The Uniform Photographic Copies of Business and Public Records as Evidence Act (UPA), of which there are both federal and state versions, states that “a reproduction which accurately reflects the original is as admissible in evidence as the original itself in a judicial or administrative proceeding.” Simply put, a digital file is as legal in a court of law as a paper copy. This doesn’t mean that your company should just save their digital records on a hard drive, but rather that you should be aware that storing electronic records must meet certain legal standards, and that the choice of digital storage hardware is critical when it comes to the admissibility of a duplicated record.
Reduced Costs
Cutting down on ink and paper purchases is always going to have a positive impact on the corporate bottom line. While the initial cost of switching to paperless might be high, the overall savings and reduced expenses will be a huge benefit to your company. This is one of the main reasons why businesses go paperless.
Mitigating Risk
Documents, records, and reports are vital to the daily operation and financial survival of every business. That is why it’s so important to safeguard them from theft, fire, severe weather, sprinkler damage, mold, and mildew or any other type of hazard that might occur in the workplace. Protecting business records ensures the information they contain is available any time it is needed and also speeds recovery from an unplanned disruption.
What are the Cons of Keeping Digital Records?
System Failure
Going digital may offer you quick access to important records, but it also means quick loss. Consider what would happen to all of your company’s business documents if the system were to crash. You could lose everything. It’s important for every small business, and particularly those that are paperless, to have a system for backing up and protecting data off-site.
Digital Security
Almost every day you can read in the news that some big company had all of their information exposed by a hacker. Cyber theft is a real issue, and digital files can’t be protected by a lock on a file cabinet or the office door. Document and sensitive information security is a serious concern for paperless offices. Solutions include encryption, local servers and restricted access, all of which have their own costs and benefits. It is also important to consider the nature of some businesses and the sensitivity of materials handled on a daily basis. For this reason it may not be possible to go entirely paperless.
Startup Costs
Going digital isn’t an overnight process. There are a lot of factors to consider, and it takes time to consider all of the implications of leaving the paper world behind. If your company has boxes and boxes of paper, you’ll have to pay an employee or an outside business to digitize everything. On top of this, you’ll also have to train employees during the transition period from paper records to digital, which will take time and money.
Want to learn more about how states like California are amending their laws to address the digitization of corporate records? Take a look at our paper on Improving Corporate Record Inspection Practices.