There are financial and legal consequences for not keeping accurate records. Most record-keeping is related to tax laws, so be careful to keep records appropriately. If not, you might face the following consequences:
Pay Extra Taxes
If you don’t keep records of estimated tax payments or don’t keep receipts for planned deductions, you won’t be able to claim these items on a business tax return and will have to pay more tax than is owed. This is just one main consequence of failing to keep accurate records.
Tax Adjustments After Audit
If you get audited and don’t have paperwork to back up claims, the IRS may decide that you need to pay more taxes than you originally had to pay. There may also be costly penalties for the failure to file taxes appropriately.
Failing an external or internal audit can lead to large fines or even the closure of your business.
Criminal Penalties For Improper Licensure
Without copies of licenses, a person can face jail time for operating without the proper license.
Inability to Protect Your Business from Theft
Without the right paperwork to justify claims, you may not be able to sue someone for copyright infringement or patent infringement.
If an employee claims you acted in an illegal manner – i.e., a wrongful termination or a refusal to pay worker’s compensation – you won’t have much recourse if there is no paperwork to prove that you complied with the applicable laws. Always keep copies of any interactions your employees have with your staff that may effect you in a legal manner later on.
Deals Fall Through
Losing or misplacing an important document can cause a major deal to fall through. Something as small as an old employee contract can hold up a transaction, greatly reducing your chance for success.
In order to prevent these negative consequences of failing to keep accurate records, it’s important to find a records storage system that works for your business. It should be a business requirement to have some kind of system in place in case you are audited.