How to Manage Digital Documents
We are in PART 2 of our Business Reset Refresh series. This part is all about managing your digital documents.
Why is this so important? Because poor document management literally sucks time out of your day and your life! Not having easy, efficient access to your documents causes a domino effect of confusion, frustration, and could ultimately cost you money.
This was very prevalent during the pandemic, as small businesses applied for government aid. So many businesses were shut out, not only because their finances were not in order (we have a QuickBooks Online course for that!), but also because they could not provide the necessary documents (Tax ID number support, incorporation paperwork, etc.) to validate their applications.
In this email I will share my approach to document management that I use personally, and also for my clients. This approach helps me do very complex work (property acquisitions, refinances, grants, proposals, etc.) lightning speed.
Your Digital Organization Can Mimic Your Physical Organization
My daughter reminded me that, as a society, we are still relatively new to the digital space. We have been organizing physical data and spaces for years, but not in the realm of digital data and spaces. The first thing I share with my clients to bridge this gap is to show how similar both spaces are. You can actually set up your digital files (in your cloud - Google Drive, OneDrive, Drop Box, iCloud, or whatever system you use) in the same logical manner as physical files, such as the following:
Vital Records: Birth Certificate, Driver’s License, Passports, etc
Taxes: Federal, State, City, Sales, and all supporting documents
Entity Documents: Tax ID Number, W-9, Incorporation or LLC Documents, Licenses
Bank Statements: Bank, Brokerage Mortgage, Loans, Credit Cards
Financial Statements: especially for your business
Medical Records and Health Insurance Information
Trusts and Wills
Real Estate Owned: Deeds, purchase and sale documents, tenant leases
It’s All in the Name
OK - here is where the magic happens. Naming your files in a consistent manner is key! This will allow you to search and access exactly what you need when you need it.
For example, I have a client with 41 financial accounts (bank, brokerage and mortgage accounts) and we need to archive every statement, every month, and retain them for 10 years! I trained his bookkeeper to do the following in this client’s OneDrive for each account following this format:
Main Folder: BANK STATEMENTS - 2022
Sub Folder: CHASE #1234
Sample file name for each monthly statement in the subfolder: CHASE #1234 - 04.30.2022.
Bank Name
Last 4 digits of account number
Date
Using this process, every time my client buys, sells, or refinances a property, I can put together the package with all supporting documents in a couple of hours, as opposed to a couple of days. This helps him get the deal done faster, with less stress for everyone involved.
A Few Tips
Be sure you use a SECURE cloud storage system. You can even password protect sensitive files.
Put data right in the file name to save time opening if applicable. For example, you may name your Tax ID (FEIN) confirmation document from the IRS as “ABC Corp FEIN 12.3456789.” This allows you to get the Tax ID right away, without the need to actually open the document.
I recommend shredding the paper version of any documents that you don’t need once you have a secure online version. Most tax authorities (IRS and States) will accept digital versions of receipts and support - no need to keep tons of paper lying around.
NOTE: for certain documents however, you will always need to keep a physical copy secure, such as certain vital, medical, legal and property documents.