How to Organize Your Filing System
Master Your Filing System!
Taking the time to organize your filing system is crucial. While everyone would love to have a paperless office, the reality is that many small businesses still have the need to store paper documents such as invoices, receipts, etc. and be able to easily retrieve them when required.
Filing receipts properly is especially important; a non-existent or messy filing system can add days of extra effort at income tax time as you don't want to miss out on tax deductions due to missing receipts. And if your business is ever subject to an audit and you are unable to produce the required documents in support of your expenses your claims will most likely be rejected and your tax return re-assessed.
As a small business owner, you need to be able to operate at your desk swiftly and easily. Though setting up a paper filing system sounds difficult, it is a relatively easy task that can be made easier by a few filing tips and tricks.
How to Organize Your Filing System
(1) Sit at your desk for a few minutes and figure out where you will instinctively look for things.
I have a drawer to the right of my workstation. When I first set up my filing system, I didn’t have anything in it. When I would look for pens, paperclips or my stapler, it was the first place I would look, even though I knew it was empty. So naturally I put the pens, paperclips and stapler in that drawer. For me, it was the natural home for those items.
Everyone will approach this differently and what works for one person may not work for another. Take a few minutes to sit down at your primary workspace and reach for equipment, supplies and files. That will help you establish the ideal spot for filing those items for you personally.
(2) Now that you know where you will naturally look for information, you must determine whether an alphabetical, numerical or subject filing system will work best for you.
How will you organize your paperwork into filing categories (i.e. expenses, financial, marketing)? How do you find business expense related paperwork such as bank statements, utility bills, office expense receipts, vehicle mileage logs, etc? What about customer information - do you search for things according to the client’s name? By reference number? This is a critical step, as it will determine how you will lay out your filing system. Once you have determined what categories you will use, decide if you need to go further and create subcategories.
Do this before you buy anything for your filing system.
(3) Next, roughly determine your storage needs.
Do you have a large number of files that you access on a daily basis? Do you only access your files weekly? The answers will determine if you need a desktop file holder, a two drawer filing cabinet close to your desk or a four drawer lateral filing cabinet across the room.
Choose carefully. Allow for growth when looking at filing cabinets - buy something to accommodate twice the files you think you will have now. This will limit the number of times you will have to resort and reorganize your filing system.
(4) Invest in a good labelling system for clarity and easy access.
Being able to read the file labels sounds obvious, but clarity in labeling will save you more filing time than you can imagine. Most companies who make labels provide templates that integrate with the most popular word processing software. You may want to consider one of the small label making systems that can now also print out individual mailing labels. Items that perform double duty are usually a wise investment.
(5) Now you are ready to purchase file folders.
The best investment is to purchase colored hanging folders (make sure the plastic label tabs are included) and plain manila file folders. Colored hanging folders are best for two reasons:
- they're easily available
- they make it easy to recognize categories
For example, if you put all your client files in yellow hanging folders, financial information in blue folders and anything related to marketing in red folders, you can easily see roughly where you should be searching for a particular file.
Simple Is Best
The KISS principle applies to setting up a filing system that is easy to use and easy to grow with. Keep It Simple Sweetheart! Broad subject categories will allow you to easily add new files as you grow, and will eliminate the need to upgrade or reorganize your filing system on a regular basis.
Keeping it simple will also make it easier to integrate your paper and digital files as part of your overall document management system.
Go Paperless Where Possible
If you are trying to green your business and make the shift to a "Paperless Office" you can scan expense receipts and store them with your other digital accounting information. Some of the newer Cloud-based accounting software applications facilitate this by having mobile apps that allow you to take a mobile phone snap of an expense receipt and record it on the fly (see The Best Accounting Software for Canadian Small Businesses).
Keep in mind that paper copies or digital images of expense receipts are generally acceptable to the Canada Revenue Agency (CRA) provided they are clearly legible. If not, the CRA may demand to see the original paper documents during an audit or routine request for documentation, so the originals should always be kept for the prescribed time. (See How long do I have to keep my business records? for more information.)