We have heard about paperless file systems since scanners were created. The truth is that being completely paperless is a fantasy. People still like to hold paper, read from paper, file paper, and store paper, even though it’s inefficient and outdated. The cost of saving, filing, retrieving and storing paper makes going paperless a necessity. With numerous, inexpensive methods of scanning, PDF and XPS file conversions and online file storage there is very little need to store and file reams of paper anymore.

The bottom line is that saving and filing paper documents carries with it a tremendous hidden cost. The hidden cost are those expenses that don’t show up on any particular line item on your financial reports. The costs of filing, retrieving and storing is just part of it. What about the documents that get lost or misfiled? What about lost opportunities due to the inherent inefficiencies embedded in the paper ball and chain system? The cost could be immeasurable and a chief obstacle to growth and profitability. That being said I still like to hold, read and take notes in a real book as opposed to listening to a CD or reading it on a Kindle or other electronic format. I print and use paper, temporarily. I use the PUSH system, print use, and shred.

TRUE STORY: I took it upon myself to create an organized filing protocol. It wasn’t just miss-filing. They lacked any “rules” when it came to the filing. Some employees kept client files on their desks, some in file cabinets in their offices, some took them home, and some just left them in the file room on top of the filing cabinets. What a surprise when a file went missing. Keep in mind these were original accounting workpapers that weren’t copied anywhere. If a file were lost, there were no backups to restore, so it wasn’t as if this was unimportant. It was essential.If they had an electronic filing system, it probably would have been the same. Just because your paperless doesn’t mean your efficient. The rules or protocols they lacked in the paper environment would have ended with the same result in a paperless environment. I became a manager at that firm within six months and left a year later. It turns out that they ran their business the same way they handled their filing.

There are only three steps to creating an awesome paperless file system.

1: Saving your file in the proper format.

2: Creating a logical naming convention

3: Saving your file in the cloud for remote access (you can create your paperless file system locally if you don’t like “the cloud”)

The first step to an awesome paperless file system is saving your files. Files such as documents, spreadsheets, images, etc. are all ready to be saved in their current format.  What is a Format? When you see a file anyfilename.xxx the .xxx is the format.

One of the most common formats is abc.PDF. You may recognize the extension because it is the extension for a program called Adobe Acrobat. Adobe provides a free PDF reader as well as more advanced versions that allow you to “print” PDF files. It’s a virtual printer. The PDF printer is used when you are using a program, such as QuickBooks and you need to print a report that you want to save.  The graphic below illustrates the PDF printer.

PDF printer

Another file format that works well is the Microsoft .xps printer. You can see that the XPS printer in the graphic is also available. For you Mac folks both extensions work as well!

So you can keep any file extension you want such as .doc (Microsoft Word) .xls (Microsoft Excel) .jpeg – Graphic file. I use .pdf a lot because I print from QuickBooks and my tax preparation program. Now instead of printing a hard copy I print and save to a PDF file and send my client the PDF file and file the return electronically. Imagine that! A tax return that never has to be printed on paper.

The second step is what we call a naming convention. This is crucial in the paperless system if you want to retrieve your files in seconds. What’s a good naming convention. Like the process for recording transactions, we need to establish a process (or protocol) for naming our PDF or XPS files.

TRUE STORY: I landed a large trucking company as a client. The owner had a high-speed scanner, and he scanned everything. Trucking is a business that produces much paperwork, and with over 100 trucks you can imagine the problem it could become.Scanning everything made sense. I had prepared tax returns and financial statements for Mike and was curious as to why he kept calling me for copies of them. I asked him “Mike, I know I gave you copies and I saw you scan them, why don’t you just retrieve the file from your system when you need a copy?” His reply was “I can’t find anything I scanned. I don’t know what the machine named it”. To late! He already shredded everything because he scanned it. Hundreds of thousands of documents all with arbitrary names based on the scanner software default settings. Mike was out of business a year later. Not because of the scanner problem, because that’s how he pretty much did everything. Hardly any thought involved.You see, how a company administers its business is indicative of its level of success or failure. Mike had no idea what he was doing, and his ego would not allow him to ask. Mike didn’t grow the business to over 100 trucks, his dad did. It only took Mike about five years to run a 50-year-old company into the ground.

Don’t do what Mike did! Create a solid naming convention that provides as much information about the document as possible. For instance, my tax return files are saved this way:

Client.tax form.taxperiod.pdf

xyzcorp.1120S.2014.pdf = XYZ Corp Form 1120S for the tax year 2014

JohnJones.1040.2013.pdf = John Jones Form 1040 for the tax year 2013

abcinc.ap.02.15.13.pdf = ABC Inc Accounts Payable February 15, 2013

The 3rd step in your awesome paperless file system is where you save it. I use two systems that duplicate each other. The reason I use 2 is that I want instant access and depending on where I am on my computer, I like to find files with as little effort as possible. If I’m in my Google world, I use Google Drive, and if I’m not, I use Dropbox.

I could probably use just one but to be on the safe side (and probably more out of habit), I use both. You can use the free versions to start out with and upgrade to a paid version if needed. I’m not going to provide pricing info on either because these software companies change all the time. I suggest you check out both to find the best deal that suits your needs.

For information on these virtual file cabinets go to www.dropbox.com and www.drive.google.com. There are many, many other options as far as where to save your files; all follow the same basic approach.

Joe DiChiara CPA offers Small Business Advisory Services to passionate entrepreneurs that want to Start, Build and Manage a small business successfully. He enjoys being an “Out of The Box Thinker” and has helped thousands of small business owners start, build and manage their own business. In 2009 Joe discovered a new approach to business through “The Science of Getting Rich” written by Wallace Wattles and the inspiration behind the movie “The Secret”.After successfully applying the SOGR principles as well as Napoleon Hill’s “Think And Grow Rich” to his own business, Joe discovered that there is a large market segment that is being overtaxed, unprotected and unfairly targeted by IRS. Every year over 3,000,000 entrepreneurs start businesses unaware of the dangers of operating as a sole proprietor with over 25,000,000 in the process of going bankrupt.  This discovery inspired Joe to develop programs, tools, and resources to help stem the tide of these avoidable small business failures.Currently, Joe is building an online school for small business owners www.bedrockbusinessbuildersuniversity.com and www.taxauditsmackdown.com which will help entrepreneurs create the books and records needed to survive any tax audit. Joe is a #1 Amazon Best-Selling Author and you can Check Out Joe’s Books on Amazon by clicking here!