Records Management Failures Create Business Failures

Imagine, if you will, a company with a perfect business model. For the sake of being specific, let’s imagine a company that makes those little paper umbrellas that are served in tropically-themed drinks. In addition to making the best possible companion for a poolside cocktail, this company has found the best leadership, has the most sound and profitable business plan, and has its coffers full of capital from willing and wealthy paper-umbrella-enthusiast investors. It has a large clientele already in place in the form of bars and resorts.

It owns two warehouses on both coasts, and has worked out wildly lucrative deals with their suppliers. They have a successful e-commerce platform, are scoring number one in web searches related to paper drink umbrellas, receiving well over a million hits per year. Their employees are satisfied and happy with their pay and their pension, and the company is about to go public and expand to the competitive and profitable world of the international paper-umbrella business. Investors could not be happier. Jim Cramer (the Mad Money guy) is yelling at you at the top of his lungs through the TV set, telling you to Buy, Buy, Buy! Nothing could possibly be going any better for this company.

Except for one little thing: the founder of the company was strangely averse to filing and hanging on to documents. As a quick fix, he found an empty room on the third floor of the office, painted the walls black, and simply dumped all of the company’s records in the room. Whenever a record was created, it was unceremoniously dumped into this room, never to be seen again. When it became impossible to access the room from normal means, the founder had a system of tubes installed so that employees could dump their records into the room without needing to open the door.
So, as the company expanded, the room kept filling up. Every time an invoice was created to order products from a supplier, it was dumped in the room. Every time a contract was signed or drawn up, the copies were thrown down the tubes. Every time the customer made a purchase from the company’s website, the receipt was sent down to the room, never again to see the light of day.

Still, this minor bit of oversight couldn’t hurt the company, right? The fundamentals and the statistics were simply too sound. It could afford to look the other way on such a petty issue as records management and still maintain its expansive success.
Unfortunately, in spite of all of the fantastic potential, there are at least five ways that this business can encounter problems because of their laissez faire approach to records management. Let’s take a look:

1. The business can be the subject of a government audit: There are many laws and statutes that regulate what types of records an organization or business must keep. If a business fails to meet these standards, the resulting fees and penalties can undermine the value of favorable earnings statements.

2. The company’s headquarters can become inaccessible: Due to a malfunction in the paper-umbrella manufacturing process, the offices may become inaccessible for weeks or months at a time. Because all of the records of the company were stashed on the floor of this room, and there were no tracking systems in place, the company isn’t able to reconcile its debts or track its customers or shipments, resulting in decreased efficiency and poor customer service.

3. The business can be sued: If an angry customer who has nearly choked to death on a paper umbrella sues this company, and this company cannot produce proper evidence of waivers, disclaimers, company policy notices and proof of insurance, the company may lose a major lawsuit and be forced to pay settlements that they otherwise may have avoided.

4. The business can waste money buying new space for the files: If the first file room fills up, the business will need to rent a second, and a third, and a fourth, and so on, all the while spending more and more money per month on costly rent for the office space. The business does not have an individual assigned to decide an expiry date for the documents, so they continue to pile up, with no end in sight.

5. Inefficient Access can Create Customer Service Issues: Without any proper Records Management, the company’s employees spend enormous chunks of their time searching for the proper points of reference and critical files. Thousands of potentially valuable man hours are thrown down the drain.

So, as demonstrated in the points above, even though this company had the perfect business model, the best employees, and the largest customer base, it can easily experience growing pains on those five (and many more) counts. The seemingly mundane and tedious chore of keeping the records was neglected in favor of lower short-term costs, and this company is now paying the price. This should illustrate to you the importance of establishing, maintaining, and enforcing an effective Records Management strategy.