How to Create a Document Management System

Medical professional searching through paper files while holding a laptop

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Document management is the process of handling documents in such a way that information can be created, shared, organized, and stored efficiently and appropriately. As such, learning how to create a document management system is critical for businesses.

Many businesses deal with high-stakes information that needs to be kept secure and private, or accessed quickly. In such instances, a smoothly operating document management system is essential. But even if your business is of a more casual nature, it is still important to keep proper records for accounting and for the sake of efficiency.

Learn more about how to create a document management system that best suits the needs of your business.

Document Management System Options

These days, most businesses work comfortably with digital documents and use programs with storage and management features. There is no shortage of general and industry-specific document management software or apps specifically designed to improve your business’s handling of electronic files. For instance, hotels may still have book-style registry upon check-in, and may still request a signature on a paper credit card tab, but behind the scenes, hotels are using OPERA to manage rooms, keep notes, and run bills. Payment options like Square and Venmo are being used more commonly in retail and service, also eliminating the need for paper accounting.

However, many small businesses have to deal with a mixture of old-fashioned data on paper and electronic files, and, in some cases, the proportion of paper data is much larger.

Converting Paper Documents to Digital Formats

One solution to the problem of a mixed data environment would be to use a document imaging system to convert all of your business’s documents to electronic files. Depending on the type of data and documents you work with, this could be relatively straightforward process, or it may involve some creativity and specialized approaches.

For instance, a small-scale retail store that manages receipts and inventory may be able to convert paper documents to digital spreadsheets with some extra data entry labor. A dentist's office, on the other hand, that keeps records of patients' health, billing, x-rays, etc., will likely need a more robust method to convert their many paper files to digital formats, such as hiring a business-appropriate document scanning service, or purchasing scanning software capable of transferring high-resolution images.

Steps to a Document Management System

Whether working with a digital-only environment or in a hybrid environment with digital and paper documents, setting up a document management system involves three steps:

  1. Create a document management plan.
  2. Implement the document management plan.
  3. Follow through.

The first step is the most detailed, so let's explore it further.

Creating a Document Management Plan

The first step involves answering these four questions:

What Are the Rules for Creating Documents?

Invoices, payment reminder letters, sales brochures, email, balance sheets, spreadsheets, reports—all businesses create a variety of documents in the course of doing and keeping track of business. And, to keep things organized, all businesses need to establish rules for creating documents.

  • Are there in-house templates for some of your standard business documents, such as letters and invoices, and where are they located?
  • Is there an in-house style guide that needs to be followed?
  • Should new documents be dated or time-stamped?
  • What procedures should be followed for sharing or reviewing documents?

For some small businesses, the only points that matter will be where the templates for various business documents are located and how to use them. But if document creation within your business involves different people collaborating on, reviewing, or updating documents, you’ll need to spend some time deciding how these things should be done to ensure efficiency and consistency.

Google Docs is an industry standard for collaborative projects, as it offers various options to control permissions, view edits, and otherwise share a single document between multiple people with safety checks in place.

How Will Documents Be Stored?

There are costs associated with storage—the largest of which, for most small businesses, is probably the cost of the time wasted when people are looking for documents. So the question is: How will documents be filed? The key to filing documents is to follow good file-management practices. A clear, easy-to-follow system is essential.

You also need to know how you’ll archive documents. How will you handle files that are out of date or ready to be moved to the back burner in your document management system?

Near the beginning of each year, for instance, you should go through the various work-related files on your computer, weeding out those that are no longer current and creating new folders labeled by year and subject, moving files as needed. You can do the same with paper files; it’s not difficult to remove old documents from a file folder and create a new one with “Old” in the title. Some software offers automatic archiving options.

"Storage" in a digital environment may be cloud-based or on local servers, but to store paper documents, you'll need physical space on site, or—like many law offices for whom backlogs of client files are mandated—you may need to rent a storage unit.

How Can Retrieving Documents Be Simplified?

This question is the heart of your document management system. By some estimates, it costs a company on average of $120 in labor to find a missing document—and $220 to replace it.

Once again, good filing practices can go a long way toward solving the problem. If you set up solid procedures and protocol, such as consistently following strict naming conventions, for example, documents will be much easier to find.

And whether you’re a sole proprietor or a business owner with employees, you should create a file locations list, which will remind users where particular types of files go and help people know where to find them. Remember to include whether or not the file will be on your computer system, an in-house server, in the cloud, or filed in a physical location such as a filing cabinet. For instance, suppose that you use images, video, or even paper photos in your business. An entry in your file locations list might be:

  • Digital images/video: computer (or server)—drive E:/photos—file in the appropriate subject folder
  • Paper photos: filing cabinet 3—Photos—alpha by subject

Shared network or cloud drives should be labeled according to contents, as should filing cabinet drawers.

How Can Documents Be Made and Kept Secure?

The first line of defense for document security is physically securing the business premises themselves. All businesses, even home-based ones, need to have security systems installed.

Businesses may also need or want to invest in other security devices, such as window bars, security cameras, or patrol services. You can spend all the time you want creating passwords and encrypting files in an attempt to protect your electronic files, but it doesn’t matter much if someone can just wander in and steal your computer.

Additional document security measures include:

  • Locking all filing cabinets after business hours (and during lunch if no one reliable is present)
  • Backing up electronic documents regularly, preferably off-site to guard against having your business data wiped out by natural disasters
  • Restricting user access to certain documents, applications, and folders on any shared computers
  • Preventing employee theft by conducting background and reference checks as a part of your hiring process

Implement and Follow Through

Once you have created your document management plan by answering the questions above, you’re ready to implement it. Make sure your entire staff knows the details of your business’s document management system and that everyone follows appropriate procedures when creating, storing, and retrieving documents.

You’ll also have to be sure that everyone who accesses and uses documents within your organization follows through by consistently naming and storing documents appropriately. Spot check on a regular basis to test whether particular files can be easily found and to guard against misfiling. Even occasional carelessness can throw off the entire system.

You can set up a document management system in a day, but implementing it consistently over time will be the key to its success. The rewards are huge—you'll save tons of time and gain peace of mind.

Frequently Asked Questions (FAQs)

What Is the Best Document Management System?

There is no single system that will work for all businesses across the board. The key is to understand your business's needs and then apply the most suitable practices. Some factors to consider include:

  • The scale of your operations (how much documentation will be stored)
  • The range of types of data and information you need to manage
  • How your documents are used and how frequently they need to be accessed
  • Levels of security required
  • Your budget—can you hire a specialty service or purchase high-end software or will you manage on your own?

Is SharePoint Considered a Document Management System?

In a word, yes, but with a caveat: The Microsoft Office product is not tailor-made to operate as a document management system for small businesses and must be implemented carefully and correctly to integrate with your operations. SharePoint does have the ability to store, protect, and manage documents and includes collaborative and archival functionality.