In answering the question, let’s start with the definition of a document retention policy. Instead of using unnecessary legal terminology, consider the policy as simply a document management policy. In the course of your business, you will likely have pages and pages of documents either in hard copy or in electronic copy. A good document management policy will provide you with a guideline as to what you must, should or can keep, and give you the liberty to destroy what you do not need.
Aside from helping you to know what to keep and what to destroy, a document management policy will help you organize your documents. Therefore, you will be able to keep your vital documents together and better organize your less necessary documents.
Why does your lawyer care so much about your document retention policy? In the event that you get sued, you sue someone else, or some administrative or government agency investigates your business, your document retention policy will provide (a) a roadmap to where your documents are, and more importantly (b) an explanation as to why some of your documents no longer exist. Generally, if documents have been destroyed without the benefit of a policy, you will have to explain why they are no longer available and certain presumptions can be drawn against your business.
A document retention policy specifically tailored for your business can provide you with substantial assistance in the event that you are sued.