5 Reasons Business Compliance Is Important for Small Businesses
by Francine Breckenridge, Chief Compliance Officer, U.S. Money Reserve
If you think compliance is only for big companies, think again.
If you run a small business, you probably don’t give much thought to compliance unless it comes to filing your taxes and making sure your permits are up to the current standards, right? After all, you are busy running your company and trying to stay afloat during these transitional times.
Wrong. Even small companies need to consider compliance to ensure that they stay on the right side of the law. While it may seem like one more thing you need to keep track of, compliance not only keeps your business on the right side of the law, but it also helps you grow and find new opportunities. Here are five reasons why business compliance is crucial for small businesses.
Avoid Legal Problems and Costly Fines
The first (and probably the most important) reason to think about compliance no matter the size of your business is because it will help you avoid potential legal problems and costly fines. As your business grows, your requirements for compliance will increase because of local and state regulations. Each year, new rules and regulations go on the books, and they can profoundly affect how you do business. They can ultimately impact your bottom line should you accidentally run awry of them.
As an example, consider the ramifications of not getting the proper business licensing in your area. Fines can really stack up if you are not properly licensed to make or sell the products or services you offer. Other examples include not putting up safety posters or employment posters in the appropriate places or not having an employee handbook for those you hire. Companies also need to comply with all local, state, and federal tax regulations. As you grow, these issues grow in size and complexity, meaning that the fees, fines, and penalties also increase. Getting ahead of compliance early in your business life cycle staves off these kinds of problems, ensuring that you remain within the letter of the law and follow all regulations.
One crucial factor to consider is that failing to comply with local rules, regulations, and laws gives other businesses that want to do damage to your business a leg up in the legal system. Should someone decide to sue you, your lack of compliance will not play well in the legal system. You need to be prepared and know what your company is responsible for before an issue arises, and you’re faced with a lawsuit. As they say, the best defense is a strong offense.
Keep on Top of Industry Trends and Economic Currents
One of the subtle benefits of thinking about compliance is that many of the changing rules, regulations, and laws can give you a clear idea of what is happening in your industry and in the broader economy. There are two classes of regulations and compliance rules you should think about: internal and external.
Internal compliance rules include providing transparency about how you do what you do. These are intended for employees and have to do with things like how your company is formed (is it an LLC or a corporation?) and what the tax structure might be to ensure that you are paying taxes appropriately. Also included in this category are items like employee handbooks. Handbooks help outline and determine the grounds for firing, which protects you from future lawsuits should someone become a disgruntled former employee.
External compliance includes what your industry group and federal and state regulators have implemented based on the type of business you operate. External compliance keeps the environment safe and clean and can help companies stay abreast of changes happening within the industry as a whole. For example, perhaps a large accident occurred, and some rules and regulations changed because of that accident. In all likelihood, you can also learn lessons about what is happening in your industry and in the broader economy using the new rules and regulations as a starting point. By staying on top of the federal, state, and local rules and regulations, businesses are alerted to potentially business-threatening occurrences. This allows companies to take precautionary steps, ensuring that your business does not fall victim to similar issues in the future.
Additionally, regular compliance audits help you get better data about your own business and potentially clean up your data. Compliance programs often require a big cleanup of nomenclature and definitions and the harmonization of systems and data. This activity brings much data to the forefront and makes it more transparent. If you’re looking to make an investment or change your planning decisions, this data can be incredibly helpful. As your company grows, you can leverage this data to make better, more informed decisions.
Build Trust with Your Customers and Employees
Staying compliant and knowing the applicable rules does more than just protect your business and keep you up to date with changes and trends in your industry; it can also help build trust with your customers. Complying with the rules and regulations can help demonstrate to your customers that you want to deliver outstanding products and want to help keep consumers safe.
You can also use your compliance as a selling point for both current and potential future employees. Letting people know that your business follows the letter of the law and even goes above and beyond can help make your business stand out in a field of many choices. That will improve the quality of your new applicants, and it can help with retaining employees. If employees feel like you have their best interests and safety in mind, they are more likely to remain with you no matter what the economy does. Staying compliant can help you improve loyalty and worker retention, which can help keep your business humming on all cylinders.
Hone Your Business Focus
While many people consider compliance to be a major pain to work through, the process can and often does help you hone your business focus. If your business mission is to do good in the world, but you’re polluting the river running behind your shop with remnants from your manufacturing process, you have a huge problem. Your business operations are clearly not aligned with your mission.
Compliance can help uncover areas where you are running afoul of your mission or vision; it can help you work toward solving those issues. Compliance policies and guidelines encompass external laws and regulations, helping to align a company’s internal and external aspirations.
Staying Current with Your Compliance Can Help You Find New Opportunities
Finally, understand that compliance takes time and effort. Remaining compliant helps you find new opportunities.
Going through a compliance audit involves following working processes through the system to determine whether there is an issue requiring attention. During that process, you might uncover a smarter, more innovative way to work or create your product, which can, in turn, reveal a new way to do business or an entirely new business line.
Small business owners are genuinely entrepreneurial thinkers at heart, and they often work hard to solve problems. If, as a small business owner, you apply that entrepreneurial thinking to the problems or issues that arise during a compliance check, you might surprise yourself and come up with an entirely new way to do business. That could mean a new line of revenue or a new successful product. The truth is that you never know until you look closely at just how your specific widgets get made and where there might be an opportunity for improvement.
The Bottom Line: Compliance Is a Boon to Small Business
Though compliance gets a bad rap because many people consider it to be a limiting, frustrating, and complex process, the truth is that small businesses benefit greatly from compliance. If you play within the rules and remain vigilant about potential problems, you can ensure that you don’t end up with unnecessary lawsuits, fines, fees, and penalties. You may also uncover an entirely new business line that could bring in even more success. Compliance is a vital part of running a business, no matter the size of the company. Small business owners should focus on compliance to help build better relationships with customers, clients, employees, and potential hires. Compliance can help ensure that your small business remains in good standing both now and well into the future.
