Starting a business requires tremendous effort. One of the things that startup business owners need to be aware of and adhere to is industry compliance laws. Sure, you are looking to make profits, but you have to do so by following regulatory requirements.
Unless you have substantial venture capital, the chances are that your startup may not have enough money to operate as you would like. Most executives use the lack of adequate funding as an excuse to bypass compliance laws. Others are simply unaware of the existing laws and regulations. Ignorance is bliss, but not in the startup world. You do not want your startupâ€™s operations stifled by huge fines or penalties for breaching compliance laws.
Failure to adhere to compliance laws can put your business in the red. 60% of companies that breach compliance laws are never able to get back on their feet. The scenario is even worse for startups that are yet to make a mark in their fields.
If you are thinking of starting a business, here are several things you need to know about compliance.
1. Know Your Licensing Requirements
Most startups make their first mistake of not choosing the right licensing. This grave mistake could lead to a series of legal suits that your business may be unable to handle. Before selecting a licensing right, get enough information to know where your business falls and what kinds of licenses you need.Â
First off, you should understand your business structure and its compliance requirements. Some businesses have special compliance requirements. For example, healthcare startups need to be conversant with HIPAA laws. The Health Insurance Portability and Accountability Act sets the standard for the protection of sensitive patient information.
Another crucial compliance is the Payment Card Industry (PCI) compliance, especially for businesses that process credit card payments. PCI aims to protect businesses and customers from losses that could result from data breaches. As long as your business stores, processes, or transmits credit card information, you will need to adhere to the PCI compliance guidelines.
2. Auditing and Taxation Compliance
Your startup should comply with the auditing and taxation governance laws. Businesses are usually required to carry out annual audit reports. The reports are simply summaries of all financial transactions done in the past business year.
You can make it easier to audit your business by having an internal auditor right from the start. It is also essential that you get your operations audited by an external assessor annually to fulfill regulatory requirements.
Some businesses fail to declare their tax liabilities during their initial stages, even when they know they should do so. As we mentioned earlier, you need to follow compliance laws right from the start. Maintain clean books of accounting to ensure your startup fulfills both taxation and auditing requirements.
3. Compliance Laws Help to Build A Good Reputation
Governance laws and regulations are meant to protect the interests of all the involved parties in a business. The laws, ultimately, define how you relate with customers, investors, employees, regulators, and any other shareholders. Startups that follow compliance laws build a good reputation among their shareholders. A good reputation is good for business.
Having a good relationship with your customers, employees, and other stakeholders help to keep everyone happy. Employees stay motivated, and customers keep coming back. In short, a good reputation means higher profits for your business.
4. Risk Management
All businesses, whether they have been around for some time or are just starting, face risks. Without proper risk management strategies, your company may fizzle out before it even gets started. Startups should avoid all risks they can from the onset.Â Failing to comply with compliance and governance laws is one of the most significant unnecessary risks you should avoid.
Failure to comply with regulatory requirements puts your startup at not only risk but also the shareholders. Some of the consequences of failing to be compliant include hefty fines, operation restrictions, jail terms for the responsible executives, and even license revocation. In some cases, such as tax evasion, you may end up with legal suits that may go on for years, destroying your reputation.
Being compliant significantly reduces your startupâ€™s exposure to these risks.
Startups need to adhere to compliance guidelines of their industries to ensure smooth operations. Contrary to what most business owners think, compliance is not necessarily an expensive affair. This is especially the case when you consider the repercussions for non-compliance.
Moreover, compliance does not require a lot of guidance from legal professionals. Most regulatory bodies have in-depth guidelines on what firms need to do to be compliant.Â Startup executives need to ensure that their businesses are compliant from the onset to prevent chances of litigation, fines, or other undesirable consequences.