While small business owners understand that compliance is important, they don’t always understand what it really means–that is and what is needed to stay on the right side of all applicable state and local laws. From auditing it infrastructures for compliance to complying with government regulations, there’s a lot to consider. Get tips tailored to small businesses on how to manage compliance issues, so the business can avoid fines and fees associated with non-compliance.
Internal compliance refers to in-house record keeping, and what’s needed varies by businesses structure. A sole proprietor has no formal requirements, though of course, organized record-keeping is essential to running a business–if you can’t find an invoice, how will you be able to collect a late payment, for example? That’s so important for businesses. Perhaps it’s worth contacting an accountancy firm that can handle your bookkeeping, ensuring that they manage all of your invoices and chase up any late payments. GeekBooks offer accounts receivable services, so it might be worth contacting them.
Accountants could also help with external compliance. External compliance refers to paperwork filed with the state or federal government. While state external requirements also vary by business structure, there are commonalities, such as:
- annual report
- statement filing fees submitted with annual report
- franchise tax (for corporations or LLCs)
- initial reports following incorporation
- articles of amendment for any changes to company details, such as address or membership
Most businesses have few formal federal requirements, aside from paying taxes and offering health coverage under the Affordable Care Act (if there are 50+ employees).
Small business owners will want to keep required licenses or permits up to date and follow other federal laws regarding things such as health and safety.
Companies use an audit process to double-check whether they are in compliance with all laws. In a typical audit, a compliance officer will review business practices against applicable laws, check internal policies and identify what needs to be changed to become compliant. In addition, the compliance officer develops policies to manage risk of non-compliance and monitors potential compliance violations to bring about swift and appropriate resolutions.
Resolving Compliance Issues
Improving internal recordkeeping helps companies provide state and federal entities with any records requested, such as during a business audit. Since every business operates differently, business owners will need to inventory any issues and troubleshoot the right solution. The business might want to hire a consultant or dedicated team member who can manage record keeping.
Switching accounting software is another way to boost compliance (both internal and external). There are many accounting programs targeted to small business owners. The most sophisticated have capabilities that support compliance for critical functions such as tax filing.
Fines and fees provide a high incentive for fixing external compliance issues. Consider that a business that isn’t adhering to wage and hour laws risks facing a lawsuit to secure back wages for employees. But not only is there financial pain, there are social and reputational costs of noncompliance, such as a flareup on social media.
Small business owners stand to benefit from bringing on a compliance officer. If their compliance requirements are limited, they could work with an outside party who assesses an hourly fee for this service, rather than hiring a full-time staff member. Compliance officers can conduct an audit, as mentioned, then deliver actionable steps for improvement. The business can implement their suggestions to correct any violations, then have the compliance officer review all the changes to confirm the business is in good standing. It’s better for the company to pay for this sort of assessment, so they can fix any violations, than to risk getting fined by the state or federal government.
Small businesses that are structured as partnerships, LLCs, or corporations need to maintain a registered agent. This person is on hand during business hours to receive any critical paperwork for the company. A registered agent can sign for legal documents and keep track of any deadlines for filing annual reports, prospectuses, or other required documents. Since these documents have varying deadlines and won’t necessarily match up in different states, businesses must select a trustworthy and organized individual as their registered agent. Mergers and acquisitions will require all of this information to be intact and well organised if this is the route that your business takes.
With a better understanding of compliance, violations, and costs, small business owners can see where their business is vulnerable and take steps to fix it. Not only does this prevent costly fines and fees, but it can make the company more profitable. Small business that have organized record keeping, project management, and bookkeeping practices can operate more efficiently and improve their earnings.
Mark Houghton is Vice President of Sales for Donnelley Financial Solutions™, a global financial solutions company. He has 30 years of experience in the industry and focuses on enterprise risk management and compliance reporting.