Staying out of trouble: A small business’ guide to compliance

Many small businesses have failed due to non-compliance as well as the owner’s failure to keep their business compliant. Starting and running a business can be quite overwhelming and oftentimes this results in the owner focusing on the operational aspect and neglecting peripheral issues. In many instances, they do so, thinking ‘I will get back to this later’, but then later never comes.
This article will discuss the basic legal requirements of every business as well as some steps that one could take to ensure their business stays compliant. Compliance comes with a number of benefits.

Effects of non-compliance on small businesses

• Fines and penalties- Not meeting your legal obligations might result in fines and penalties for your business.
• Loss of Opportunities: Many businesses want to work or affiliate themselves with reputable businesses. They subject new clients and partners to numerous vetting processes. Your business might miss out on these if it doesn’t meet its legal responsibilities.
• Reputational Damage: New businesses need as much goodwill as they can garner. A negative perception might adversely affect its operations as well as jeopardize potential partnerships.
• Unnecessary legal fees: in some scenarios, you will find your business being sued or taken to court for non-compliance with applicable laws. This could be a disgruntled former employee, a partner whose contract was breached or even a client that is unhappy with your service.

Case Study: My own story

Some time last year I created an app and over the last quarter of the year it gained some traction. I then decided to monetize it and needless to say, this would be the easiest money I thought I would ever make. I was using Google’s AdMob platform to monetize the app and it had a fairly decent amount of traffic. Two days before my first payment was due, I got an email saying my account had been disabled for invalid activity. I was devastated. I however tried sending numerous appeals but all to no avail. This meant I would lose all the money, so I was bitter, angry and sad- all at once. I felt like a victim and I had been bullied by the tech giant. Over time however, I accepted that it had happened and after close examination, I acknowledge I was at fault for neglecting my own responsibilities. For starters, I had just accepted their terms and conditions without reading them. I had also not kept a close watch on the traffic that my site was receiving. I then remembered a phrase I had read some years back…. “ignorance of the law is not an excuse.” Had I read the terms, I would have known what was expected of me. I would have also been able to take proactive measures to prevent this.

Legal responsibilities

Every business is bound by some laws as well as statutory regulations. These include tax laws, environmental laws and fair employment practices. It is your responsibility to ensure that your business is not found wanting. A failure to comply might result in excessive fines and penalties, confiscation of goods, business closure or in the worst of scenarios, jail time. We will now discuss some of the common legal obligations of small businesses.

1. Taxation

Every business is required by law to pay tax. The taxes vary from country to country but the most common taxes is income tax. This is taxes on your profit for a particular period. In many countries employers are also required to collect taxes from their employees on behalf of the government. Depending on the nature of business, you might also be required to pay other taxes such as import taxes. Many small businesses choose to operate under the radar until they get fairly established. This might not be the best move as you leave a paper trail as you grow.

2. Licenses and Permits

Some sectors like health and mining require entrepreneurs to have proper certification before they can start trading. This is done to protect all the parties involved. If you are producing items such as food products or cosmetics, then you need to be proactive and get the necessary approval. This might seem inconvenient or unnecessary but could be the lifeline your business will need if things go bad. If an unfortunate case of food poisoning were to occur, you would stand a better chance if all your bases are covered and you are not found wanting.

3. Employee regulations

Every employer is supposed to adhere to a minimum set of requirements. These include minimum wage, hours of work, non-discrimination and safeguarding the health and safety of the employees. Some employees might be desperate for a job and therefore choose to forego some of these items, but it is the employer’s obligation to ensure that the company remains compliant. You will also need to ensure that matters such as sexual harassment, bullying and discrimination are adequately dealt with and corrective measures taken to address them.

4. Insurance

In instances where a business owns vehicles and other assets that could cause a loss to a third party, that business is often required to protect those third parties through insurance. This also applies to employees whose health might be at risk. In some instances the government partners with the employer to cover this through social security insurance whereas in some cases the onus is solely on the owner.

Other legal requirements

A lot of business is now being done online, regardless of the sector. This therefore means that your website, apps and software should be compliant not only with the policies in your home country, but also those of the countries of your users. A common example is GDPR compliance for businesses that have an audience in the European Union. Where you have signed contracts with other businesses and individuals, these will also need to be adhered to. In addition to these requirements every business owner should do thorough research to ensure that they are compliant.

How do I know which ones apply to me and my business?

A. Start by familiarizing yourself with the companies’ act or regulations. This will definitely require a great deal of reading on your part.

B. Visit your local tax authority or read about their procedures and processes. Many entrepreneurs leave this to their accountants. You should behave an understanding of the process from a managerial view. This will help you to keep a check on activities and keep you out of unnecessary trouble.

C. Visit your local authority to find out what business licenses are required and the frequency of renewals.

More compliance tips

D. Depending on the number of employees in your business, you might need to come up with company policies to govern how employees will be treated and conduct themselves. It might be wise to call upon a human resources expert to help you come up with a policy that works for you. Also note that this will need to evolve as your business grows.

E. Review all contracts and assess all your contractual obligations. Ensure that your business stays compliant or where not possible, find a way to legally terminate the contract without attracting fines and penalties.

F. Hire a legal expert or compliance officer to help you understand contracts, agreements and other business terms.

G. Check all legal document before placing your signature. Avoid being rushed to sign any document. Do not sign anything that you do not understand.

H. Invest in legal services. Set aside a small amount of your profits for legal advice.

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