This is a guest post for the MELD Coworking blog written by Mark Houghton.
Even if your business is a solo entrepreneurship sharing a coworking space, you must stay compliant with state and local laws. The costs of non-compliance include fines, penalties, and reputational damage. Here are important tips for managing compliance in a small business.
1. Know the Laws
Compliance requirements vary by business structure and location. Thus, if you’re a sole proprietor, you won’t need to file an annual report or host an annual meeting. If you’re a business of one and you switch your business structure to an LLC, however, you will need to hold an annual meeting – even if it’s just you and your cats.
2. Use a Calendar and Checklist
Use a calendar to keep track of external compliance requirements. On the simpler end, this could mean setting reminders so you pay quarterly taxes on time and remember to renew any business licenses.
On the more complicated end, a small business might need to send tax forms to contractors, renew business licenses or permits, or (if there are over 50 employees) demonstrate their compliance with the Affordable Care Act (ACA).
With multi-step processes, consider setting up a checklist so things are done the same way every time. Checklists are also useful for training employees as they handle aspects of their work that touch upon compliance issues.
For example, if you hire a new bookkeeper, he or she will be able to use the checklist to ensure that tax forms such as 1099s are sent out on time to the individuals who need them, so your business meets compliance requirements.
3. Use Compliance Software
While a sole proprietor can largely handle compliance deadlines with the calendar approach, small businesses may consider implementing global compliance software as they grow. This software automates compliance measures by, for instance, offering templates for annual reports and SEC filings.
With a few clicks, this necessary documentation can be completed and filed. The software usually contains built-in validation so errors are caught and fixed before filing. Because the software makes documentation traceable, auditors can quickly verify compliance.
While software represents an out-of-pocket cost, it can actually save your business money by automating compliance and by helping you meet requirements on time, every time. Since late filings can accrue penalties and/or interest, this may be the solution your business needs to streamline operations and avoid momentum-busting compliance snags.
4. Keep Strong Internal Records
While most businesses focus on external compliance (things the business must do for third parties), it’s also critical that small business owners keep good records for internal compliance needs.
Internal record-keeping not only checks compliance boxes, it also helps business owners stay organized and access information for tax preparation, employee hiring and onboarding, and other business needs. Internal documentation will be crucial in the event your business faces a lawsuit or IRS audit or is party to a sale or acquisition.
Compliance is never a “one and done” activity since rules and regulations are always changing. Make it a point to review your compliance management systems annually so you aren’t caught off guard by new rules that affect small businesses. As you discover potential problems to avoid or new regulations that affect your industry, you’ll be able to adapt quickly and remain compliant.
About the Author
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.