Starting a new business is exciting, late-night brainstorming, a pitch to investors, production of your goods, seeing your dream develop. However, with all this rush and fuss, there is one very important aspect that is most often neglected by startups, namely compliance management.
In this article, we shall be laying down the 5 most critical compliance management tasks that every startup should address in order to be legally sound and business ready. They have absolutely nothing to worry about, we’re going to make sure it’s clear, jargon-free and simple to follow.
1.Register Your Business and Choose the Right Structure
Let’s start with the basics. Its registration with relevant authority of the government even before you can legally operate is something that your start-up needs. This may appear to be a case of the no-brainer but picking out a suitable structure can save you from heavier heartaches in the future.
Common options include:
- Sole Proprietorship: Basic, but it does not make clear your personal and business debts.
- Partnership: It is good for multifarious founders but requires a proper partnership agreement.
- Limited Liability Company (LLC): Provides personal liability protection and offers flexibility as regards to tax.
- Corporation: Good for people who want to grow big and attract investors.
Also remember, do not forget to register for a federal Employer Identification Number (EIN), which will come in handy for tax filing and opening an account for the business.
2. Get The Required Licenses and Permits
This step is usually a stumbling block to the new founders. There is no “open the doors and start selling,” you might need a license or permit of one kind or another depending on your business line and where you are located.
Here’s what to check:
- Local Permits: Examples of such are general business license, signage permits, health permits, and zoning confirmations.
- State Requirements: There are states that demand industrial licenses, such as food, construction or financial services industrial licenses.
- Federal Regulations: If your startup is based on providing alcohol, firearms, broadcasting, or pharmaceuticals, you will have to interact with such federal agencies as FDA or ATF.
3. Understand Employment and Labor Laws
If your startup employs any person, even a freelancer, or a contractor, you simply HAVE to comply with all the employment laws. And trust us, that is one mistake where it can really get very expensive.
Following are the things you need to address:
- Worker Classification: Separate the employees and the independent contractors properly. Misclassification allows being subjected to back taxes and penalties.
- Wage laws: This is to ensure that you are up to the minimum wage requirements, overtime stipulations on state or country level.
- Workplace Safety: Be aware of OSHA regulations or for your area workplace safety rules.
- Anti-Discrimination Policies: You’re required to offer a discrimination- and/or harassment-free working environment, as you are legally bound to do so, as being race, gender, religion, etc. based.
4. Manage Financial and Tax Obligations
Some founders underestimate the importance of compliance for startups in their early stages. Money is important, and when it comes to compliance, your financial records and tax submission is under the microscope at all times, and even more so if you’re a high growth startup with interest from investors.
Below are some things that you will need to keep an eye out for:
- Bookkeeping: Keep appropriate and current records about the finances. Use accounting software or hire a part time bookkeeper in order to ensure your finances stay clean.
- Tax Filings: As a result of your structure, you will have to make filings on corporate income tax, sales tax, payroll tax and the rest.
- Annual Reports: In various jurisdictions, the LLCs and the corporations are bound to submit an annual report with updated details of the company.
- Investor Disclosures: If you have raised money, then you might be obligated to compliance with securities. It is critical to ensure that you are transparent to your stakeholders as well as timely in updating them.
5. Data Privacy and Cybersecurity Compliance
Since the majority of startups have their businesses set online, or whatever it is that they deal with that contains data about the user, privacy and cybersecurity, whilst being an added plus, is no longer optional, it’s imperative. Such laws as GDPR (Europe), CCPA (California), and others have defined high standards to data collection, storage and usage of customers.
Key actions to take:
- Privacy policy: Explain in detail the data that you collect and how you use it. This should be seen on your website.
- Secure Your Systems: Encrypt, add firewalls and two-factor authentication on the sensitive information.
- Limit the access: Give only employees who require the access to user data.
- Train your Team: One Phishing email can create havoc to your entire system. It is very important to carry out regular security awareness training.
Final Thoughts
Walking through the maze of compliance may appear to be daunting, considering all the other things to attend to on your platter. Nevertheless, do not forget that you do not have to do it all by yourself. There are tools, advisors and online resources to help.
As you grow, compliance for startups evolves too. Laws keep evolving, structures of the teams expand, and there are new challenges. By prioritizing these five tasks at the outset, you’ll put a strong, compliant underpinning on your business that will be able to take the knocks of whatever the future is going to throw at it.
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