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How a Small Business's Size Affects Regulatory Compliance

Small business grown and regulations
Credit: Zerbor/Shutterstock

Regulatory compliance is a critical element of running a business. If you fail to play by the rules, you could be facing fines, lawsuits or even the closure of your business. The legal landscape can be a labyrinthian web of judicial rulings and everchanging statutes, though, making compliance a moving target.

For growing businesses, this is especially true. As a business scales up, growing in terms of revenue and employment, they become subject to regulations that might not have applied before. 

Keeping an eye on the thresholds for these policies as your business grows and anticipating these requirements beforehand is essential to remaining compliant with government regulations as you scale up.

Here's a look at some of the ways regulations can change for a scaling business as well as tips for strategizing to ensure compliance remains a proactive part of your business planning.

Business-size thresholds that trigger regulatory requirements are quite common, from the local level to the federal government. What kinds of regulations are size dependent? There are many, and they are diverse, but a few examples include laws governing employee benefits, minimum wage and paid time off. For example, the Affordable Care Act (ACA) requires employers with 50 or more full-time employees to offer health insurance benefit packages.

Other laws, like state-level, paid-leave laws, often specify that businesses with a certain number of employees must extend a certain amount of paid time off to workers.

"As revenue and the number of employees grows, there may be an increase in the number of regulations that small businesses need to adhere to, as well as the physical space and resources that are needed to remain profitable," said Caton Hanson, chief legal officer and co-founder of Nav.com. "It is really important to check state and local laws, many of which have lower employee thresholds for coverage and may have broader rights for employees than federal law.

The first question a business owner should ask when preparing to scale is "Can I afford to do this?" Not only does expansion come with its own upfront costs but new regulations you'll have to comply with as well. 

According to Hanson, regulatory compliance can sometimes be reason enough to hold off on growth until your business has amassed more capital.

"The cost of adhering to the regulation/mandate should always be less than the cost of scaling your business," Hanson said. "If the money going out the door is not being brought back in … then no growth should happen."

While it is important to crunch the numbers before growing, regulations alone shouldn't be so crippling as to prevent a successful business from scaling up, said Carol Wood, director of people operations for Homebase.

"These size-dependent regulations are designed to give smaller businesses a break, not necessarily [to] penalize successful companies," Wood said. "It's unlikely the added costs will completely negate the financial benefits of expansion."

Once you've determined the time is right financially for your business to scale up operations, you can begin looking for compliance solutions that help you stay on the right side of the law.

Working with certified professionals, including attorneys and compliance companies, can help entrepreneurs parse some of the finer details of regulations they are unfamiliar with or unaware of. 

While partnering with professionals represents an expense of its own, it can save businesses a lot of money in fines and legal proceedings by getting compliance right the first time.

"Small business owners should look to their partners and service providers for guidance on regulations," Hanson said. "Regulations related to healthcare, insurance, and employee services should be a top priority for service providers and making sure their small business clients are in compliance."

There are also software solutions available for everything from tracking time, benefits planning, and compliance reporting that help businesses monitor and manage their day-to-day operations in a satisfactory manner. 

While software isn't a replacement for business planning and human decision-making, it can be used as a tool to lighten the burden or to highlight factors that might otherwise be overlooked.

"Software can help," Wood said. "Employee scheduling and time tracking software, for example, can automate some of the work and eliminate some of the headaches of managing a growing business by making tasks like running payroll and managing labor costs a lot faster."

While regulations can be daunting, especially the first time your business is subject to a new set of rules, don't let them scare you. Scaling up, after all, is the goal of any profitable business. 

Growing operations wisely means more revenue and, hopefully, stronger profit margins. Growing with purpose and a plan can help you stay within the legal framework laid out by the local, state, and federal governments.

Regulations often change, so remaining apprised of developments that could affect your business's legal obligations is important. Regularly check in with your attorney about changes facing your industry and be prepared to alter your business plan accordingly.

Remaining proactive in the face of regulatory requirements is the best way to avoid penalties, fines or lawsuits later down the line. A growing business is a healthy one, and a compliant business supports continued growth.

Adam C. Uzialko

Adam C. Uzialko, a New Jersey native, graduated from Rutgers University in 2014 with a degree in Political Science and Journalism & Media Studies. In addition to his full-time position at Business News Daily and Business.com, Adam freelances for a variety of outlets. An indispensable ally of the feline race, Adam is owned by four lovely cats.

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