by Pujun Bhatnagar, CEO of Kintsugi
Tips on how to stay compliant while you’re trying to ship product and keep the lights on, from someone who’s been there.
You’ve got a great idea for a startup. You’ve assembled a team, produced an excellent pitch deck, and landed funding! You’re on your way.
If only…
There are so many real-time things to consider when running a business – like getting employees paid, ensuring the bathroom is in working order, and keeping investors happy – that the mundane paperwork can often fall through the cracks. The problem is that paperwork can come back to bite you.
Depending on your vertical, running a startup includes navigating a minefield of laws, regulations, and requirements. To further complicate matters, those laws and regulations break down from the federal level to the local city level and might conflict.
According to Jeff Gibson, Kintsugi‘s CTO and Chief Compliance Officer, founders should prioritize these five compliance categories for sustainable growth:
1. Finance and Accounting Compliance
You know that you have to put together financial reporting documents for investors and that you have to keep accurate records to file taxes and prepare for possible audits. There are some standards here to offer guidelines, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). The Financial Accounting Standards Board (FASB) is an independent organization that establishes standards for companies that follow GAAP. Confused? We’re just getting started.
2. Tax Compliance
At least this one has a date attached to it that’s easy to remember: April 15. But that’s not the date to remember if you file quarterly. So, just check out the IRS website, and you’re good to go, right?
Not so fast.
While federal guidelines are established and, in theory, easy to find with the proper guidance, there are also crucial state and city guidelines. For example, Texas adheres to specific state tax regulations that impact the classification and taxation of SaaS products, requiring due diligence from vendors. These regulations mandate that SaaS is subject to state sales tax; SaaS is considered tangible personal property, even though it is delivered electronically. Vendors must stay informed and comply with the dynamic tax regulations governing SaaS and cloud computing services to avoid potential penalties and ensure accurate tax reporting. This entails periodic reviews of legislative changes and tax collection method adjustments. Failure to do so can result in significant legal and financial repercussions.
And you know what happens if you ignore this one: interest charges and penalties. Using a service like Kintsugi helps greatly – let someone else worry about sales tax.
3. Security and Data Privacy
This one gets pushed to the forefront lately, primarily due to bad news such as hacking or cyberattacks. There are several things to consider here; you want to protect your business and reduce the risk of financial harm, but you also want to protect your customers. (and you’re required to do the latter; laws such as the General Data Protection Regulation (GDPR) in Europe and the California Consumer Privacy Act (CCPA) in the U.S. dictate that you do. Start with a password protection company like 1Password and an antivirus software package – there may even be one already installed on your company computers. Ensuring that all aspects of your business are protected makes you a more attractive partner to vendors. (Don’t forget to check on your vendors; are their businesses/products secure?)
4. Payroll and Employment Compliance
There’s a lot to consider under this topic; whether you’re employing full-time or part-time individuals, you need to pay attention to the Fair Labor Standards Act (FLSA) and ensure that you classify employees correctly, and that can vary by federal/state/city laws as well. For example, you probably know to check the age of potential employees so that you’re not violating child labor laws, but did you know that most of your employees are probably exempt from minimum wage and overtime provisions? That’s because “executive, administrative, professional and outside sales employees who are paid on a salary basis” are exceptions.
5. Human Resources (HR) Compliance
In addition to ensuring that your team is adequately cared for regarding safety, workplace rights, and fair wages, you’ll want to provide training in areas that will protect your business (harassment, etc.) and your customers (data protection). “By integrating with HR systems, Kintsugi’s AI monitors sales tax liabilities, keeping businesses compliant and lowering risk,” Gibson noted.
There are also many policies and standards to 1) establish and 2) communicate to your employees. How many days off will the company have each year? Is there a dress code? Is it OK to work from home, and if not, how many days do employees come into the office? It is important to create an environment that nurtures team spirit and employee growth while focusing on important company benchmarks.
This is just a tiny cross-section of checklist items to take into account. It’s important to remember that producing the best possible product or service is why you’re in business, but proper compliance is also necessary for success. For more information about compliance resources for small businesses, you can check out the Small Business Administration, and for information about tax situations and compliance, there’s an extensive blog section on the Kintsugi website.
