Paperwork may not be glamorous, but it just might save your business. Whether it’s because of taxes, intellectual property issues, ethical concerns, or another danger, you may find your company facing scrutiny from the legal system at some point, and if so documentation will be your best friend. Learn why you need to create good record keeping habits early in the life of your company and how you can proactively protect yourself.
Keep in good standing with the state
Government regulations are a part of life for businesses large and small, across all industries, and located in every state. Of course, the specifics of your company across these criteria will determine what kinds of filings and licenses that you are required to maintain with the state, but every company will be required to do something. The onus is on you to research and keep track of all the filing and licensure regulations necessary in your state and industry. Remember as well that you will have to file documents in every state that your company does business in, in addition to your home state. If you don’t file, you fall out of “good standing” in the state, which will typically incur penalties but also limit your ability to do many other business things as well.
Have everything you need for tax time
It’s impossible to mention governmental requirements for doing business and not think about taxes, because keeping good records for tax filings is one of the most important tasks you face as a business owner. Tax audits can be costly, even if they only end up requiring you to redirect resources that would better be spent elsewhere in your operations. By keeping diligent records ahead of time, you can minimize the risk of an audit, and make it easy to back up your claims if you do get selected.
Part of preparing yourself for your taxes is maintaining good financial practices throughout every level of your company. Pay special attention to areas such as accurately recording all revenue and keeping receipts to justify amounts, implementing standardized accounting processes, and avoiding commingling personal and business funds.
Stay ahead of potential legal pitfalls
Remember that even if you aren’t willfully defrauding investors or skimming money off the top of your company books, you can still run afoul of legal entities if your business practices are found to be lacking. Keeping clear and standardized written and electronic records is your best defense against this, because when you can prove you have done your due diligence you will have a much better opportunity to justify your decisions and actions should you need to in a legal setting.
Maintaining these records will also make it far less likely that law enforcement authorities will be able to “pierce the veil” of personal liability protections provided by certain business structures. Personal liability protection for business owners is not unlimited, but by keeping a comprehensive paper trail you can help protect your company and yourself from accusations of malfeasance.
Get agreements in writing to protect your IP
Protecting your company isn’t only about staying on the right side of law enforcement agencies. Competitors and even former employees can often figure in disputes over intellectual property. What seemed small in the start-up days can be worth money to a potential litigant when the company is more successful. Safeguarding IP assets, especially in the beginning for the start-up business, is of paramount importance for any business owner. Thankfully, the law is generally on your side as long as you are proactive with your documentation.
Most entrepreneurs understand that employment agreements should contain language noting that all work performed for the company, on company time, or using company resources is solely the property of the company. And owners understand non-compete and non-disclosure agreements. What many new business owners forget is that all work completed by independent contractors needs to be specified as “for hire only” and designated as the sole property of the company as well. Another important thing to watch out for is new hires bringing protected IP from other companies into your venture. When bringing on someone new, whether it’s an employee or a partner, have them attest in writing that they are not bringing any IP from their previous company with them.
Know when to seek assistance
As the leader of a company the responsibility for prioritizing record keeping ultimately lies with you, but that doesn’t mean you have to do it alone. A large part of effective leadership is not only knowing how to delegate but knowing when to seek professional help for your company, and understanding when it is advantageous to do so can be the difference between disorganization and chaos and a well-run company that is prepared for the future.
Professional services providers such as tax accountants and attorneys can help you ensure that you have fulfilled your legal obligations requiring documentation and record keeping. And while it’s true that when you get older you may need some of the many wearables that remind you to take your medications, today you have a business to run. If you’re having difficulty remembering to file documents with the government and renew licenses, you can outsource the tasks to a filing service that can keep up with all the details for you. That same company you used in the beginning to form an LLC in California can also help you open outlets in other states and to make all the necessary filings correctly each year. Budgeting for these services now can save you a lot of money and heartache over the long term if you’re able to avoid legal problems though diligent record keeping.
Michael Zhou is a Senior VP of Business Intelligence Development and has assisted the Fortune 1000 company with expertise in the web as a whole, including ground-zero marketing efforts that benefit both consumer and vendor. He is also contributor on Esprittoday.