To build a successful business from the ground up is the very embodiment of the much-vaunted American Dream. Unfortunately, it’s also an extremely difficult task.
According to official Bureau of Labor Statistics figures, the first year is promising; the overall one-year survival rate for businesses ranges from 74-78%. The longer term picture is less promising – every year that passes sees more and more businesses fail, and the 10-year rate of business survival sits at a meager 34%.
A common cause of businesses shutting down is a failure to engage with regulatory and legal requirements. The early days of a business are exciting, and owners will naturally be more interested in getting into the day-to-day operation of selling their product or service. Slowing down, and making sure that every regulatory box is ticked, is essential, and routinely aided by technology. The first step is the actual registration of the business.
Setting up a company
The way that modern commerce operates has largely simplified how business runs. Through ecommerce, social marketing, the prevalence of subscription services and digital services, the rigmarole of setting up a physical business has largely been sidelined.
Despite this, there are still numerous rules and regulations that need to be met – as many modern digital small businesses are discovering. As the Orange County Register notes, new guidelines introduced by the Corporate Transparency Act mean that many up to 30 million small businesses will need to up their game in terms of federal reporting.
The upshot to this is that new businesses can relatively easily put themselves in a place where they won’t face scrutiny by, in short, taking the early steps to ensure the business is properly registered. There are two main steps to this; business registration, and early corporate governance. There are plenty of ways to support this. Using an educational company like LLC University, LegalZoom or UpCounsel will ensure that the business is registered quickly, efficiently, and with the requisite expert advice.
Managing business change
Legal regulations never stay still. As the Harvard Business Review notes, in 2022, there were an average of 2.4 regulatory changes every single day globally. Any business which wishes to trade internationally will need to be aware of these changes and whether they impact their sector. Ignoring them, or failing to react, can result in litigation or governmental measures placed against the business.
The key to managing these changes is through developing a risk management framework, and having aspects of that centered on legal change.
Taking time to identify areas of regulatory change, whether through legal consultancy or through personal research, and then moving proactively to adapt the business is the ideal situation. This helps the business to remain agile to changes, and amend products and services in iterations to prevent any nasty surprises.
Leveraging technology
Taking a proactive view of adapting to regulatory change is an effective strategy for ensuring that the business remains on a sure footing. Consultants and tech platforms are a great way to bed in this assurance.
This can take the form of digital services and apps, but, increasingly, there is a role for AI and other machine learning based tools to have an impact. AI is proactive by nature when programmed and designed by high quality developers – the basic premise of how it operates makes it ideal for managing legal and regulatory risk.
Sprouting from the financial industry’s new weapon against slack regulatory controls, regtech, which Investopedia defines as “the management of regulatory processes within the financial industry through technology”, AI-driven regulatory tools put the vast computational power and broad data gathering of AI/ML algorithms to good use.
Through development and research, these tools are now becoming more widespread and being used in other industries.
The premise of regtech is relatively simple. Through user input, it identifies what regulatory and legal requirements a business must meet, and then, with oversight given over all of the digital tools a business deploys, it identifies where processes must meet those requirements.
This can be hugely effective for a new business, given that most will have a relatively narrow set of operations and requirements. Using these tools to identify risks ahead of time and tackle them is invaluable.
Businesses fail; it’s a matter of fact for the world of private enterprise. There are a myriad of reasons why this happens, and it’s rare that the potential for regulatory damage to cause it is considered in any great depth.
This is a shame, as, by starting out with the fundamentals and tackling it with proactive measures, the risks of legal and regulatory challenges can be mitigated with relative ease. Rely on technology and be fastidious in planning, from day one of the business, and businesses can soon find themselves flourishing.
Source: LLC University
