Planning to become compliant is crucial for small businesses

DURING the early stages of a business life cycle, entrepreneurs tend to prioritise financial feasibility above all else.

While a sound financial foundation is paramount to ensure the survival of a business, another element that is integral is compliance with laws that govern businesses in South Africa.

Compliance is not a once-off responsibility as new requirements are introduced through new laws or the mere growth of the business into entities that are governed by different regulations.

Attaining compliance differs from one business to the next. However, allocating responsibility can help.

Good governance is the starting point to make any business resilient enough to face compliance challenges, and avoid painful restructuring in later years.

The King report IV on corporate governance for South Africa in 2016 (King IV), is possibly the most comprehensive guide to achieving this.

Until recently, the King guidelines were aimed almost exclusively at large corporations, but the latest iteration contains a supplement for small and medium enterprises.

The King IV guidelines contain invaluable principles and ways in which businesses can be structured and provide clarity on the relationship between shareholders, directors and management.

According to the guidelines, the leadership of a company is responsible for managing in a responsible, transparent and fair way.

The King IV guidelines suggest that a business needs to appoint a capable board with the skills and independence of thought to manage, control and report on performance as soon as it becomes feasible.

Opportunity

The board is also responsible for risk and opportunity; technology and information; legal compliance; fair remuneration policies; good stakeholder relationships; and assurance that adequate control and reporting integrity are in place.

Compulsory regulations are not the only changes that SMES should plan for.

There are a number of voluntary regulations that could open up new opportunities, with the most notable being the Broad-based Black Economic Empowerment (B-BBEE). For small businesses, B-BBEE regulations are almost entirely voluntary, and exempt micro enterprises are automatically awarded a fairly neutral B-BBEE score of Level 4.

Still, a high B-BBEE score can give a business a competitive advantage, and taking steps to better comply with the sector regulations gives SMES better chances of being awarded public sector contracts.

However, this still requires some expenditure and extensive planning, which can only be done effectively if the business sets itself well-defined goals and manages the process adequately.

Understanding one’s industry and knowing which voluntary standards and regulations are worth striving for, can help to make one’s business even more competitive.

In conclusion, it is vital for businesses to ensure that they are not solely focused on day-to-day survival, but also keep an eye of the future compliance challenges that could pose risks and opportunities.

Business consultants, mentors and even insurance brokers can be invaluable sources of information in ensuring compliance, so keeping these individuals in the loop on one’s growth plans is always advisable.

Bierman is managing director of Business Partners Ltd.