Why compliance is important for smaller businesses

The day-to-day operation of your smaller business isn't usually confined to activities such as marketing, sales, and production.

Complying with business regulations – from health and safety to how customer data is stored and processed – is essential to company operations.

Making sure you're on the right side of the law is essential to operating a business.

Rules and regulations are designed to protect your business and employees, assets such as property, customers, and the wider environment.

Ensuring that your business is compliant is not just a legal requirement but demonstrates to staff, customers, and stakeholders that you take governance and social impacts seriously.

Compliance can fall under a smaller business's environmental, social, and governance (ESG) activities.

Read our guide to ESG to find out more.

What is compliance?

Compliance means ensuring business activities are in line with relevant regulations and legislation.

Many regulations cover business activities by firms across the UK, but some are specific to England and Wales, Scotland, and Northern Ireland.

Local authorities set some rules, such as licensing or how businesses dispose of commercial waste.

Different regulations may apply to your business depending on the size of your company and industry.

Regulations are often used to encourage safe working practices and procedures within businesses.

They can help to ensure fair treatment of employees and consumers and protect against unlawful practices ranging from false advertising claims to unsafe storage of toxic materials.

Different sectors, such as financial services or construction companies, may have specific regulations that apply to their activities.

Why compliance matters

Compliance for smaller businesses is important because it helps protect business assets, people, and the wider environment.

It's essential that as your business grows, employees are kept up-to-date with any relevant regulations.

Activities such as regular risk assessments, maintaining an up-to-date legal register, and regular audits should be conducted to ensure compliance.

Failure to comply may result in reputational damage and significant fines.

If your business is non-compliant, your business risks harming others which can open the door to compensation claims and long-term reputational damage.

For example, penalties for non-compliance with health and safety regulations can lead to prosecution and even custodial sentences for directors.

Main areas of mandatory compliance

Many regulations can apply to smaller businesses, and you should consider seeking expert advice to ensure that you know all the rules that apply to your company and what you need to do to comply.

Compliance isn't always mandatory.

Some schemes, such as the National Cyber Security Centre's Cyber Essentials regulations, allow businesses to demonstrate compliance in mandatory areas such as data protection that can offer a marketing advantage or provide access to commercial tenders that require a particular standard.

While not exhaustive, examples of types of business compliance include:

• Industry-specific regulations – regulations set out by agencies such as the Environment Agency, the Office of Rail and Road or the Health and Safety Executive.
• Financial regulations – rules around tax, VAT, payroll, accounting, and director's duties enforced by organisations such as HMRC and Companies House.
• Employment law and workers' rights –rules and regulations covering activities such as discrimination, hiring staff, working hours, dismissal, and activities such as unionisation.
• Health and Safety regulations – regulations such as handling hazardous materials, working from height, electrical safety, and fire safety in the workplace.
• Data protection law – Includes legislation such as The Data Protection Act 2018 that determines how data is collected, processed, and stored.
• Voluntary compliance – Schemes such as the International Organization of Standardization (ISO) family of standards and schemes such as Cyber Essentials that demonstrate compliance across a range of business activities.

How to stay compliant

Ensuring compliance can be challenging.

You may need to review legislation and regulatory changes across business activities and ensure your business is monitoring and documenting its compliance.

Identify compliance requirements

A possible first step is to detail the areas of your business that you may need to comply with regulations.

Consider listing all the applicable rules, such as data protection and health and safety laws.

Stay up-to-date

Keeping up to date with industry news can help you stay compliant, with trade journals and bodies a good source of updates on legal changes that could affect your business.

Maintain a legal register

A legal register is a system detailing current and updated legislation that an organisation must comply with due to its business nature and activities.

You could consider using automated legal register systems that automatically update with any regulations changes and informs you.

Third-party legal businesses often provide these.

Seek legal advice

Employing a legal team – either internally or as an external service – may give you expert legal advice and guidance on regulations.

A legal team can maintain the legal register and may help a business with risk assessments and compliance audits.

Conduct compliance audits

To ensure your business is compliant, it can be a good idea to schedule compliance audits.

These audits can help check if you're meeting regulations and if processes are working.

They may help identify areas where you may not be compliant, allowing you to take action.

Ensure staff training

Think about implementing training for all employees to understand their roles and responsibilities.

Different areas within a business may have various legislations and rules, so consider providing training so that employees know what they need to do to be compliant in their role.