Are You Compliant? How Would You Even Know?
The Challenges of Governmental Business Licenses
Business license compliance is a problem that's not going away. That's the unavoidable conclusion of every compliance professional that has ever delved into the issue. There's no way to turn a blind eye to the consequences of non-compliance that include:
- Lost revenue due to existing locations being padlocked
- Expensive fines, interest, and personal liens
- Permission to open new locations revoked
- Repeat inspections that consume valuable time and resources
- Bad PR from unsympathetic media reports
- Being in breach of contractual reps and warrants
- And many more
Too often, in the face of these daunting challenges, companies adopt a passive role. They rely on renewal notices sent by governmental agencies and pay whenever told. Take our word for it; that is not a sound strategy. Pinning your hopes on the reliability of governmental agencies is not a smart business practice. Consider that many renewal notices sent by governmental agencies don’t reach their intended destinations at all. Since current license certificates often have to be displayed in a public place at every location, this can cause enormous headaches when inspectors make surprise appearances.
It’s never a good idea for corporate headquarters to depend on either the reliability of the government or the due diligence of its local employees. To minimize risk, they need to take compliance matters into their own hands or live with the consequences.
Are You Fully Licensed?
Let's start by defining an important term. "Compliance" is often a catch-all phrase that covers everything from accounting to corporate tax to human resources, but for the duration of this article we will use the term to refer to business license compliance. The question we are posing may therefore be reworded as, "Are you current with all of the business licenses, tax registrations, and permits that your business is lawfully required to obtain?"
That question may not be nearly as easy to answer as one might think because compliance is a moving target. Business Licenses, LLC has conducted compliance audits for thousands of companies and we have almost always found gaps in their compliance portfolios. In many of those situations, a company was compliant at one point but then added new products to their existing set of offerings or opened new locations. In some instances, non-compliance was triggered by a seemingly small change to their operations like hiring a new corporate officer or allowing an employee to keep office equipment at home or — perish the thought! — allowing an employee to actually work from home.
How Would You Even Know?
It's not easy to measure your vulnerability to a non-compliance crisis. To get started, ask yourself these questions (and keep asking them periodically):
1. Are your compliance documents in a centralized database?
It's hard to overstate the importance of centralizing your license portfolio. In a perfect world, you can mitigate your risk by reviewing a comprehensive database that documents all of your existing business licenses, complete with renewal dates, stakeholder names, contact information, and renewal costs. But good luck searching for that database. In most cases, it doesn’t exist. Standard operating procedure for most companies is to have a reactive approach to their business licenses. They wait for renewal notices and cut a check when told. Moreover, in many instances business licenses, permits, and tax registrations are handled by regional offices with little oversight from your company’s headquarters. We're willing to bet that you simply don’t have a central repository and that complicates your job tremendously.
2. Do you have access to a governmental database of business licenses, permits, and tax registrations?
You can't know what you're missing unless you know what's out there. Which of your local governments require alarm permits? Which of your municipalities require that your staff obtain professional licenses and drive licensed vehicles? Which of your townships demand extra paperwork for heavily regulated products such as alcohol, tobacco, and lotteries? Which of your locations are in special fire districts? Which state governments require duplicate local licenses to be filed on the state level? These are vexing questions and, to make matters worse, each of these governmental entities make frequent changes to their fees, deadlines, requirements, and instructions. Access to a well-maintained national database of business licenses will free you of the burden of making A LOT of phone calls.
3. Have you ever implemented a full audit of your compliance portfolio?
"Research is creating new knowledge," said Neil Armstrong. He was right. A large-scale research project that uncovers gaps in your compliance portfolio is a necessity in this age of government interference and arbitrary regulations. Among other benefits, it will help you look at your company with fresh eyes and detect all of the core products, ancillary products, supply chains, distribution chains, and service offerings that can trigger a compliance event. This new knowledge can help you stay one step ahead of governments on the local, state, and federal level that are constantly devising new laws and expecting you to stick to them.
Where Do You Go From Here?
To be candid, there is no full-proof means of guaranteeing your business license compliance (short of completely handing over responsibility to a 3rd party provider of compliance solutions). At the end of the day, there is risk involved in every aspect of doing business. The only way to deal with this exposure is to anticipate the unexpected and that’s only feasible if your department is well-versed in the fundamentals of licensing.