Non-Compliance: Are you ready to pay the cost?

According to most people, starting a startup is easy but sustaining it is difficult. This is true when it comes to entrepreneurs who are very less aware of the legal side of it. They fear the regulations and compliances as they do not know what steps to follow. And aren’t aware of the consequences of non-compliance. As per Neeyamo, the average cost that organizations experience for non-compliance problems is $14.82 million, 45% increase since 2011. Let’s dive into the risks that follow with non-compliance.

Often, the criticism falls on the government. The reason being, the government compliances are way too many and way too complex in the Indian ecosystem. Startups become one of the biggest defaulters of these compliances.

Startups get stuck in the conundrum where they have to comply with the compliances. Since there is no one to guide them, so professionals charge a decent fee as the founders need to focus on the business.

Few general non-compliance:

1. Incorrect/NO Tax Deducted at Source (TDS) deposit
2. NO,/Delayed GST Compliances
3. Books of Accounts are not maintained
4. Documentary proof of transaction is not available

These things seem to be small. However, the immediate answer that comes to our mind is, the startups can pay the fine/late fees and interests etc. and it is okay even if they delay.

Yes, the government might spare them, but the current/future investors do not.

Investors tend to treat these kind of situations as a red flag to the whole system and a lot of Startup Funding fall off in the Due Diligence stage.

Investors do not like utilizing their investment to pay fines or interests. Instead, they want them to utilize it to grow the business. Similarly, non-compliance also becomes a shadow of doubt in the investor’s mind that, maybe, the founders are not serious.

So, what should a startup do to avoid non-compliance?

1. Ask friends for guidance
2. Keeping all bills/invoices or any confidential document with them. Even if disorganized, they should have a habit of preserving them.
3. You can hire A freelance accountant or outsource their compliance to startup-friendly professionals. (Professionals often provide such start-up packages)
4. Keeping themselves educated with the basics of compliances.
5. Always do all the transactions from the bank account. Avoid cash transactions at all times.

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