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How Can SMEs Cut The Cost Of Red Tape?

By September 30, 2014 No Comments
How Can SMEs Cut The Cost Of Red Tape?

Businessman Cutting Red Tape Rules and regulations are a headache for small firms. There’s the hassle of keeping up with the latest changes. Then, business owners have to implement legislation that’s relevant to their enterprise. And, finally, there’s the material cost of making sure you’re fully compliant with new laws.

Red tape-related bills have soared for SMEs in the last year, despite Government pledges to simplify the system for smaller firms. The Forum of Private Business (FPB) estimates that the cost of compliance for small and medium companies has increased by almost £1 billion over 12 months to reach £19.1 billion overall.

  • Enterprises with more than 50 employees are spending an average of £2, 116 a year on complying with regulation.
  • Smaller companies with between 10 and 49 members of staff shell out £985 on average.
  • Micro businesses, with fewer than ten workers, are typically paying £620 – a disproportionately high cost per employee.

Which new legislation carries a cost?

The FPB blames the increased financial burden on businesses on the recent introduction of a number of rules:

  • The extension of the right to request flexible working, which we’ve outlined here before.
  • Changes to Waste, Electrical and Electronic Equipment regulations, which require firms to be greener by sending redundant electrical and electronic gear back to the producer rather than to landfill.
  • The need for SMEs to comply with Real Time Information legislation. Since April small firms have been required to submit payroll information to HMRC on time, as well as ensure that the details for each employee are accurate and up-to-date, or risk a fine.
  • The introduction of pension auto-enrolment laws. The rules have yet to become effective for SMEs at the smaller end of the scale, but October 1 is the deadline for firms with up to 60 employees, according to official guidelines.
  • Small businesses complained about the financial impact of complying with food labelling rules, and TUPE laws relating to employee rights.
  • Tax changes announced in the Budget were yet another expense.

It’s been a busy year for law makers, meaning a lot more paperwork and cost for small companies. SMEs have faced a host of new regulations, as Boost pointed when many of them came into force in April.

How to reduce your red tape bill

It often seems easier for small firms to suffer the expense of hiring outside expertise – often an accountant or specialist consultant – to guarantee the business is complying with all areas of the law. But entrepreneurs can take some steps to try and prevent rule changes costing them too much – or disrupting their day-to-day operation. The FPB recommends that business owners:

  • Be prepared. Business continuity is dependent on forward planning. SMEs face a potentially greater cost implementing new rules if they leave their preparation to the last minute. Make sure you know what’s required of your company in advance to be compliant with any new legislation. Budget accordingly. Then, look at practical considerations such as whether new software is needed to handle things such as payroll or pension-related processes.
  • Make sure you’re up-to-date. With laws changing so frequently, and rules being introduced all the time, it’s important to keep on top of new developments.  Of course, this takes time, so seek one or several sources of trusted information to get reliable updates on regulatory changes. Business groups such as the FPB, the Federation of Small Businesses, the British Chambers of Commerce, and the Institute of Directors provide members with appropriate information. Alternatively, check regularly with the Government’s SME websites. And, finally, your accountant should also be aware of any major changes on the horizon.
  • Take advice when necessary. Paying for the time of a lawyer, accountant, or consultant may seem like an undue expense, but the cost of finding your business on the wrong side of the law could be infinitely greater. On matters such as employment tribunals or health and safety claims talk to experts who can help you avoid major costs further down the line. And check that any advisor you use is insured themselves, so you’re protected if the worst occurs.
  • If you outsource compliance, shop around. There are organisations that offer SMEs a package service including advice on employment law, contracts, environmental issues, and health and safety. These can prove more cost effective than hiring individual experts in each area, but make sure you look at several providers to compare their charges, and opt for one with a good reputation.
  • Delegate. Too many business bosses try to do everything themselves. Instead, appoint someone with the appropriate knowledge to handle HR issues, or to keep abreast of health and safety concerns. Identify any areas of your business that are particularly vulnerable to law changes, and make sure that someone is responsible for patrolling this regulatory beat. If you haven’t got the talent in-house, consider hiring new blood. Having a trustworthy and efficient person watching the company’s back could mean the owner has more time to pursue business opportunities.

Political promises – and SMEs having their say

Real action has been promised on reducing red tape through the new Small Business, Enterprise, and Employment Bill, which is passing through Parliament at present, and should become law later this year or early in 2015. It outlines measures to ensure that the Government publishes a target to cut regulatory burden for each parliamentary term, building on its ‘one-in, two-out’ pledge. And the draft law also includes a commitment to review all new regulations to see if they’re effective.

This last development continues the efforts of the Red Tape Challenge, which invites SMEs to give their opinion on which regulations should be changed or abandoned altogether. The initiative has already received more than 30,000 suggestions, and earmarked over 3,000 regulations to be scrapped or significantly improved.

So, business owners needn’t just complain about red tape. They should have their say about which regulations work, and which don’t. But, legislations are never going to disappear altogether, so SMEs should also keep themselves as informed as possible about any pending changes. Keep yourself up-to-date, plan ahead, and admit when you need help. The costs to the business both practically and financially will be a lot less than passively waiting for new rules to take effect.
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