An ambitious startup with an IPO as an eventual goal can save themselves a lot of trouble by thinking about compliance early — but it’s not always an easy feat. From hiring to implementing systems to creating efficient processes, there’s no shortage of roadblocks for startups trying to get off the ground.
The most difficult time to begin the compliance process is when it has become a business or legal risk. As you can imagine, scrambling to get compliant usually results in high audit costs and lost business opportunities. On the other hand, building compliance into your business processes early on has several benefits. Not only will audits (when you’re subject to them) be easier, but in the meantime, you’ll enjoy more accurate financial reporting, more secure data, more structured business activities and an easier path to entry into different global markets.
Strongpoint President, Mark Walker, recently sat in a thought-leadership panel with Teampay, a purchasing software company, to discuss some best practices for startups looking to manage the challenges of compliance and growth. Check out the full presentation here, or read on for a look at five growing pains companies should avoid in order to properly prepare and plan for future regulatory compliance requirements.
When you’re just starting to get your company off the ground, processes change rapidly — so a general rule of thumb is to keep things simple and flexible. Too much complexity can lead to bottlenecks in your business activities. That said, certain things should be prioritized early on. Basic IT general controls are a key building block of compliance and data security. And if you can automate them, everything will be more reliable and scalable as you grow. Not only that, but automation creates order, removes doubt, and makes it easier to prove who spent what, where and when.
Institutional knowledge is, essentially, the collective of knowledge and capabilities of the people in your organization. Startups often run on the knowledge of their founders and core team — which allows for a lot of agility early on, but becomes a problem when the business starts to grow. Compliance requires structured processes and documentation; the longer you rely on institutional knowledge, the harder it will be to produce this when the time comes. As well, institutional knowledge leaves businesses vulnerable when key staff members move on. The earlier you start creating formal process documents, the better positioned you’ll be to manage both compliance and growth.
Peter Nesbitt, VP of Finance at Teampay, made an important claim about the value of simple business systems: “Having a disjointed approach to making purchases or access to things that employees need to do their job makes things challenging.” Startups tend to adopt new technology in an ad hoc manner, which makes it unnecessarily complex and hard to scale when things change. Keeping systems simple is keeping them scalable — with a lean IT infrastructure, it becomes much easier to take on new projects and keep the pace of growth necessary to continue your business.
In smaller startups, teams tend to wear many hats — your finance department might administer your ERP systems, and your sales team might also be your marketing team. In a small organization, we understand that there’s usually no way around it. But as your company grows, it’s important to ensure roles and permissions are well-defined, with little or no overlap. Poorly managed access controls are a major security risk and a huge cause of concern for auditors. Implementing proper segregation of duties early avoids the need for an expensive, time-consuming role cleanup project down the line.
System ownership is similar to access in many ways — gaps can result in compliance and legal risks that are expensive to remediate. Even if compliance is not yet in scope, confusion around system ownership can create a lack of visibility and misalignment of resources between teams. For these reasons, it’s important to establish ownership early and clearly — and to build it directly into your business processes.
Now that you’ve learned what to avoid when preparing for compliance, you should start thinking about ways to streamline your compliance prep. As we've mentioned, it’s important for a young company to create tight processes and effective data and access control early on — but doing so takes time, effort and a lot of resources. In our experience, implementing automation is the most practical way to achieve compliance without using up a lot of resources. With great tools, your team will spend less time on repetitive compliance tasks while still having confidence that your processes are working correctly.
Check out our blog post on how audit experts prep for compliance here and start your compliance journey today.
Teampay is a purchasing software company built to help modern, technology-enabled businesses manage company spending in real-time. Their products provide organizations with intuitive assets, like workflows and reporting, that add security, accountability, and easy approval while giving employees autonomy over their purchasing process.
Visit their website to learn more.