A small business owner has enough to deal with in establishing and growing a company. What most owners don’t realize is that some of the most common financial business decisions may also come with legal liabilities. Ignorance of the law is no excuse. Read up on the legal ramifications of five standard business practices to avoid accidentally breaking the law.
1. Refusing Cash Payments
Not accepting cash sounds like a prudent idea. There are lots of great ways out there to make client and customer payments really convenient, and you’ll reduce the possibility of employee theft and acceptance of counterfeit bills. Plus, you’ll save yourself a trip to the bank to deposit the funds, as well as some of those funds, since many banks charge businesses fees after a certain amount of cash deposits per month.
The problem with a cashless business model is that it may be illegal where you operate. Some cities and states are pushing back against stores that refuse cash payments. To date, Philadelphia, San Francisco, New Jersey, Massachusetts, and Connecticut have all banned cashless retail stores.
If you’re worried about counterfeit bills or employee theft, there are several actions you can take. Train employees on how to detect a fake bill. Keep a counterfeit detection marker at all cash registers. Install a camera over your store’s register area to monitor employee activities around the cash register. And make sure you’re using a point of sale system with a locking cash drawer that automatically opens and locks closed after every transaction.
2. Hiking the Prices You Charge for Your Goods and Services
Antitrust laws are designed to protect consumers by encouraging competition between sellers. Monopolies are prohibited. You may think terms like monopolies and antitrust apply to major corporations, but the laws are also applicable to small businesses.
Regardless of your industry, if you’re considering raising prices, be careful with how you approach an increase. Price increases should be gradual — raise prices on just one or two products at a time. Inform your customers ahead of time and make sure you don’t get greedy. Avoid joining forces with competitors to raise prices together across the board. Drastic increases can send shockwaves across your customer base, leading your customers to report you for price-fixing or antitrust violations, triggering an investigation.
3. Fibbing on Your Commercial Loan Application
You may be tempted to fudge your books just a little to make your business or commercial loan application look more attractive. Lenders have methods to detect fraud. At best, your loan application will be rejected. At worst, you may get in legal hot water.
Be upfront on your loan application and expect all information to be verified. If you’re not sure about how to answer certain application questions, consult with an accountant or attorney for guidance.
4. Avoiding Your Tax Filing
If you had a bad year or you don’t have the funds to pay your tax bill, don’t avoid filing your taxes. Doing so will make matters worse — the IRS charges bigger penalties for not charging your tax return at all. Here are the penalties you’ll be liable for if you don’t file:
- Failure to file: 5% of the unpaid tax required to be reported.
- Failure to pay: Up to 25% in penalties on the balance due.
It’s best to file a tax extension to buy you more time or file your taxes and work out an installment repayment plan with the IRS. Note that filing a tax extension doesn’t put off your tax liability. You’ll still owe the back taxes, even if you haven’t filed yet. When submitting a tax extension, you should make a payment with the extension. Otherwise, you’ll end up having to pay penalties and late fees on your back taxes.
If you’re putting off filing taxes because you can’t afford the tax bill, stay on the right side of the IRS by contacting them to arrange an installment payment plan. You’ll receive an extended period of time to repay your taxes without having to worry about having your wages garnished or your accounts frozen.
5. Keeping Customer Credit Card Information
If you have a merchant account to accept and process credit card transactions, you are legally responsible for protecting your customers’ credit card data. Known as Payment Card Industry (PCI) compliance, mishandling customer financial comes with penalties of up to $500,000.
Regulations forbid the storage of a credit card’s data, including data contained on the magnetic stripe, the card number, and the small three digits on the back of the card known as the card security number or CVV. Receipts should only display the last four digits of the credit card and the expiration. If you’ve written down the credit card for whatever reason, the number must be redacted by crossing it out with a dark pen.
If you suspect that a customer’s credit card data was compromised from failure to handle or dispose of the information properly, you must notify the customer in writing so they can stay on alert for fraudulent charges.
The Legal Side of Business Decisions
Small business owners primarily focus on the bottom line when they’re making financial decisions. But as these examples show, there are more ramifications to business decisions than the financial aspect. Working with an accounting professional or business attorney to implement changes or make important decisions could save you and your company from having to deal with legal issues.