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The Secret Brew For Start-Up Profitability Lies In A Robust Compliance Concoction

Driven by innovation and ambition, start-ups often tend to prioritise their core business operations while inadvertently neglecting the critical area of compliance

The Secret Brew For Start-Up Profitability Lies In A Robust Compliance Concoction

Outlook Start-Up Desk

POSTED ON November 18, 2023 10:33 PM

India's start-up ecosystem has witnessed a meteoric rise, making it the world's third-largest start-up ecosystem. With an impressive year-on-year growth rate of 15% since 2018, India boasts 75,000 start-ups and 107 unicorns as of 2022. The government, too, has been helping start-ups through Start-Up India and PM Mudra Yojana, among others, seeing their potential to expedite India’s ambition of turning ‘Atmanirbhar.’ 

However, amidst this vibrant entrepreneurial landscape, a crucial aspect often overlooked is compliance. Driven by innovation and ambition, start-ups often tend to prioritise their core business operations while inadvertently neglecting the critical area of compliance. 

This oversight can prove detrimental. Data shows that a staggering 90 per cent of start-ups crumble within their first five years. According to a survey, regulatory and legal hurdles are the fifth leading cause of start-up failures.

The Compliance Conundrum

Compliance, a broad term that encompasses adherence to all applicable laws and regulations, serves as a protective shield, safeguarding businesses from potential liabilities, legal disputes, and reputational harm. This crucial aspect of the business can be categorised into two broad areas—internal and external. 

While internal compliances focus on aligning a company's policies and procedures with applicable corporate laws, ensuring financial transparency, and obtaining necessary permits and licenses, external compliance pertains to adhering to laws and regulations governing products, services, and operations.

Compliance is particularly important for start-ups due to their resource constraints and limited expertise in navigating complex regulatory landscapes. While failure to comply can expose them to costly fines and even criminal prosecution, compliance bestows them with numerous benefits.

Navigating Growth with a Compliance Compass

One important point for start-ups to consider is that staying compliant fosters trust. Customers, investors, and stakeholders are more inclined to engage with a company that demonstrates a commitment to ethical and legal practices. Compliance helps start-ups attract customers, secure funding, and establish valuable partnerships. In a competitive market, trust is a currency that sets start-up s apart.

The most common compliance requirements for start-ups include business-specific statutory framework, company mandates and licenses, taxation compliances, Intellectual Property Rights (IPR) compliances, employee protection, and cybersecurity.

Start-ups can leverage technology solutions to tackle these challenges effectively. Automated compliance tracking systems can monitor regulatory changes, streamline processes, and ensure comprehensive compliance across different departments. Cloud-based solutions offer secure data storage and access, cost-effectiveness, and scalability, making them suitable for start-ups.

Regulation Roulette

Additionally, start-ups can employ software tools such as contract lifecycle management, document management, and risk management to manage contract documents and identify potential compliance risks. Consulting firms can provide expert guidance on selecting the right technology solutions and best practices for compliance.

Another benefit of being statutorily compliant for a start-up is that it ensures that there is an effective allocation of limited financial funds. Ensuring start-ups are compliant by investing in an effective technology solution will ensure that no additional costs are incurred by the firm/organisation towards rectification, payment of penalties, or simply figuring out what needs to be done. Today, when time is of utmost importance, this would prove to be a high ROI. 

Compliance should not be perceived as a luxury reserved for corporate giants; it is a necessity for every—big or small, that aims for long-term success. In a rapidly evolving business landscape, compliance is not just a requirement; it is the bedrock upon which the future of start-ups in India is built.

- Manikandan SM, Chief Operations Officer of Aparajitha

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