Introduction
Small businesses are the backbone of the economy, representing approximately 98% of all Australian businesses. Nevertheless, small businesses also often find themselves tangled in regulatory requirements designed without their unique challenges in mind. From licensing and administrative tasks to navigating complex compliance frameworks, the struggle with regulatory compliance has only grown, especially post-pandemic.
In this blog, we explore the common regulatory issues small businesses face and discuss the recommendations resulting from the New South Wales Small Business Commission’s recent review of small business experiences with regulatory policymaking processes.
What is regulation?
Broadly speaking, regulation encompasses any rule, requirement, or procedure stemming from legislation, regulations, or other directives overseen by government agencies.
Understanding the regulatory burden on small businesses
Defining regulatory burden for small businesses
Regulatory burden encompasses the administrative and financial costs small businesses incur to comply with existing regulations and adapting to comply with new regulations introduced as a result of changing policy requirements.
These costs, both direct and indirect, might include:
- Administrative labour to comply with government regulations.
- Specialist advisory costs for legal and financial compliance.
- Lost productivity due to the time it takes to get up to speed with new regulation and implement policies and procedures.
- Opportunity costs from time spent on compliance rather than business growth.
Why small businesses feel the pressure more intensely
Small businesses, unlike larger companies, often lack the financial resources and staff to efficiently manage compliance costs. Less access to capital and minimal internal specialised expertise, means that regulatory compliance can consume more time and financial resources for small businesses.
Additionally, small businesses face cumulative costs from overlapping local, state, and national regulations, which may disproportionately affect their bottom line.
Common regulatory compliance issues for small businesses
Small businesses struggle with complex and ever-increasing regulations across a range of different areas of operation, making compliance challenging. Many feel underserved by a one-size-fits-all regulatory approach that imposes the same standards on small businesses as on large corporations, despite their differences in financial and other resources.
Additionally, limited consultation in regulatory design leaves small businesses with little influence, often resulting in impractical rules that don’t reflect their operational realities.
Complexity and volume of regulations
Small businesses report that regulations are often convoluted and ever-increasing. For example, the need for licensing, evolving food labeling standards, and environmental regulations can make compliance feel like a moving target.
Lack of tailored policies for small enterprises
Only a small percentage of small businesses surveyed by the NSW Business Commissioner believe that regulations are designed with their unique needs in mind. Many said the “one-size-fits-all” regulatory approach frequently leads to burdensome requirements, such as applying the same standards to small cafes as large restaurant chains, despite their vast differences in scale.
Insufficient consultation in regulatory design
Many small businesses feel excluded from the regulatory design process. Consultation often occurs only after policy solutions are developed, leaving little room for input that reflects the operational realities of small business. This disconnect between policymakers and small business needs can result in impractical regulations.
Suggested practical strategies for overcoming regulatory challenges
The NSW Small Business Commissioner made nine recommendations based on stakeholder input to “rightsize” regulation as it applies to small businesses. The practical strategies resulting from these recommendations can be summarised as follows.
Small Business Impact Statements
The implementation of a Small Business Impact Statement (SBIS) may help ensure that new policies take small business needs into account from the outset. This approach encourages policymakers to evaluate the potential impacts of regulations specifically on small businesses, helping reduce unnecessary administrative burdens.
Streamlining compliance through digital solutions
Digital solutions, such as online portals and simplified reporting software, may significantly reduce the administrative load on small businesses. The NSW Government’s “Have Your Say” platform is an example of a digital tool that enables small businesses to engage in consultations, providing updates relevant to their industry.
Simplifying compliance with tiered regulation
A tiered regulatory approach might allow small businesses to meet regulatory objectives without facing the same rigorous requirements as larger businesses. This approach, implemented in several international jurisdictions, would consider the capacity of a business before setting compliance thresholds.
Engaging in continuous consultation and policy development
Actively participating in consultations and working with regulatory bodies may help small businesses influence regulatory frameworks. The NSW Small Business Commission emphasises that consistent stakeholder engagement can prevent top-down policy creation and ensure regulations are grounded in the realities of small business operations.
Professional guidance and networking support
Forming alliances with industry groups or consulting legal advisors can assist small businesses to manage compliance effectively. Industry networks can offer shared resources, reducing individual costs for legal, financial, and regulatory advice.
The NSW Small Business Commission’s report highlights critical points for both policymakers and small businesses in addressing the regulatory burden small enterprises face.
So what is the way forward?
Policymakers need to recognise the unique constraints of small businesses, which make compliance disproportionately challenging compared to larger firms. By adopting measures such as Small Business Impact Statements (SBIS) and engaging in continuous consultation with these businesses, policymakers can design more flexible, tiered regulations that scale based on business size.
This tailored approach may prevent small businesses from being subjected to the same compliance requirements as large corporations, reducing unnecessary administrative strain and fostering a more supportive regulatory environment.
On the other side, small businesses must proactively engage in consultations and utilize digital platforms to communicate their needs and concerns. By collaborating with industry groups and participating in regulatory discussions, they can influence policies that directly impact their operations. Networking and accessing shared resources can also mitigate the individual costs associated with regulatory compliance, allowing small businesses to focus more on growth and innovation rather than navigating complex regulations. Together, these efforts from policymakers and small business owners can create a more balanced regulatory landscape that supports business sustainability and economic growth.
Conclusion
Policymakers must remember that 98% of Australian businesses are small businesses. Conversely, small businesses must remember that in order to effect change, they must make their voices heard.
While navigating regulatory compliance will always pose challenges, small businesses can mitigate these through strategic advocacy and proactive engagement. By adopting these approaches, small business owners need to ensure their voices are heard in the policymaking process so they can maintain focus on growing their business rather than being bogged down by red tape.
The question remains, however, whether the recommendations made by the NSW Small Business Commissioner are achievable – especially those which put the onus on small businesses themselves to have their say and engage in policy development. Part of the problem associated with regulatory burden is the time spent by small businesses to keep up with the ever changing regulatory landscape.
You read about the NSW Small Business Commissioner’s report here.
Want to know how the Legal Literacy Foundation can help you make your voice heard? Read about our advocacy initiatives here.
