Perfect location. Right price. Buyers lining up with open pockets. It’s the ideal setup for any construction project … only if all your business licenses and permits are in order. Contractors or builders may do just about everything right as they prepare to bid a project or begin construction. But all of that hard work could be lost if the company simply didn’t renew the required business permits and licenses.
It’s a common scenario for companies, especially for those with multiple locations and without centralized compliance teams or regular audits of their existing or required permits. In other cases, small companies simply fail to renew a contractor license on time — or never get one in the first place.
Stings, arrests and news coverage
Unlicensed contractors face big consequences, however, if they aren’t in compliance. Government officials regularly conduct sweeps and crackdowns.
In California, for instance, the Contractors State License Board is especially vigilant. It regularly scans advertisements to look for unlicensed contractors and conducts stings.
In a two-day sting in March, 14 people were cited for illegal contracting. In one of those cases, an individual attempted to use a friend’s contractor license number, netting him a felony charge that carries a penalty of a fine of up to $10,000, imprisonment for up to a year or both.
In Miami in February, 22 people were arrested in a joint crackdown conducted by the Miami-Dade Police and the Florida Department of Business and Professional Regulation, among other agencies. It all was caught on the hidden cameras of a local TV station. Those arrested face fines or jail time.
And Arizona’s Registrar of Contractors even has a “Most Wanted” page, which lists unlicensed contractors attempting to do business in the state, complete with pictures and aliases.
Of course, some unlicensed contractors are scam artists, attempting to defraud people by taking their money and completing little to no work. But in some cases, they are simply business owners who didn’t take the appropriate steps to meet the rules and regulations of the states and cities where they operate, and now face the stiff consequences.
Busy times mean more distractions
The future looks promising for the construction industry. Contractors have seen steady business growth in recent years.
According to JLL, an investment management firm specializing in real estate, 2016 was a record-setting year for the construction industry. Construction spending rose 4.5 times higher than year-end 2015 levels, to almost $1.2 trillion, according to the firm.
Busy times are ahead, making it even easier for contractors to miss licensing deadlines as they focus on meeting other due dates for bids and projects. To the mix, add state rules that vary on how often contractors must renew their licenses — annually in some states, less often in others.
But the ramifications of failing to renew are huge. They include lost business, inability to bid on projects, fines and jail time. For these reasons, licensing must be a priority for any construction business.
Look at all your business’s compliance requirements; compare them to your current permits and licenses; and determine if there are any gaps now – or in the near future – to avoid lapses and missed opportunities. Check taxes, too. Having an up-to-date understanding of the taxes in each jurisdiction is essential, particularly as tax codes and rates can change quickly. Invest in tax software to stay organized and up-to-date. With software, you’ll be able to not only accurately file your taxes but also take advantage of tax credits and deductions that could save money for the business.
Here are five tips to make sure you stay on top of all compliance mandates:
No. 1 – Don’t ignore government mailings
Government officials often send out invoices and reminders when a license is set to expire, but it can be easy for those often white, nondescript envelopes to get lost in the bottom of a stack of papers or even tossed in the trash.
Develop a system to ensure that any mail is evaluated the day it is received and that the proper action is taken as soon as possible. Many firms rely on professional registered agents to receive and forward legal notifications so they are never neglected.
No. 2 – Complete a full audit and gap analysis
Requirements are changing all the time. New obligations can emerge. For companies that operate in several places – or have their sights set on expansion – it sometimes can be easy to let licenses expire in one jurisdiction or fail to get a permit in another.
Look at all your business’s compliance requirements; compare them to your current permits and licenses; and determine if there are any gaps now – or in the near future – to avoid lapses and missed opportunities.
No. 3 – Stay on top of all requirements, including new ones
Before you open your business and start lining up work, it’s critical that you fully analyze every requirement and determine how long it will take to secure the needed business permits and licenses. What’s more, if you plan on bidding for projects in other jurisdictions, it’s vital that you meet the requirements there before you start seeking business.
Once you’re open, your efforts to comply are far from over. With regular renewal requirements and new compliance obligations popping up, you’ll need to stay on top of business license requirements in every jurisdiction where you operate.
Create a list of all your business’s compliance requirements and develop a system to track your licenses and ensure they are renewed on time.
No. 4 – Put central office in charge
Businesses often decentralize their compliance efforts and rely on employees at each location to monitor and stay on top of requirements. That can work well unless the employee fails to renew a permit on time or apply for a new one when the business expands.
When that happens, the ripple effect of noncompliance can hit even those in headquarters hard, especially when closures, fines or bad PR affect the bottom line.
Local employees can track licenses and renewals, but businesses should place someone in central office in charge of following up to ensure all requirements are met.
No. 5 – Get support from an expert
Construction business owners are expert in what they do every day, but some of the ancillary issues that are fundamental to running a business – such as building a website, doing taxes as well as legal and compliance issues – can be time consuming, confusing and outside of their expertise. That’s why many firms turn to a compliance expert to ensure their business meets every requirement and never misses notifications when new mandates come down the pike.
Every project needs a solid foundation – from the shopping center that’s under construction to the business you’re working to grow. For businesses, that foundation includes not just a business plan and industry knowledge, but the diligent work required to ensure the business is always in compliance.
As Director of Customer Relationships and Compliance at Wolters Kluwer’s CT Corporation, Scot Ferraro helps law firms and businesses of all sizes stay in regulatory compliance.