Avoiding 5 Top Regulatory Mistakes New Business Owners Make

Starting a business is one of the most courageous things a person can do. Most entrepreneurs begin with a desire to serve, to take control of their income and time, and to build something meaningful. But often, the financial and regulatory side gets pushed aside - treated as something to “handle later.” That’s exactly where the trouble starts.

Not because people are careless, but because they’re focused on what they do best: running their business. And frankly, the system doesn’t make it easy.

As a CPA, I’ve helped businesses go from ultra-small and struggling to multimillion-dollar international s

uccess. Along the way, I’ve seen five regulatory mistakes show up over and over again. Let’s walk through them - not just what goes wrong, but what should have happened instead.

1. Payroll Tax Miscalculations

Payroll errors are more common than you think—and they can be costly. A real-world example: East Penn Manufacturing, one of the world’s largest battery producers, was found to have violated federal wage laws by failing to pay employees for all hours worked. That included time spent putting on protective gear and showering to avoid lead exposure.

A federal jury awarded $22 million in back wages, and the Department of Labor is seeking an equal amount in liquidated damages, potentially doubling the penalty to $44 million.

What should have happened: Employers must account for all compensable time, including prep and cleanup when required for safety or compliance. Accurate time tracking and payroll audits are essential.

2. Misclassified Workers

Misclassifying employees as independent contractors can lead to massive legal and financial consequences. One of the most well-known cases involved FedEx Ground, which agreed to pay $240 million to settle lawsuits after thousands of drivers claimed they were misclassified.

Despite being required to follow FedEx’s schedules, routes, uniforms, and branding - hallmarks of employee status - the drivers were denied overtime and benefits. Courts found that FedEx exercised near-total control, effectively creating an employment relationship “in the guise of an independent contractor model.”

Combined with a separate California settlement, the total payout reached $466 million.

What should have happened: Businesses must use clear criteria - like behavioral control, financial control, and relationship type - to determine worker classification. When in doubt, consult a labor attorney or CPA.

3. Missing Estimated Tax Payments

Failing to adjust estimated tax payments after a change in income or entity structure - like switching from a sole proprietorship to an S Corporation - can trigger IRS penalties and interest.

If your income exceeds $150,000, the IRS requires 110% of the prior year’s tax liability to meet safe harbor rules. Underpayment can lead to thousands in penalties.

What should have happened: Business owners should recalculate estimated payments quarterly and adjust for growth, restructuring, or seasonal fluctuations. A proactive tax strategy is key.

4. Ignoring State and Local Requirements

Selling across state lines? You may be subject to sales tax nexus rules, which determine whether your business has a sufficient presence to require tax collection.

If you have nexus in a state, you must:

• Register with that state’s tax authority

• Collect the correct sales tax

• Remit it on the state’s schedule

Failure to do so can result in audits, penalties, interest, and even license suspension. Penalties vary, but often include 10–25% of unpaid tax, plus daily interest and potential criminal charges for repeated violations.

What should have happened: Businesses must map their jurisdictional footprint and register proactively. Sales tax automation tools and multi-state compliance plans can help.

5. Neglecting Entity Maintenance

Restructuring your business - whether through new ownership, leadership changes, or operational shifts - requires updating your entity status with the state. Failing to do so can delay tax filings, trigger audits, and even lead to administrative dissolution.

That means thousands in reinstatement fees and potential legal disputes over contracts signed under the wrong entity name.

What should have happened: Entity maintenance should be treated as a strategic priority. Update state records promptly, maintain accurate ownership documentation, and ensure all contracts reflect the correct legal entity.

Final Thoughts

These aren’t just mistakes - they’re missed opportunities. Missed chances to stay ahead, protect your margins, and build a business that’s not just visionary, but structurally sound.

Regulatory compliance isn’t just about filing forms. It’s about building systems that anticipate problems before they happen. It’s about making sure your business is as strong behind the scenes as it is out front.

If you’re ready to build a business that lasts, start with the foundation. Get the structure right, stay compliant, and protect what you’re building - because the cost of getting it wrong is far greater than the effort it takes to get it right.