How to Make Money and Stay Out of Prison

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“Ignorance of the law excuses no man: not that all men know the law, but because ’tis an excuse every man will plead, and no man can tell how to refute him.”

– John Selden, English Antiquarian and Jurist (1584-1654).

“Ignorance of the law excuses no man” implies that you are deemed guilty if you break the law, even if you were unaware of the law at the time you violated it.  Is this reasonable?  How can anyone possibly know all the laws associated with running a business?  Federal, state, local, taxation, securities, and labor laws are only a handful of the endless amounts of rules and regulations a business must navigate.  And then these rulings change often.  Many small businesses simply do not have the time and money necessary to hire the needed attorneys to cover all areas of possible exposure.

Because of this, I am sure startups often unintentionally violate laws.  Since they are so small, they are likely off the radar of enforcement agencies.  But, what happens when these companies grow?  One example of audit statistics states that 17.78% of large corporations (over $10 million) are audited per year, while only 1.12% of small corporations (under $10 million) are audited.  (Source)

Based on this data, the bigger your company is, the more likely you are to be audited.  I assert that the financial risks of operating a business are directly correlated to size.  Fortunately, this is somewhat offset by the financial sustainability of a business model as it grows.  That being said, I would argue unanticipated dangers lurk for unprepared growing business.  That is why financial risk management is so crucial for growing businesses.  What is financial risk management?

1. Keeping you in business

2. Keeping you out of prison

3. Preventing you from being blindsided by unanticipated penalties, fines, fees, etc.

4. Stopping the bank from pulling the rug out from underneath you

5. Going back and fixing past errors without turning you in or dropping everything to manage these problems

 So, if you truly want to grow your business, make sure you are prepared.  After all, fools…I mean entrepreneurs…often rush in where angels fear to tread.

Is the quote “Ignorance of the law excuses no man” by John Selden reasonable today?  I would argue small businesses often, albeit unintentionally, violate the rules.  Is it fair to expect entrepreneurs to know and understand all of the federal, state, local, taxation, securities, and labor laws associated with running a business?