Ease the pain of government regulations

(Fortune Small Business) -- It's no exagerration to say that entrepreneurs are being crushed by regulatory costs. A 2005 report by the Small Business Administration found that small firms spend $2,400 more per employee, on average, than bigger counterparts to keep up with the demands of Uncle Sam.

The two most daunting burdens, according to the study, are environmental compliance and - you guessed it - taxes. Following rules set by the EPA and other agencies costs small businesses 364 percent more per worker than it does larger enterprises. Staying out of tax court takes 67 percent more out of their pockets per employee than it does in big corporations. Although most business owners don't want to break environmental or tax regulations, even the most well-intentioned can get confused by the fine print.

So what's the answer, short of lobbying government officials to reduce the burden of government regulations? Prevention, say attorneys who advise small businesses on these two areas. Here is their best advice on how to avoid costly penalties.

Environmental compliance

1. Do some detective work. Paying a well-qualified environmental consultant to investigate any potential real estate purchase before you buy may cost you a couple of thousand dollars. But it is better than getting stuck with the tab for a million-dollar cleanup later. No matter how pristine a plot of land may appear, you need to know for sure that it is not contaminated, if there is any wildlife habitat on the grounds, or if geological problems exist. Otherwise you may find out later that you cannot develop it or do business there. "There are very stringent environmental regulations that protect sensitive areas across the nation now," says Jane Ryan Koler, an attorney from Gig Harbor, Wash. who specializes in environmental law. "They are getting stricter all the time."

2. Offload that paperwork. The number of documents necessary to prove your company's environmental compliance can be burdensome in certain industries. If you find yourself spending an inordinate amount of time completing them, consider hiring a full-time compliance officer to monitor and fill out all the necessary forms or a private consultant to do this. Given the complexity of current laws and the penalties for failing to follow them, it will be money well spent. "Fifteen years ago, business didn't have environmental compliance officers, but that has changed," says Koler.

Taxes

1. Find a suitable CPA. Many small business owners could reduce their payments to Uncle Sam if they took the time to locate an accountant with a detailed knowledge of the issues that affect companies in their size range. Make sure you ask for several referrals from colleagues in your field before hiring one. "Interview about three CPAs," says Steven Rubin, an attorney in Santa Monica. "And even if you like the first one, still invest the time in interviewing one or two others. For all you know, the second or third one is going to make you pause and think about what the first one left out." Make sure you get phone numbers for clients you can call for references, advises Rubin. Also check with the IRS Office of Professional Responsibility to make sure there are no complaints against a prospective CPA.

2. Follow the money. Software programs such as Quicken and online tutorials by the IRS can help entrepreneurs learn a lot about where their tax money is flowing. "If small business owners understand how the system works, they can use the rules to their benefit to save money," says Paul Irwin, a business attorney from Arlington, Texas who encourages his clients to learn the ropes and eventually file their own returns under his supervision. You may not choose to do your own taxes for the long term, but the insight you get on the impact of your financial decisions will be useful as you plot your venture's future growth.