Why small businesses can no longer ignore data privacy laws
A nationwide patchwork of privacy regulations
In the last few years, a wave of state-level data privacy laws has swept across the United States. What started with California's landmark Consumer Privacy Act has expanded into a coast-to-coast patchwork of rules governing personal data. By early 2025, around a dozen states, including Colorado, Virginia, Texas, Florida, and others, have enacted comprehensive consumer privacy statutes, with several more set to take effect.
Experts predict this trend will only accelerate: By the end of 2025, as many as 80% of U.S. states could have active privacy laws in place. The result is a rapidly evolving legal landscape that no longer only targets Big Tech companies. Even the smallest companies are now in the crosshairs of data regulation.
One major challenge is that the U.S. still lacks a single federal privacy law. In its absence, businesses must navigate varying state requirements, from California’s strict consumer rights to newer laws in states like Iowa and New Jersey, which often overlap but differ in key details. This growing maze is especially daunting for small businesses, which typically lack in-house legal teams.
"Right now we have a patchwork of state laws that makes it untenable, especially for small businesses, to be able to keep up," said U.S. Representative Suzan DelBene, highlighting the compliance burden faced by Main Street companies.
With each new state law, the compliance goalposts shift, leaving many owners struggling to understand which rules apply to them, Clym reports.
Confusion and compliance challenges for small businesses
For many small business owners, data privacy regulations still feel abstract or aimed at larger businesses. In reality, even a one-person online shop can suddenly find itself facing consumer privacy demands. In one example, a boutique e-retailer opened her inbox to find 47 emails from customers citing California's law (CCPA) and demanding to know how their personal information was being used. She discovered that a plugin on her website had been quietly collecting shoppers' data without proper notice, a compliance misstep that put her at risk of fines and a customer trust crisis. Scenarios like this are increasingly common as consumers become aware of their rights and new laws empower them to act.
Much of the confusion stems from uncertainty about who must comply. Many state laws set thresholds. For example, applying only to businesses handling data on 100,000 state residents or more, which can lead small operators to assume “Maybe this doesn’t apply to me.” But those assumptions are risky.
If you sell products or attract users beyond your hometown, your website is effectively doing business nationwide, potentially bringing you under the scope of multiple state laws. Different rules may kick in based on the type of data you collect (from emails and IP addresses to sensitive health or financial info) and how you use it.
Surveys show that understanding is low — only about 3% of Americans say they fully understand how current online privacy laws work, so it's no surprise many entrepreneurs feel lost on this issue.
Meanwhile, compliance itself can easily become challenging for someone with little to no technical knowledge, and as such can prove quite daunting. Requirements can include things like posting clear privacy policies, letting users opt out of data sales or targeted advertising, handling consumer requests to access or delete data within strict timeframes, and tightening data security practices. For most people, this sentence alone can be scary since few of them know what these words mean. Think of a small business with less than 10 employees, none of whom are dedicated compliance staff. How can it keep up with shifting rules across multiple jurisdictions? The fewer employees, the greater the challenge of compliance.
The upside, however, is that getting privacy practices in order can be a business benefit. "Given the cost of a security breach, losing your customers' trust and perhaps even defending yourself against a lawsuit, protecting personal information is just plain good business," the Federal Trade Commission advises companies. In other words, privacy compliance isn't just about avoiding penalties; it's about treating customers' data respectfully to build goodwill.
The risks of noncompliance: fines, lawsuits, and lost trust
Ignoring data privacy laws is no longer an option; the risks of getting it wrong have grown too large. Consider the possible consequences if a company is found to disregard these regulations:
- Hefty fines and enforcement actions: Regulators are increasingly willing to crack down on businesses found to be non-compliant.. In California, fines can reach $2,500 per violation (or up to $7,500 for intentional violations) under the state's privacy law. That is per violation. For a database of hundreds or thousands of customer records, penalties can multiply quickly. In one high-profile case, California's Attorney General fined beauty retailer Sephora $1.2 million for failing to honor consumer opt-out requests and disclose data sales. "There are no more excuses. Follow the law... My office is watching, and we will hold you accountable," California AG Rob Bonta warned businesses after that settlement. Other states' attorneys general are also gearing up for enforcement, and industry experts note that even smaller companies can be made examples of if they ignore clear legal requirements.
- Lawsuits and legal liability: Where regulators don't act, consumers (or plaintiffs' lawyers) might. Some privacy laws allow individuals to sue over data misuse or breaches. Even when they don't, a serious data incident can spawn class-action lawsuits for negligence or violations of privacy rights. Legal defense is costly for any business. Small businesses usually can't handle long lawsuits. Even one case, whether they win or lose, can drain money and time. It's less expensive to put protections in place early than to pay lawyers afterward.
- Loss of customer trust and reputation: Perhaps the most immediate damage from a privacy misstep is to a company's reputation. Consumers are increasingly privacy-conscious, and they won't hesitate to vote with their wallets. In a Cisco survey, 92% of people said they are more likely to trust companies that protect their personal data. Conversely, nearly half of Americans (48%) have stopped buying from a company over privacy concerns. If word gets out that your business plays fast and loose with customer data, or worse, suffers a data breach, you risk losing the very customers you worked so hard to attract. The fallout can be especially devastating for small businesses, which rely heavily on word-of-mouth and loyalty.
Navigating compliance, new tools to help
The good news is that small businesses don't have to tackle this challenge alone or blind. A variety of free or affordable resources are emerging to help even non-experts get a handle on privacy requirements, such as this free tool that checks websites for privacy compliance. Tools like this provide an accessible starting point to see where you stand and what you might be missing, before an attorney general or angry customer points it out.
For businesses ready to take the next step, official consent management solutions can also play an important role. These platforms help automate the process of collecting, tracking, and honoring user choices about cookies and personal data. By combining quick assessments with structured consent management, even small companies can build a stronger foundation for ongoing compliance.
Of course, a scanner or checklist is not a magic wand. True compliance requires a commitment to ongoing privacy-minded practices: keeping privacy policies up to date, securing the data you hold, honoring consumer requests, and staying informed about new rules on the horizon. Small businesses should consider appointing someone (even if it’s the owner) as a privacy manager to monitor these issues regularly. Training your staff on basic data hygiene and customer data rights can go a long way toward preventing mistakes.
When in doubt about legal gray areas, say, if you start handling sensitive health data or expanding to international markets, it’s wise to consult a professional for guidance.
At the end of the day, small companies can no longer afford to take a wait-and-see approach to data privacy. The laws will keep coming, and enforcement will only get stricter as public concern mounts. Rather than viewing it as a burden, smart business owners are embracing privacy compliance as part of doing good business in a data-driven world. It’s about treating customer information with respect, being transparent, asking permission, and protecting what’s entrusted to you.
That mindset not only keeps you on the right side of the law but also sends a message to customers that your business values their trust. In a competitive marketplace, that trust is priceless. Adapting to privacy laws may require effort, but it’s fast becoming as fundamental to running a company as accounting or customer service. Small businesses that get ahead of the curve now will be far better positioned to thrive in a future where privacy isn’t just an afterthought, but a core expectation.
This story was produced by Clym and reviewed and distributed by Stacker.
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