For all the hue and cry from politicians about reducing regulation, UK businesses are dealing with more red tape than ever. Some estimates suggest owner-managers spend close to 30 hours a month dealing with legislation.

That’s a lot of squandered time and lost revenue. But it also suggests that a fantastic commercial opportunity could arise by capitalising on the latest EU or Government department requirements.

Take international accounting firms as an example. After the financial debacles at Enron and WorldCom in America, the US Securities and Exchange Commission introduced the Sarbanes-Oxley Act to regulate the manner in which audit and accounting services were provided. Perversely, this created a cash cow for auditors, which went on to double or triple their fees as the workload to keep in line with the new requirements increased. The outcome, since 2002, has been a boom for firms not only in the US but globally.

Powering down

Concern about the environment has also opened up a market for the enterprising entrepreneur. Gary Carter, chief executive of simulation software specialist Flomerics, notes that a full rack of IT servers generates 20 to 30 kilowatts – the equivalent heat of two ovens on full blast – and the amount of power needed to cool them is similarly large.

Although not part of its core offering, Carter says there has been ‘a lot of interest’ in Flomerics’ technology that tracks heat sources from servers and provides the means to reduce power usage, thereby making the data centres more energy efficient.

Elsewhere, the pressure to go green is transforming small businesses into impressive, multi-million pound concerns. Mick Fishwick, chief executive of composting business TEG, says: ‘As legislation grows in the area in which we operate, the demand for our products grows.’

Back in 2004, the company’s turnover was around £20,000. Fishwick, who earned his spurs recycling uranium with British Nuclear Fuels, joined in 2005 because he could see potential in the sector.

The growth stemmed from the UK Government’s implementation of an EU directive penalising the dumping of waste in landfill sites. Fishwick explains: ‘In the UK, we’re so densely populated that we will run out of holes in which to dump our waste. Secondly, when you landfill organic materials it creates methane, which is ten times as potent as carbon dioxide.’

In 2005, the Government hiked the yearly increase in tax on landfill from £1 per tonne to £3 per tonne. ‘That meant the cost reached a point where it was economic to look at a TEG type of environmental solution,’ he says. And this trend is set to continue, as the yearly increase in landfill tax will be raised to £8 per tonne from April 2008. This means that in the space of nine years, the tax on each tonne of waste disposed of via landfill will have increased from £10 (in 1999/2000) to £32 (in 2008/09).

TEG has undergone triple-digit growth as sales have risen to £3.6 million. The future looks rosy after it became one of the preferred bidders for the Greater Manchester Waste PFI contract. Over a three-year period, says Fishwick, the contract will generate £35 million.

The height of profitability

Rex Orton, financial director of Wiltshire-based Latchways, which designs, makes and sells fall-arrest safety systems protecting people working at height, has seen a surge in the company’s fortunes thanks to revisions to health and safety legislation.

Again, it was 2005 when the EU introduced the Work at Height Regulations, requiring rooftops to have adequate protection to stop people falling. This has extended into specific fall-protection legislation covering professions such as window cleaning, container-top work in docks, working on the back of a lorry and erecting large advertising posters.

All of the above has boosted the demand for Latchways’ safety devices. Orton says the biggest markets are Germany, Holland and the UK. The highly litigious environment in the US means it, too, is a large market as companies attempt to minimise potential lawsuits.

The financials for Latchways are solid, with profits for the year to March rising 26 per cent to £7.8 million. Acquisitions have been made to broaden its offerings, namely a manufacturer of rooftop walkways, Height Solutions, and Wingrip, which provides a fall-arrest system used in the maintenance and manufacturing of aircraft.

Sea waves

Legislation handed down by the International Maritime Organization (IMO) underpins earnings at turnaround venture Cosalt. Restructuring and acquiring under chief executive Per Jonsson, the company has forged a network of marine safety businesses in Rotterdam, Antwerp, Hamburg and Barcelona.

‘The IMO enacts legislation across the globe and politicians can’t interfere with its implementation,’ explains Jonsson, who believes Cosalt will continue to benefit from the worldwide marine safety legislation that came into effect in July 2006 requiring all merchant ship crewmembers to be equipped with immersion suits in the event of having to abandon ship.

Cosalt shipped more than 60,000 suits globally in the last financial year. ‘This year it will come down to less than 10,000, but that’s still a bigger number than in the old days. What’s more, immersion suits have to be inspected every three years, which we are able to do; hence our decision to grow our global footprint of service stations in ports.’

Cosalt is also expanding to specialise in lifeboats after a regulation decreed that yearly lifeboat inspections have to be carried out by certified third parties. For its most recent year-end, the company reported sales up 12 per cent to £63.9 million and dramatically improved profits of £592,000 (£114,000 in 2006).

When legislation is so important to the prospects of your venture, it makes sense to ensure that you lobby and are involved in official discussions. Latchways’ Orton says: ‘It’s essential to have people on boards and committees that consider legislation so that the company is not only ahead of the game, but is involved in policy-making.’

This point isn’t lost on TEG’s Fishwick: ‘We’re not active at the moment but we are turning our thoughts to it. Traditionally, lobbying in our sector has been the domain of the bigger businesses. They lobby hard, making sure they have people on committees and so on.’

Letting the large corporates dictate the terms of debate doesn’t strike him as such a shrewd idea: ‘We’re still a fairly fledgling business as we’ve only been trading for just over two years, but we’re reaching that point where we are becoming sizeable enough to play an active part.’

Bureaucratic delay

According to Fishwick, the main problem for a company that profits from red tape is bureaucratic delays. He speaks from experience, having seen the Greater Manchester contract put back from June to September this year.

‘Delays remain the biggest issue for us,’ he says. ‘Legislation does tighten and standards change, but we don’t always enforce them as quickly as we ought to.’ The answer, as Cosalt has also found, has been to diversify the activities of the business, so as not to be overly reliant on a single sector.

If reductions in red tape come to fruition, as many politicians are proposing, these companies stand to lose a reliable source of revenue. However, none of the entrepreneurs speaking to Business XL seemed remotely fazed about this possibility.

‘I’ve never seen a rollback in health and safety legislation,’ states Latchways’ Orton. ‘A reversal is highly unlikely.’ Fishwick is similarly confident: ‘It would take a sea change to reverse what’s there, as the environmental argument is so strong.’