There are no tricks or shortcuts to regulatory compliance--at least none that don't risk penalties. Entrepreneurs grapple and grouse until they're big enough to hire others to handle the burden. As companies scale and develop systems, and upfront costs of compliance diminish, regulations may play in their favor: keeping upstarts out.

Then there are folks like Stephen Fernands, for whom mastery of regulations is a profit center. Among other services, Fernands's $26 million company, Customized Energy Solutions, advises utilities and other clients on changing regulations in the gas and electricity industry. To keep up with it all, his employees attend hundreds of meetings held by rule-making bodies around the country.

Fernands demonstrates that it's also possible to be smart about regulations that affect your own business: in his case a 130-employee company that occupies three floors of a commercial building in downtown Philadelphia. He offers a few pieces of advice:

1. Ask forgiveness

In the early days of CES, Fernands believed he could somehow standardize management of laws and regulations everywhere he did business. He soon found out that wasn't possible. Every market he served had its own rules about things such as taxes and marketing practices. So now when his company occasionally screws up, he simply asks for forgiveness. That's worked, for example, in Delaware and Indiana, which have waived penalties for mistakes such as failing to pay estimated taxes. Fernands typically starts with a personal mea culpa over the phone. He also files a document "saying this is our first time in the market and we didn't know," says Fernands. "Here are the corrected measures we have taken so it won't happen again." That didn't work in his home city of Philadelphia, however.

About 15 years ago, while the company was switching payroll-processing providers, it inadvertently failed to pay some city wage taxes. Fernands tried to appeal. But after failing to get a response, he gave up and paid a few thousand dollars in interest and penalties (mostly penalties). "I would know better now how to network to find the right person," says Fernands. "And hopefully the city of Philadelphia has improved in that time."

2. Divvy up HR 

About five years into the company, Fernands decided he could no longer personally track changes in labor regulations affecting staff. At that point, most founders hire an HR director and put him or her in charge of everything. Fernands decided he would rather have his business line leaders handle management of the people working for them directly. He then sent his office manager back to school for a degree in HR. With the line managers in charge of things like hiring and firing, the office manager cum HR specialist is free to focus on rules related to the Affordable Care Act, medical and maternity leave, and overtime, as well as benefits-related issues. Among her duties: negotiating health-care premiums. "For the first 10 years of my company, I didn't know that you even could negotiate rates," says Fernands. "She has saved us hundreds of thousands of dollars."

3. Go above and beyond

CES has 81 manuals documenting all of its processes and policies. They lay out how the company meets regulations, ranging from the adherence of its financial systems with Sarbanes-Oxley (required by some clients) to the compliance of its bathrooms with the Americans With Disabilities Act. For the past few years, Fernands and his staff have been looking at those manuals for opportunities to gain a competitive advantage by exceeding regulatory demands. So, for example, CES had a disaster recovery plan that met a critical industry organization's requirement that it be up and running again within 48 hours. "But, we thought, how would our clients feel if we were down for that period of time?" says Fernands. So CES created a backup operation elsewhere in the city that will allow it to quickly resume operations.

Fernands says he used to view regulations as something "we must do [or] it will kill us because we will be in violation of laws." Today, he views the measures taken to comply "as things that will make us better if we embrace it and do it well."

 

EXPLORE MORE Inc. 5000 COMPANIESRectangle