Engineering Firm Start Up Costs 6

[hondashadow1100vt]

The purpose of this thread is to gather data and references that pertain to the costs associated with starting up an engineering consulting business. As a part of a business plan that I am putting together I am trying to forecast the start-up and operating costs needed to get the business off the ground (i.e., before revenue is really being generated). Does anyone know of a reliable source of information (e.g., websites, books, papers, personal spreadsheets etc.) that could be referenced to make sure that I do not overlook anything and also to help me temper the tendency to over estimate a bunch of unnecessary costs?

I will be very grateful for any/all information that can be offered/suggested. Thank you in advance!

 

[Ron]

Anything you get from a reference source will be so general that it doesn't apply! Consider the following:

1. Salaries (yourself and others if you want to start with a staff)
2. Office lease/rent/electricity/hard line phone
3. Equipment (copier, computers, etc.)
4. Internet access
5. Phone service (cell or hard line)
6. Insurance (general liability and professional liability)
7. Employee expenses if you have any (Social security, insurance, medicare...etc)
8. Cash flow buffer (business loan to carry you through the startup)
9. Letterhead/printing

...bunch of other stuff that I'm forgetting...I've started and run 2 businesses...last one has been operational and successful for 10 years.

 

[BrianPetersen]

Don't forget about accounts receivable, and contractual payment terms. You're going to have delays between getting a contract, starting the work, and finishing the work, and getting paid.

Most important thing is to know where your clients will be coming from. How are you going to find your first clients? Only you can know that.

 

[tygerdawg]

Try this, I found this years ago and am pleasantly surprised to see that they still exist. There are some interesting spreadsheets under the "Business Finance / New Business Cash Needs Estimate" link that served me well as idea-kickers.

http://csi.toolkit.tst.cch.com/tools/tools.asp

TygerDawg
Blue Technik LLC
Virtuoso Robotics Engineering

http://www.bluetechnik.com

 

[glass99]

In addition to Ron's list:
- Health insurance
- Software licenses
- Training and conferences
- Marketing and client entertainment
- Accounting and tax prep
- Payroll service
- Unreimbursed travel
- Recruitment
- Professional licenses
- Library, codes and references
- Corporate taxes

All of the above may be zero for you initially, but over the long term its hard to go without health insurance! A family plan is typically $20k/yr or so. A large architecture firm I work with budgets $15k/yr/architect for software including Revit, Adobe Suite and others. I spend about $4k/yr on conferences for myself and $2k each for staff, but I have expensive taste.

 

[zdas04]

glass99,
For a multi-person firm (or a corporate structure as opposed to a sole proprietorship or partnership) your list helps a lot. For a single-practitioner (if I dump "software licenses" into Ron's "Equipment" category) your list is either N/A or "to be populated over the first few years" as opposed to pre-start-up.

And no matter what your organization is, you need enough cash reserves to get you through a year of no payments. If you aren't making money when that runs out you need to get a day job.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. ùGalileo Galilei, Italian Physicist

 

[glass99]

zdas: yes, of course you need to be lean when starting up, but I spent significantly on software and health insurance in my first year. Both can be surprisingly expensive. CAD + FEA were biggies requiring upfront investment.

 

[hondashadow1100vt]

Thank you all for the input/feedback. It is really appreciated. This forum is really become a valued resource. I just hope that I can find a way to give back more than what I receive from all of you very generous and very experienced engineers. I thank you all and wish you each great success.

Starting with Ron’s (Structural) notes, the following is what is anticipated for (estimated on the conservative side with the hopes that I can find every possibly way of getting a better deal along the way).
1. For salaries, I am anticipating: 1) paying my own salary at a reduced rate to cover regularly occurring expenses and necessities; 2) a general virtual assistant @ ~$650/mo = $7,800/yr (outsourced from overseas and only starting once the volume of routine tasks increases beyond some critical level of effort – which I probably ought to establish as a trigger in advance so that I don’t keep putting it off). I’d add staff only after I have a reliable backlog of predicted workload demonstrates the need and the ability to cover the costs.
2. Office space: 1) rent $2,100/mo for a 400 SF office (NYC is expensive...hoping to start up without it while I am still just a one man operation); 2) electricity $80/mo (a guesstimate based on a similarly sized apartment); 3) land line phone @ $20/mo for VOIP.
3. Equipment: 1) Printer/copier/faxer/scanner: $275 (need something small as my living space is at capacity); laptop $2,000; External monitor $150 (might just use a projector or the TV); Projector $300; Full sized Drawing Plotter/scanner: $9,000 (….gulp – there has got to be a less expensive way to handle drawings. Does anyone know if a good, inexpensive model and /or means of plotting and scanning without forking over $10K?).
4. Internet access: $85/mo.
5. Phone Service: $70/mo cell; $20/mo VOIP; $50 for a phone
6. Insurance: 1) General Liability $500/yr; 2) Professional Liability: $500/yr; 3) Errors and Omissions Insurance $500/yr; Medical Insurance: $5,400/yr; Disability Insurance: $1,900/yr.
7. Employee Expenses (e.g., social security, insurance, medicare): $0. Planning to start up without employees. Subcontract service providers on a project by project basis. Add employees once current and forecasted workload demonstrates a hire can be sustained. This does make me realize that I need to think this through in advance so that I what the anticipated costs will be and how to execute when the time comes.
8. Cash flow buffer: I am not sure how this is typically done. I suppose that I anticipated that the cash flow buffer would be based on having one year’s bare bones operating expenses saved up (and maintained within the business's bank account) in addition to the savings for one new employee’s annual salary for one year; then as insurance, have a business loan pre-approved that can be taken out in the event that it needs to be taken out. I may look into the small business association to see about secured loans.
9. Letterhead/printing: $0. These days, I think that letterhead can be created electronically and printed onto high quality paper when needed. I plan to subcontract printing on a project reimbursable basis. I have a great print shop nearby.

Thanks again. Please feel encouraged to chime in if anything in here deserves more examination. I'm going to spend some time going through each of the posts in this thread to make sure that I've carefully considered all the great input received. More feedback to come.

 

[hondashadow1100vt]

In response to BrianPeterson (Mechanical):

Based on experience with my current client, I am anticipating that for the contracts that they award, it will be one (1) year from the time one of their contracts is awarded until notice to proceed is granted. It’ll then be 90-days from submittal of invoice to payment. Invoices submitted monthly and paid with a 90-day lag (typical).

As far as starting up goes, I anticipate that it would take me about three (3) years of courting clients, submitting statements of qualifications, getting short listed and then submitting proposals/presentations before anyone will hire me for the types of projects that I now regularly execute under the umbrella of a larger company. The end game that I am striving for is to secure this type of contract with greater required level of effort and with multiple parallel clients such that the company needs to grow.

In the mean time I’ll have to secure assignments through other mechanisms. Ideally this would occur as a sub-consultant to other firms that are doing the same type of work now so that the company can build up a resume of relevant project experience. I am not 100% confident that this is going to generate a bunch of success therefore I’ll need to come up with some other ways of generating immediate revenue (maybe working for contractors, contract assignments, etc.) Any suggestions would be welcome.

A friend of mine has a new consulting business with more work coming in than he can self-perform. I’ve offered to lend some temporary support to him so that he can grow while I start getting the word out to other clients that I am hungry and seeking work with them. He has informally accepted this offer. The hope is that this will keep me going while I develop some projects of my own. If that falls through then I suppose that I will probably look for part time contract assignments to keep me going.

 

[zdas04]

Your list has some very optimistic numbers, and a couple of pessimistic ones.

My professional liability insurance is based on billing and has been as much as $20k/yr, never less than $10k/yr (at that price they throw in general liability for no additional cost). All of the numbers in your insurance paragraph seem very low.

Computer stuff is a big deal:
[ul]
[li]Software will cost more than you expect. A specialized modeling program can easily go for over $29k. If it can generate a million in revenue, $20k is cheep.[/li]
[li]Get a top of the line laptop. It will only last 2-3 years, but don't scrimp, you can't make a living as an engineer if you can't do the computing you need to do.[/li]
[li]Don't scrimp on monitors. You'll be spending a lot of your life looking at them and just hooking into your TV will reduce your productivity. Dual monitors is a must (a projector isn't, mine hasn't come out of its case in 6 years, everyone has them in conference rooms)[/li]
[li]Get an all-in-one printer that can print 11X17 (I got the Xerox 7120 and have been happy). It is amazing how many big-format jobs can be done in 11X17 without going bigger.[/li]
[li]I waited 4 years before I started looking at wide-carriage printers. I had a real space limitation and had to make sure it was essential before I gave up the space. I bought a Canon Imageprograf 5100 for under 2K. It can handle 17 inch roll paper, so if I need "D" or "S" size I can print it in two strips and tape it together. The few times I've needed something big that taped wouldn't do, getting a D-size color print at Kinkos is around $100.[/li]
[/ul]

I can't comment on your salaries and vitual assistant. I have been in business for nearly 12 years without either.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. ùGalileo Galilei, Italian Physicist

 

[SteelPE]

Zdas is spot on.

I agree with the comments about insurance. My figures are similar to zdas however, I am working in a different industry than you are so I'm sure my premiums will be higher. I have a buddy who I believe gets his insurance through ASCE, you might want to reach out to them.

In regards to plotter, I would ask if you really need one. I send my plots to a local company who prints them for me. I use an 11x17 printer/scanner at the office (I use an Epson WF-7520). Shop drawings (big thing in what I do) are done electronically (I bough a program called Blue Beam for around $200). This way I don't have to spend the money on a plotter and I also don't have to worry about it breaking.

 

[glass99]

Office space: if its just you or you plus one or two, you should consider renting desks rather than getting a lease. You can rent a desk for $500/mo in NYC, month to month. This is much better than a lease because it comes pre-set up with a furniture, internet, printer, cleaning service etc. Even better than renting a desk from a service like Greenspace or WeWork is renting a desk from an associated firm like an architect or mechanical engineer. You will be able to share a plotter too, but much more significantly you will be able to share war stories and possibly share clients.

Plotter: zdas + SteelPE are correct that you should send out your plots. If you do need one, consider a HP DesignJet T120 24"x36" ink jet plotter for ~$1100. You do need an 11x17 scanner and a fast 11x17 printer.

E+O: the minimum cost is usually $3000. It goes up pretty sharply over time, so be warned, but your first year will be cheap because of the formula they use. My insurance started at $3k and is now $14k/yr

 

[brandonbw]

Our insurance is about $2k/year. I am sure that will start to creep up as time goes by.

Its been 6 years now and we still haven't bought a plotter. I really liked the HP 800 24" wide for the price and the quality of the prints on both mylar and bond. But its so much easier to go to Kinkos and charge the client. Or better yet send PDF's to the client for them to take care of it. When it works prints can be had much cheaper from a repgrographics place. I still print on 8 1/2x11 and just tape the sheets together for meetings. Even though the old school guys hate it, I will bring out a tablet if we need to look at the plans in greater detail.

For letterheads we just put our logo and info on each page of a proposal. Reports have a full size logo watermarked on the cover sheet. Legalzoom has basic forms that you can buy relatively cheap, like invoice forms.

I picked up a cheap wireless Brother laser printer and it hasn't done me wrong. Open a Staples business account and start your business credit that way. You can also get really good deals on toner.

We are using a 2 line Ooma for $13/month. That can push to our cellphones so we always appear to be in the office.

Website has been huge for us in getting new business. We have spent about $1800 overall as we grew the company. Half to convert a simple HTML design into wordpress so it was easier to update. Then some more money to make it more SEO friendly. Webhosting makes a huge difference as you get a lot of visitors. Started on a plan for $40/year and it just bogged down. Webhosting is now $20/month.

Found a place that did some really nice thick business cards for $50/1000 cards, that we got to design on the spot.

It took us about 3 years to get steady work. Lots of networking. Lots of figuring out how to price things to stay competitive, but not go too low. Lots of work keeping the website up to date. I try to write a blog post once a week just to show people we are doing something. Slowly keywords get picked up and lots of people search google looking for a firm. Its amazing how many sites don't stay up to date or look really old, or can't be browsed properly on mobile. A lot of people call after viewing on an iPad.

Don't forget all of the creating the business name expenses. Corporation yearly fees, and everything else that comes up yearly. We had a good accountant for $200/year for filing taxes.

In the end developers building these $20-50million complexes, $10mil houses, etc. are fine with how we conduct our business. We go to them or the job site for meetings. I don't throw it out there, but when anyone asks, I tell them we work from home. We either look good or foolish when I say we are too busy to look for an office now.

For a cheap but good monitor, ~$300, Qnix 2710 from ebay. Straight from Korea and uses the 1440p panel in those expensive Mac monitors. But it most likely won't work from a laptop. I have 2 and would like 4. Waiting on 4k monitors before the next upgrade. A nice laptop is going to be twice the price for half the power of a desktop. Make sure to use an SSD hard drive.

Another important thing is backups. We started with a synology 2 disk station that mirrors to 2 drives, $400. Then we synced that through google drive or dropbox. Work on your C drive and google can sync to the cloud and then to the synology. Drive is $2/month. Still hesitant on the whole cloud thing so I built a Freenas server for about $800 that I also sync separately to.

I wouldn't take a loan out to start a 1-2 person engineering company. Baby steps as you build the company. Buy what you absolutely need now.

We didn't get business cards until a few months ago. Because they weren't needed until an Architect chewed us out for now having them.

B+W Engineering and Design | Los Angeles Civil Engineer and Structural Engineer

http://bwengr.com

 

[BrianPetersen]

Re office space: If it is just a small firm ...

My office is across the hall from the kitchen and next to the main bedroom.

My business partner's office is in another city, upstairs in her spare bedroom.

I don't know where our accountant's office is; I've never been there. I know it's out west in another province. I've only ever communicated via email or snail-mail.

Meetings with clients are always held at the client's facilities. Internal meetings are usually at a coffee shop. If I have to get away from kids and dogs and whatnot to get something done, I go to another local hangout where plenty of other small-businesspeople are evidently doing something similar ...

It's better this way. NO commute. NO overhead. In fact, the tax man pays part of the house (because the portion of the house expenses that are dedicated to the office are tax-deductible as a business expense).

 

[GregLocock]

On the latter point, if you do that in Oz then when you sell the house the part of the house you claimed as a working office has capital gains payable on it, unlike the rest of your primary residence. That could be a pretty expensive little tax dodge.

Cheers

Greg Locock


New here? Try reading these, they might help FAQ731-376

http://eng-tips.com/market.cfm?

 

[zdas04]

It is the same in the states.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. ùGalileo Galilei, Italian Physicist

 

[glass99]

Working from home is a lifestyle decision as much as a business decision. Personally, I would go nuts mixing my relaxation space with my work space, but for others its all about closeness to family and short commutes.

 

[GregLocock]

and working nekkid.

Cheers

Greg Locock


New here? Try reading these, they might help FAQ731-376

http://eng-tips.com/market.cfm?

 

[glass99]

or yes, working nekkid.

The other correction to hondashadow's statement above: You will be on the hook for FICA (aka Social Security and Medicare) for yourself plus staff if you have them. You will have to pay yourself a reasonable minimum salary, say $50k/yr, and pay both employee and employer taxes which are about 7.5% each. In tax loving socialist NYC, if you are incorporated you will also have to pay ~8% in corporate tax on your non-salary income (aka "profit"). Its a little bit complicated, but its also expensive and you need to budget for it.

 

[XR250]

I worked out of my house but did not write it off. It is a red flag to get audited and for the small tax break it is not worth it.
As previously mentioned, it is a pain in the ass when you sell as well.
I ended up building a rental on my property with my office in the bottom and an apartment up top. Much easier, safer and lucrative to write off.