-
1
- #1
RichGeoffroy
Materials
- Apr 30, 2004
- 64
In a recent e-mail, a subscriber posed the following question:
There is no magic wand that will make your life easy in regard to establishing your initial business plan. Your potential competitors are probably your best source of information on costs --- if you think one is willing to share it with you. Try an established consulting engineer who may be in the position to enjoy being in a mentoring situation. Many entrepreneurs enjoyed the “start-up” period rather than just “running the office”. If you find one, he or she may like “reliving” the start-up experience, as well as providing you with excellent advice.
Another source of information is networking with your local Chamber of Commerce. You may think, “What does a store owner, car dealer, or dentist have to do with my engineering practice?”. The fact of the matter is that their start-up experiences and costs have a lot in common with your plans. Starting-up a business of any type has many common problems and associated costs. Other people that have been through these experiences will have some invaluable input toward your endeavor. Don’t pass it up. You may also want to consider your engineering society, or trade association for contacts or even short courses or seminars on staring an engineering practice.
One thing I attempted when I started my business plan was first to take a “best guess” at possible income and expenses. Next I took a pessimistic view, assuming income was far lower than expected, and how I might attempt to curb expenses in that case. This is easier to do on paper now, rather than later when you’re up against the wall.
Next, I attempted the same thing but with more business than I expected. This, by far, is a better, but no less difficult, problem. It takes time to find the right people; you can’t just turn a switch and hire them. In the mean time the work has to get out or your reputation will suffer if you can’t “deliver the goods” on time. As you add people, other resources get restrained --- particularly space and equipment. These can be capital intensive --- plan for it.
Establish these scenarios for a 1-year and a 5-year financial plan. Have your accountant look at them. He or she will be able to identify “holes” in your plan, or else give you the confidence that you have, at least, taken a good “stab” at it.
Starting with four principals is next to impossible if you’re planning to establish a “grass-roots” business. The only way this scenario can work is if each principal brings an established business base with him. This can work, but usually brings with it other problems --- certain partners will be more effective at bringing a client base than others, which can cause disparity among the partners. A solution for this scenario will have to be worked out when the time comes. Be prepared for it.
With four principals in a start-up business, I would forego hiring any engineers, CAD technicians, or administration or support people until you get the principals’ billable time at an appreciable level. Principals’ down time must be allocated to keeping the office running. You’re no longer working for a large corporation. Principals are entrepreneurs, and as such they will have to wear a lot of different hats to get the business of the ground. Once the company is generating sufficient income, it will be more valuable for the principals to do what they do best and pay others to do the more routine tasks --- but until that time comes, each will have to carry his responsibility for keeping the office running smoothly.
As for the principals in the firm, their utilization will never be 100%. Principals, you will find, are your best marketing and sales people, because they know what their talking about, and these are the guys that prospective clients want to talk to. Your firm will establish its reputation on the basis of the relationships established between your principals and their clients --- they are your sales and marketing department.
Forecasting 1-year and 5-year business plans is a necessary task for establishing any new business --- an engineering practice is no different. Use information from others to get the information you need. Running a small accounting business, law firm, or medical office has many similarities to an engineering practice. Get the information from wherever you can in order to get the information you need. But remember, a budget is just a plan. The only thing that will get your business to be successful is hard work. Budgeting and forecasting, however, can provide the strategy you will need for success in your endeavor.
Rich Geoffroy
Polymer Services Group
I am new to the eng-tips.com website and ran across your postings regarding the startup of a consulting engineering practice. Thanks for the information. I am particularly interested in obtaining more information on startup and operating costs. Your posting titled “Budget for Success” provides a thorough list of cost considerations, but I am interested in the estimating the actual dollar amounts. Three partners and myself are seriously considering starting up a mechanical/electrical consulting practice and we have developed a preliminary financial plan, but are uncertain on some of the costs. The following provides an idea of our proposed rate of growth.
Start Up: 4 Principals, 1 CAD
Sixth Months: 4 Principals, 1 Engr, 1 CAD, 0.5 Marketing/Admin
1 Year: 4 Principals, 2 Engr, 1 CAD, 1 Marketing/Admin
1.5 Year: 4 Principals, 3 Engr, 1 CAD, 1 Marketing/Admin
2 Year: 4 Principals, 3 Engr, 1.5 CAD, 1 Marketing/Admin
3 Year: 4 Principals, 5 Engr, 2 CAD, 1 Marketing/Admin
Do you know of a good resource for startup and operating cost data?
There is no magic wand that will make your life easy in regard to establishing your initial business plan. Your potential competitors are probably your best source of information on costs --- if you think one is willing to share it with you. Try an established consulting engineer who may be in the position to enjoy being in a mentoring situation. Many entrepreneurs enjoyed the “start-up” period rather than just “running the office”. If you find one, he or she may like “reliving” the start-up experience, as well as providing you with excellent advice.
Another source of information is networking with your local Chamber of Commerce. You may think, “What does a store owner, car dealer, or dentist have to do with my engineering practice?”. The fact of the matter is that their start-up experiences and costs have a lot in common with your plans. Starting-up a business of any type has many common problems and associated costs. Other people that have been through these experiences will have some invaluable input toward your endeavor. Don’t pass it up. You may also want to consider your engineering society, or trade association for contacts or even short courses or seminars on staring an engineering practice.
One thing I attempted when I started my business plan was first to take a “best guess” at possible income and expenses. Next I took a pessimistic view, assuming income was far lower than expected, and how I might attempt to curb expenses in that case. This is easier to do on paper now, rather than later when you’re up against the wall.
Next, I attempted the same thing but with more business than I expected. This, by far, is a better, but no less difficult, problem. It takes time to find the right people; you can’t just turn a switch and hire them. In the mean time the work has to get out or your reputation will suffer if you can’t “deliver the goods” on time. As you add people, other resources get restrained --- particularly space and equipment. These can be capital intensive --- plan for it.
Establish these scenarios for a 1-year and a 5-year financial plan. Have your accountant look at them. He or she will be able to identify “holes” in your plan, or else give you the confidence that you have, at least, taken a good “stab” at it.
Starting with four principals is next to impossible if you’re planning to establish a “grass-roots” business. The only way this scenario can work is if each principal brings an established business base with him. This can work, but usually brings with it other problems --- certain partners will be more effective at bringing a client base than others, which can cause disparity among the partners. A solution for this scenario will have to be worked out when the time comes. Be prepared for it.
With four principals in a start-up business, I would forego hiring any engineers, CAD technicians, or administration or support people until you get the principals’ billable time at an appreciable level. Principals’ down time must be allocated to keeping the office running. You’re no longer working for a large corporation. Principals are entrepreneurs, and as such they will have to wear a lot of different hats to get the business of the ground. Once the company is generating sufficient income, it will be more valuable for the principals to do what they do best and pay others to do the more routine tasks --- but until that time comes, each will have to carry his responsibility for keeping the office running smoothly.
As for the principals in the firm, their utilization will never be 100%. Principals, you will find, are your best marketing and sales people, because they know what their talking about, and these are the guys that prospective clients want to talk to. Your firm will establish its reputation on the basis of the relationships established between your principals and their clients --- they are your sales and marketing department.
Forecasting 1-year and 5-year business plans is a necessary task for establishing any new business --- an engineering practice is no different. Use information from others to get the information you need. Running a small accounting business, law firm, or medical office has many similarities to an engineering practice. Get the information from wherever you can in order to get the information you need. But remember, a budget is just a plan. The only thing that will get your business to be successful is hard work. Budgeting and forecasting, however, can provide the strategy you will need for success in your endeavor.
Rich Geoffroy
Polymer Services Group