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Engineering Firm Start Up Costs
6

Engineering Firm Start Up Costs

Engineering Firm Start Up Costs

(OP)
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!

RE: Engineering Firm Start Up Costs

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.

RE: Engineering Firm Start Up Costs

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.

RE: Engineering Firm Start Up Costs

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
www.bluetechnik.com

RE: Engineering Firm Start Up Costs

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.


RE: Engineering Firm Start Up Costs

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

RE: Engineering Firm Start Up Costs

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.

RE: Engineering Firm Start Up Costs

(OP)
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.

RE: Engineering Firm Start Up Costs

(OP)
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.


RE: Engineering Firm Start Up Costs

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:
  • 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.
  • 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.
  • 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)
  • 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.
  • 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.
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

RE: Engineering Firm Start Up Costs

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.

RE: Engineering Firm Start Up Costs

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

RE: Engineering Firm Start Up Costs

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

RE: Engineering Firm Start Up Costs

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).

RE: Engineering Firm Start Up Costs

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: Eng-Tips.com Forum Policies http://eng-tips.com/market.cfm?

RE: Engineering Firm Start Up Costs

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

RE: Engineering Firm Start Up Costs

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.

RE: Engineering Firm Start Up Costs

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.

RE: Engineering Firm Start Up Costs

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.

RE: Engineering Firm Start Up Costs

You only have to pay yourself a salary if you incorporate. I have a regular transfer from the business to my personal account, but moving money either direction has zero tax impacts. I do have to pay "self employment tax" which is the employer and employee FICA combined.

I heard about that red flag. This is my 12th year and my business definitely puts me in the hated 1% (another red flag). Consequently I never skate close to other edges on tax matters, I claim my home office, and haven't been audited.

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

RE: Engineering Firm Start Up Costs

Tax is a huge expense, and can be a bit difficult to adjust to if you are used to be a salaried employee. Every time my quarterly payment comes around my accountant tells me how much the IRS et al expect from me and I have a little heart attack. I could either A) buy a nice new BMW every quarter or B) pay my taxes. Its quite appalling.

RE: Engineering Firm Start Up Costs

I put 25% of every check I get into an escrow account. When the quarterly payment comes due I just pay it without any angst at all.

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

RE: Engineering Firm Start Up Costs

zdas: 25% into escrow sounds sensible, and I am jealous of how little tax you pay. My cash collection tends to be very lumpy. If I get 40% of a a years income in the month of November (i.e. last year), it screws up my Q1 tax payment. I am fine because I have enough float to cover things, but I would still rather have a new BMW every quarter.

RE: Engineering Firm Start Up Costs

You must be doing well if you are paying the amount of a new BMW every quarter :)

Paying quarterly taxes takes some getting used to. It's definitely not for everyone. I keep track of what I owe and try not to dig into that money unless absolutely needed. I know people who would run out and buy the BMW only to stand there in the end and not have the money to pay..... and these are smart well educated people.

Yes lumpy cash stinks. I took a certain approach of paying quarterly taxes on only the money I received (paying a few % extra than what I should have). I will find out in a few weeks if it works or not. My accountant didn't think it would be a problem. We will see

RE: Engineering Firm Start Up Costs

I just take the tax I paid the prior year, divide it into 4 and pay that the next year.
It has worked for me for the last 17 years. I always try to keep at least double my quarterlies in the bank at all times so it is no big deal when that time comes.

RE: Engineering Firm Start Up Costs

Excell, that works because the IRS allows you to base your quarterlies on the amount of taxes you made the previous year. If you make more money there is no penalty, if you make less they just give you the money back or apply your overage to next years payments. However, depending on how lumpy your payments are this may cause some problems. I received 50% of last years earnings in October and November of this year..... so my payments last year were very lumpy.

FYI, I've only been doing this for 3 years so I am still trying to work out the kinks.

RE: Engineering Firm Start Up Costs

ExcelEngineering,
That is kind of what TurboTax does. Last year I made 80% of my 2014 income in the first quarter, but just paid 1/4 of 2013 taxes each quarter. I had the money for the 4th quarter estimate in my escrow account, but I earned almost $6 on it.

Glass,
Not sure what you mean about how little tax I pay. My first year in business I paid more in federal income tax than I my gross pay for the last year I worked as a senior staff facilities engineer for big oil. The tax bill has been larger every year since. It has averaged 21% of gross income. Every few years I clean the excess out of the escrow account and buy something nice (usually a new Land Rover).

SteelPE,
I learned (the hard way) when I was working for a living and getting paid every other Friday that having income on a different time schedule than outflow was a problem. About 5 years of never having the money for car insurance, etc without scrimping somewhere else that I needed to absolutely divorce income from outflow. I started putting 1/26th of the annual insurance bill into escrow every payday, 1/26th of annual utilities, rent, etc went into their own buckets. When a bill came in, I paid it out of the escrow account. Family stress went way down.

When I started my business I just created a new category in the escrow account called "lumpy cash flow". Any money over current needs goes into that account. Last year It was really big in April. Every two weeks I would populate the other escrow accounts and pay the family account from the lumpy account and as far as I am concerned I will get a bank loan before I'll take money out of that account off schedule. Lumpy cash flow has always been the norm in my practice, my escrow accounts seem to solve it nicely.

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

RE: Engineering Firm Start Up Costs

zdas: you may pay a amount of tax in absolute terms, but 21% is microscopically small in relative terms. You probably have no state or local tax, which for me is approx 13% in addition to federal and FICA. I have thought about registering in a state like TX where there is no state tax, but its challenging to do so.

RE: Engineering Firm Start Up Costs

That is 21% of gross receipts. I spend over $100k each year on travel alone. With the Section 179 tax credits it makes sense to expense a new vehicle every year or so. Computers last about a year and have to be replaced. There tends to be a new $10-20k piece of software that I just have to have most years. All of that is deductible. Federal tax rate is closer to 36% of net. And I do have a state income tax.

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

RE: Engineering Firm Start Up Costs

zdas: $100k of travel is a lot of moving about! It would be a big year for me if I spent $20k on travel. A business class ticket to China is ~$7k, and I have relatively frequent economy $2k trips to LA, but $100k is unimaginable. What kind of software are you spending $20k on? Is that analysis of some kind?

RE: Engineering Firm Start Up Costs

(OP)
tygerdawg:

Thank you for the referral link to the CCH Business Owner's Toolkit. I have followed your advice and followed the link and sub-pages to the Business Finance / New Business Cash Needs Estimate word file (which I've converted to an excel file for ease of use). I then adapted the very simple business start up cost estimate that I was assembling up to that point to suit the prescribed costs including: 1) setup costs (e.g., buying a laptop, registering the business, etc.); 2) operating expenses (i.e., regular overhead, e.g., cell phone, rent, etc.); 3) personal expense requirements (i.e., minimum personal living expenses) and 4) a summary of the startup financial savings need.

All of my numbers are still in draft format and subject to improvement, partially based on the guidance herein this thread. However, what I found is that I was previously mentally geared to prepare cost estimates in the form of a lump sum capital improvement project whereas the suggested information got me thinking in terms of the: 1) initial one time only (or periodic) costs (i.e., similar to the capital cost estimates that I'm more accustomed to); 2) the routine operating expenses; 3) what the bare minimum income that I need to survive will be; 4) what the basic amount of money is that I'll need to have saved up in order to start up. Although it took a while, it was a worthwhile exercise to put myself through. Thank you for the referral!

In addition the site appears to have a plethora of good starter business documents for seemingly every situation that I could imagine needing a document for. For quick reference, I am saving the link to the same folder that I keep my business planning files.

Thank you again!

RE: Engineering Firm Start Up Costs

(OP)
Glass99 (Structural):

Thank you for the helpful input. I have a few questions.
- Marketing and client entertainment – What sorts of expenses are included in type of a category? How do you budget it? I currently have placeholder values for: 1) client meals @ $110/ea x 50/yr; 2) networking events @ $220/ea x 12/yr (in addition to conferences); 3) charitable contributions @ $3,000/ea x 1/yr;4) Membership in two (2) professional societies, 5) business cards; 6) a company web site. Aside from attendance at networking events and the occasional conference, the remainder of this is somewhat foreign to me on account of having worked in service for public agencies (cannot accept anything greater in value than a cup of coffee) for the majority of my career.
- Accounting and tax prep – I am budgeting $3,000/yr for this.
- Payroll service – What is payroll service? Is this a subcontracted company that prepares the checks and sends them to the employees? What companies offer this service? Is there a ballpark cost that can be assumed as a placeholder?
- Unreimbursed travel – I assume that unreimbursed travel is travel that pertains in indirect activities such as business development and client service. Because I have largely remained technical and project management oriented up to this point in my career, a tangible grasp of this cost has escaped me. At present, I am budgeting $1,120/trip x 12 trips per year of non-reimbursed travel expense. I don’t know how realistic this is/isn’t.
- Recruitment –I hadn’t yet thought about recruitment, nor the cost of recruitment. I guess that I naively imagined that great talent would simply fall into my lap through association. How is this done?
- Corporate taxes – Percent of profit based?
- 15K/yr for software is considerably greater that I have budgeted but I am not at all surprised to by the value. Although I may have a need to reacquire the skill, over the years, I have unfortunately lost the ability to draft via atrophy and have reverted to only doing hand markups (extensive hand annotations) for the designer/draftsmen that work with me. As much as I rather enjoy drafting (apart from all the aggravating nuances associated with the software), I am inclined to look for outsourced/subcontracted drafting support. Until the business gains a foothold, this would ideally be outsourced to a firm in a low cost of living area. I have often fantasized about outsourcing drafting to southeast Asia, India, etc. where my cumulative daily hand annotations could be scanned at the end of a day and uploaded to a server for a team of talented drafters/designers on the other side of the planet to execute while I rest peacefully in my bed at night. I don’t suppose anyone knows where one could turn to start looking for that sort of subcontracted assistance?

Thank you again.

RE: Engineering Firm Start Up Costs

Glass,
If you make that reservation to China on the way to a very small regional airport in the boonies instead of 45 days in advance from JFK and Business Class is full so you are "forced" to book first it is $28k. I don't often know what continent I'll be on next week. Airfare is a passthru cost, but the fee plus expenses is what shows up on the 1099.

HondaShadow,
I get e-mails from drafting firms in India a couple of times a week. I'm not sure how they find me, but they do. I haven't used any of them so I'm not going to post their links (which would imply a recommendation). If you do a Google for "Contract Drafting Services" you get millions of hits. If you don't know anyone who uses a company then it is a crap shoot whether they are any good or not. Don't be slow to fire duds.

I do my own drafting. A couple of years ago I did a front end engineering design (FEED) for a greenfield project in Botswana. There was an electrical component and a civil component that I wasn't qualified to complete, so my client hired a firm in London to do the drafting, electrical, and civil. I sent them my completed AutoCAD files and they were to put them onto my client's title block and make sure that the drawings met the clients drawing standards. I use the model space and paper space in AutoCAD so 40 drawings were in 2 files with a bunch of paper space tabs with the title blocks etc. The London company refused to do paper space and converted my drawings into 40 files. Problem was that about half the drawings had components that were in the other drawings. My way you draw the picture once and zoom your view ports to show what the drawing needs to show. Their way each element had to be drawn in each file. They never did get the synchronization right. They billed my client over $150k for the drafting and I spent more time marking up their crap that it took me to draw the damn things in the first place. My point is that drafting services are not all equal and getting one that starts with a paradigm that is divergent from yours is amazingly expensive.

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

RE: Engineering Firm Start Up Costs

zdas: If you get 1099's I assume you are not incorporated. Did you think about incorporating? Sometimes I feel like I should unincorporate.

Hondashadow: In respect to drafters and drafting services, there is a lot of good advise on other threads about this, but the bottom line will probably be that you will have to do at least some drafting yourself.

I budget $150/mo for marketing which is mostly taking clients out to dinner and a few odds and ends like website and business cards. I spend about $4000/year on conferences for myself, though that is kind of my luxury package and you could do it for probably $1500 if you just go to local things. Unreimbursed travel is perhaps $1500/yr, which includes city cabs and one out of town trip to a place like Boston for marketing purposes or something. My accountant charges $3k/yr for tax prep. I use SurePayroll for my monthly salary (even if just me) because its cheaper to have their computer do it than my accountant or myself screw around with the dozen or so little taxes. This costs $44/mo. I am not a member of any professional societies because most of my local ones are not worth the effort (other than perhaps SEAoNY), though you may feel differently. I spend about $5k/yr on software, not $15k. The first year is more expensive if you buy everything. After that you pay about 20% of the purchase price in maintenance.

Recruitment is only expensive if you use a recruiter. Get an accountant and talk to them about tax and corporate tax. Will you be incorporating? If so, NYC corporate tax is 8% of your profit taking a deduction for your salary and expenses.



RE: Engineering Firm Start Up Costs

Everybody gets 1099's, I had to send one to a Corporation that did work for me a couple of years ago.

But, no I am not incorporated. Since the protections offered by incorporating do not protect a P.E. on something he stamped and my only real liability is engineering work, it didn't make sense to me to create the arm's length situation that a corporate structure is designed for. I don't pay myself a salary, I just take my stipend out of the company. Transfers to/from the company accounts and my personal accounts do not have a tax implication. As an LLC I would have to pay a salary to myself (which would create a W-2 requirement) and anything over that salary would have to be a bonus (approved by a board) or a dividend (approved by the board and subject to double taxation). None of that made any sense to me. I'm really glad I chose to organize as a sole proprietorship.

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

RE: Engineering Firm Start Up Costs

(OP)
Zdas04 (Mechanical):

Regarding your 19 Jan 15 11:16 comment:
• I have pumped up the professional liability insurance to a placeholder value of $10K. (did not realize this was so expensive). I need to get a quote.
• I have re-examined software costs. It looks like for the software that I regularly use, I’ll need to budget about: $5,300. For the software that I probably ought to know how to use it could be as much as $23,000.
• I have bumped up the laptop budget cost to $3K.
• Productivity is critical so I had better go the route of budgeting for an external monitor @ $200/monitor.
• The Xerox 7120 @ ~$5,300 definitely looks like a serious printer. I’ll nevertheless budget for it for the long run. I now realize that multiple tiers of startup are necessary. I think that I need something compact that does 11x17" to start.
• I too have a space serious space limitation. I also have clients that standardize on 22”x34” sized drawings therefore I think that I am best off doing all half-sized work on 11”x17” with occasional extraordinarily overpriced ($100 each!) full sized plots from Kinkos.

This insightful dialogue on startup facilities equipment has me realizing that I need to approach startup in a phased/tiered approach. The following comes to mind:
1) pre-startup preparations, positioning, etc. while holding current day job;
2) Filing of paperwork to legalize the entity; start-up out of my apartment with bare essentials for fixtures and equipment (e.g., laptop w/out external monitor, small printer/scanner/copier, etc.); earn enough side work to pay the bills while development of clients is prioritized.
3) Earn first win (likely as a sub-consultant); secure office space rental within a teaming partner’s office using their equipment for a negotiated fee. Utilize virtual assistant and remote drafting for admin support. Try to work in this setup (or similar) until workload is significant enough to substantiate hiring.
4) Find office space, get the good equipment (e.g., full scale printer) at this time. Win more projects, staff up. Hire real drafting and administrative support.

Thanks for the great input/feedback.

RE: Engineering Firm Start Up Costs

I started by business in 2005 as an LLC (disregarded entity, schedule C on the taxes) not for any protection but more of a professional look, it was inexpensive (<$400); whether it was a wise us of the money is debatable. zdas (David) is correct on so many points; I would pay attention to what he says.

I'll add a points from my experience:

1. Get several quotes for your E/O policy. The ASME/ASCE rates are often not the best. I found 2x the coverage for less money;
2. $100/per print is ridicules. We pay $2.40 from a local shop for B&W and about $12/sheet for color (sometimes less). I e-mail pdfs and usually have them ready that day, for small orders <1 hour. We do have a large format that was given to use but we rarely use it except to scan and make copies. Check prints are usually on 11x17 machine (buy a good one) or we do drawing reviews on a 40" tv in the conference room and make modifications as we go.
3. Depending on what you do $3k for the laptop is probably reasonable. We just payed $5k+ for a new one. There is nothing more unproductive than a slow machine or embarrassing when showing a client a 3-D model of their plant and have a freeze due to RAM or graphics card;
4. Don't forget the annual cost of software license/maintenance/upgrades. We do a lot of ASME pressure vessel work so the upgrades are required to stay current. Also, in the long run, at least in my experience, it does pay for itself;
5. Get back into doing your own drafting. Even if you start with AutoCadLT or another cheap package (you can buy a cheap package that will read AutoCad for less than $100) and spend an hour a day on doing something that is productive. Make standard details, notes pages, anything to keep using it. It will pay for itself over time, especially when you need to make a fast change for a client. We draft in-house (engineers do their own) and have three local (<5 miles away and we are relatively rural) people who can help us on a day or so notice when necessary.
6. Treat your clients fairly. We have one client that likes lump sum projects. We also know they like to make changes, usually nothing dramatic. A few years ago we didn't get a chance to look at a potential plant expansion because they felt we were too small to get it done in the time frame. We were very disappointed but understood given the workload at the time they may have been right. Concurrently we did a small job with them that took more than either they or we imagined but we held our price. That along with the other firm charging 50% extras for changes (for what should have been considered normal project planning scope adjustments) has given us all their work. They are a profitable client for us, we don't have to bid, just provide a proposal with scope and fee) and they are happy to have fixed pricing that they can count on. When there are legitimate scope changes we work out a fee/schedule adjustment and move forward.
7. Stay lean in your staffing. Even if this means working 60-70 billable (which will put you at 90-100 overall hours) per week it is better than hiring staff which when slow either has to be laid off or carried. We team-up with several local small consultants to handle large projects. We act as the lead and are the contact to the client so they don't have to deal with multiple firms/people. Also, get good contracts/agreements between the group you work with.
8. Many clients don't like to pay in a timely manner. Weed those out quickly because it will kill you, especially early-on. Keep and cultivate clients that pay promptly and don't haggle over rates and fees as they are typically long term losers.
9. Conversely, pay your bills promptly. We often get our sub-consultants to do work because we pay them w/in a week of the invoice. Obviously you will not be able to do that when starting out. If you plan on doing pay-when-get paid tell everyone up front so there is no hard feelings.

Best of luck.



RE: Engineering Firm Start Up Costs

New engineering startups can be crafted from the ground up in such a way as to make initial startup costs, as well as ongoing overhead, almost nothing. But you have to do it right. Here's how:

1) Get every employee a Google Voice number. Have it bounce to their personal smartphone.
2) Skip the fax number, nobody uses fax anymore anyway
3) Buy the lowest hosting level possible for a website through Godaddy. Follow the menus to install Joomla or Wordpress. Write your own website. Follow online tutorials, it's very easy.
4) Tie Google Apps to your website, so you get email addresses "at" your website's address, but they use the browser Gmail interface
5) Install the gmail app on your phone
6) Each employee pays $100/yr for a couple hundred gigs worth of Dropbox sharing. This acts both as your corporate file server and your FTP site.
7) Buy Office365 for $7 a month or whatever it is
8) Buy a single license of Quickbooks, perhaps even off Ebay, and get an accountant friend to set it up for you
9) Send drawings out to a print shop to be printed, and include those costs in your proposals.
10) Tell every employee to work out of their house, expense a portion of their internet costs and home office on their taxes, and hold staff meetings at Waffle House.

Freeze. Evaluate. At this point, you have every single functionality of a fixed office space and corporate IT covered for less than $200 per employee per year, including all the usual Microsoft Office software. All you're missing is computers and whatever you use for CAD/CAE, and professional liability insurance. If you're not chasing public work, you probably don't need a GL policy at all, since you have no office.

I know several engineers, attorneys, and other professionals who've established startups since 2008 that are set up this way, compete against big firms at competitive rates, and pocket the delta on overhead costs. You do the math.

Hydrology, Drainage Analysis, Flood Studies, and Complex Stormwater Litigation for Atlanta and the South East - http://www.campbellcivil.com

RE: Engineering Firm Start Up Costs

If you're paying 36% in federal only you need to fire your accountant.

RE: Engineering Firm Start Up Costs

beej + dig: other than ACAD, what software do you use in your civil work? Is there any analysis software?

RE: Engineering Firm Start Up Costs

dig1,
Lot of good points. One more that has worked well for me. I give a lot of stuff away. My web site has a lot of free stuff. I never charge for little stuff (e.g., a clarifying phone call while there isn't a project open, a quick e-mail answering a theoretical question). I keep my hourly rate high enough to let me give away quite a bit of time and still do well (I put that little stuff in the same category as the time I spend in eng-tips.com). It is amazing how often I've answered random e-mails with quick solutions to problems that turn into paying work later on. Keeping track of 6 min increments like my lawyer does is a good way to have many clients stop calling.

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

RE: Engineering Firm Start Up Costs

glass99,

I should probably change the civil/enviro to something more appropriate (either structural or mechanical) as it has been that for 13 years.

In our work we perform a lot of pressure vessel design and use PVElite and FE/Pipe, Caesar II for pipe stress, CadWorx for plant design, STAAD and Ram for structural. Solidworks for some of the machine design, and PipeFlo for pipe networks. CadWorx and Solidworks are the big memory users as well as the FEA in FE/Pipe can be, depending on the model.

To briefly comment on beej67's comment about GL, our industrial clients require about $7MM for liability plus commercial auto so it may be required depending the the client. Always look into this prior to submitting a proposal as well as if they will accept your standard T&Cs.

Following-up David's (zdas) comment about not charging for every second I wholeheartedly agree. It isn't unprofessional to give some of your time away to help an existing client or working with a potential new client. However, don't let it be a situation where you are taken advantage of; you'll know if it is.

Patrick

RE: Engineering Firm Start Up Costs

As a general business management thing, I would argue that revenue counts more than cost for one person shops. Spend your time figuring out how to raise your hourly by $10/hr and increase your billable hours from 1500hr to 2000, not shopping for cheaper printer toner. Big firm rates times 2000 hours a year = awesome.

RE: Engineering Firm Start Up Costs

Glass,
That is an interesting perspective, but I have no idea what a 2000 hour year looks like. In a "typical" year I'll have 10 weeks with over 90 hours. I'll have 15 weeks with 80-90 hours and the rest will be under 40 hours (many at zero hours). I set up my fee schedule to keep the business and the family whole with zero or near zero revenue about half the months.

But the essence of your point is spot on--no one ever saved themselves into prosperity. Ever. Not once. I've been in business for 11 years and have purchased 4 office chairs. I went cheep on the first one (Sam's club), the second was top of the line in an Office Max (far from decent quality). Both of them hurt my body and I had to walk away from the computers a couple of times an hour. Bought a $1000 chair 3 years ago and those problems went away and I got more productive time and I felt nearly human at the end of a 20 hour day. When it started showing signs of wear at Christmas this year, I replaced it with an even more expensive chair. I believe that if I'd bought a good chair to start with I would have had a lot more billable hours over the years. Small thing. It is the kind of thing that we neglect out of the box. Let's go ahead and use the desk we bought for the kids to do homework on. I'll work in a kitchen chair. We can use file boxes instead of getting a filing cabinet. No need to paint the office, Johnny's blue and gold color scheme will work fine. I can use a TV instead of dual monitors. The only thing you have to sell is your time and your knowledge. Things that get between you and the task will reduce your value to clients, and therefore your revenue.

David Simpson, PE
MuleShoe Engineering


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

RE: Engineering Firm Start Up Costs

zdas: The thing about big firm rates is that they have built into them crazy inefficiency. The big overhead for big firms is expensive people not being billable, not computer monitors. If you are a $350/hr principal at a big NYC structural or facade firm, you spend 90% of your time not billing to projects. The promise of the one person shop is to make this principal a bad ass with swagger who makes an investment banker income ($350*2000hr = wow!) rather than a lame bureaucrat for the machine. Its surely a lofty goal which takes some doing, but achievable.

RE: Engineering Firm Start Up Costs

Re not charging for little stuff: I'm the same way. Answering questions, etc., I don't bill for.

Another one is telling people when your services are NOT needed. If people don't need your engineering services to do whatever it is that they are proposing to do, tell them so. That's free.

About three-quarters of the time, that conversation leads to "Yeah, I know, but we'd like you to have a look at it anyhow.". That's not free ...

RE: Engineering Firm Start Up Costs

I've found that the "right" office can make me money, as I am more productive, less frustrated, more focused, and feeling groovier bigglasses when I am talking to my client on the phone. I look at my office and its layout, its furniture and printers etcetera, as performance tools just like my software and calculator.
My office has nothing to do with client preferences as my clients are almost never there, and quite likely few in the forum would like my office the way I do, and that's my point. My office has everything to do with me, Rockin and Rollin, feeling good and being highly productive.

I don't bill for the "little stuff" either.

RE: Engineering Firm Start Up Costs

(OP)
SteelPE (Structural):
Thank you for the tip (19 Jan 15 14:20) on the Epson WF-7250. That looks like a nice versatile printer at an economical startup friendly price.

RE: Engineering Firm Start Up Costs

(OP)
Glass99 (Structural)
Thank you for your 19 Jan 15 15:23 tip regarding renting ~$500 +/- desk space from Greenspace or WeWork. For some reason, I had previously believed that this sort of office space would be prohibitively expensive.
I also thank you for the tip regarding the HP DesignJet T120 24"x36" ink jet plotter. That looks like a sweet machine that is also nice and compact. After thinking on this a little more, I am hoping that I am going to be able to get by with 11”x17” for a while but once that while is up, the T120 looks like a great first plotter.
In accord with the advice of many others on this thread, I do plan to sub out any major large drawing production work. Mostly I am after the plotter for the drawings that need more detail than I can really impart by marking up an 11”x17”. Somehow I haven’t yet relearned how to think without a red pen in my hand so the large format markup seems to really bring out the creative and/or critical thought process when it comes to developing those drawings.
I am also grateful for the suggestion to share desk space with another engineering firm. Years ago, I was hired by a guy who was starting a satellite office for a smaller firm and this is exactly how we did it then. That boss negotiated a space sharing rental agreement with one of our former firm’s sub-consultants. It worked out very well. I see the benefit of renting space from where there may be some mutual gain from partnering up.
Appreciate the tip regarding E+O. It seems like 3K is the entry point and then up from there.

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