Editorial: Issues causing a lack of profitability

Jun 10, 2013

Mark Zweig lists seven concerns, so it’s time to act. With the construction economy roaring back, it’s interesting to me to see some A/E and environmental firms cashing in on it and others that still aren’t. The ones that aren’t keep hoping for a return to the past, when you could hire anyone who had a pulse, stamp out mindless proposals and get 25 to 30 percent of projects in spite of it. That scenario probably won’t happen again. Here are some the major issues causing a lack of profitability in A/E and environmental consulting firms today:
  1. Not enough work. This is a problem – no doubt – but shouldn’t serve as an excuse. It always kills me when I see companies that are doing $10-, $20-, even $100 million a year in revenue that aren’t profitable because they “don’t have enough work.” You have got to stop playing this game and cut costs so you can make money with the work you have now.
  2. Cutting fees/not asking for enough fee because of fear of losing the job. As times get harder, the tendency of many design and environmental professionals is to cut their fees. This may be happening in your firm. The result is everyone is busy and there’s no excess capacity, yet the firm doesn’t make money. Why the assumption that lower fees will lead to more work? Principals and others who sell projects need to have the intestinal fortitude to ask for a good fee. Some have it, and some don’t.
  3. The staff is too top heavy. This condition frequently occurs when the firm hasn’t grown for several years and/or has declined. Cuts are made at the bottom and neophytes aren’t hired. Then everyone gets older, a little more tired, and sometimes, even more expensive. The result is disastrous for profitability. Everyone’s working but they are working below their level and costing too much. To fix this you may have to thin out the top and middle levels and hire some entry level and junior people. That’s how you can make a profit in this business.
  4. The firm’s top people have met or exceeded their career goals. This happens a lot. The principals never thought the firm would be as successful as it is and don’t have the drive to keep it growing. They work 9 to 5, turn their cellphones off in the evening, and spend too much time on the golf course. This sets a bad example for everyone else in the firm and overall productivity declines.
  5. There’s an unwillingness to risk non-performance on projects, which results in overstaffing. Clients will delay project starts and projects can stall along the way. If you don’t have more work than you can handle, keeping the people you “need” to do these projects when they restart will kill your profitability. There’s no way you can afford to keep working this way. Take some risk and cut staff back so you can make money with the work you know you have now.
  6. The overhead is just too high. Of course overstaffing is always the leading culprit for having overhead that cannot be paid for. But there are other costs, too, that bear scrutiny. Too much office space at too high a rate is one problem. Overly rich 401(k) matches or employee health benefits are another. Then there is also the problem of too many admin people because everyone has gotten spoiled and used to too much service. Cut.
  7. Reward systems not tied to overall company profitability. It’s amazing to me more firms in this business don’t do things such as pay out a flat percentage of profits to ALL employees, either monthly or quarterly. There are a zillion excuses. Fear of rewarding non-performers (fire them instead). Fear of what happens if the firm takes a loss in the period (roll it to the next). And more. It’s all B.S. Show your employees you value their contributions and that they share in the rewards if you do well and commit to paying back part of the profits to all who are there. Get them tied into to company profitability! And this is NOT the same thing as a once-a-year discretionary company contribution to the profit sharing plan. Too far removed from performance and when it occurred, and some people don’t care about retirement!
Am I making any sense here? Of course I am. Stop rationalizing and act! Mark Zweig is the chairman and CEO of ZweigWhite. Contact him with questions or comments at mzweig@zweigwhite.com. This article first appeared in The Zweig Letter (ISSN 1068-1310), issue #1011, originally published 6/10/2013. Copyright© 2013, ZweigWhite. All rights reserved.

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