“How do you stack up in these seven areas? Is money being wasted? If so, take action now!”
Business is good but you’re not hitting your profit goals? Look to the expense portion of your income statement. I have always said I can’t find a $10 million AEC firm that I couldn’t cut between $500K and $1 million worth of expenses out of.
Here are some of the more common expenses that get out of control:
- Office space. How much space does each person really need? If you have 500 square feet or more per employee, you have way too much. I was in an architecture firm not long ago where the bulk of their employees sat in a carrel that was about 30 inches deep and 50 inches wide. Just think how many employees you could put into your space if you did that?
- Branch offices. The more you have the higher your overhead will likely be. Duplicating conference rooms, receptionists, non-billable inter-company travel, and additional accounting costs and tax returns can all be part of the equation. Plus, the more offices you have the harder it is to maintain your consistent culture and the more management time you need to spend.
- Unbillable (and unnecessary) travel. This is, of course, a bigger problem when you have a lot of offices. I was never one to think the boss should just go to offices regularly with no reason to be there. I say go when there’s a need to sell a project or do something billable, but otherwise minimize non-billable travel. But there are other examples of unpaid travel. Sometimes I find firms are too willing to make unpaid trips to sell when they should be charging clients for the work they are providing. Being too “easy” in this regard has ruined the finances of more than one architect, and creates an image of desperation in the eyes of the clients that can be hard to shake later on when it comes time to negotiate a fee for a real job.
- Admin support staff. I’m sorry to say it, but too many of these people end up as personal assistants doing stuff they really shouldn’t be doing because it doesn’t benefit the business. Picking up cleaning and making dinner reservations for the boss’s wedding anniversary, or making travel arrangements for the boss and his kid who are doing college tours, are really matters that the boss should find another way to get done. The older the company, and the older the principals, the more likely this situation will exist.
- Meals and entertainment. So much is wasted here by firm principals, and the problem goes far beyond the money spent. It’s really about the example that’s set for everyone else who witnesses the excesses. They feel like saving money or being efficient isn’t important. Or, they become demotivated because they feel they don’t get the rewards they are entitled to because of this waste.
- Deadweight principals. People who are owners and who don’t carry their weight are a huge problem for AEC firms of all types. And when you combine this with a lack of respect for the firm’s culture you have a double whammy that is a cancer that has to be eradicated. Again, the problem goes far beyond the considerable financial burden these people represent.
- Outside consultants/professional services. A lot of money is wasted here. Sometimes these people have been around so long they are unable to provide honest advice to the firm principals and therefore become part of the problem. When cutting costs, I always take a hard look at outside legal, accounting, management, marketing, and PR services to make sure they are actually earning their fees.
How do you stack up in these seven areas? Is money being wasted? If so, take action now!
Mark Zweig is Zweig Group’s chairman and founder. Contact him at firstname.lastname@example.org.