Oct 16, 1995

Every A/E/P and environmental firm I’ve encountered that has survived over the long haul has periodically made a push to improve its profitability. All the growth in the world won’t do you any good if you can’t turn your revenue stream into profits. Profits are essential to pay your employees more than your competitors can, to have the funds to invest in equipment and systems you’ll need to stay ahead, and to keep the owners of the firm motivated and interested in the business. If you want to increase your firm’s profits, take a look at the following areas of your business: Staff. Raw labor is the biggest single line item in any A/E/P or environmental firm’s income statement. When a company in this business is losing money it’s usually because it is overstaffed. This happens because we are perennial optimists in this business— we always think that things are going to turn around shortly. On top of that, we are too nice. We don’t like to fire people, even when they clearly aren’t pulling their weight. My suggestion is to pull out the entire staff roster and plot out YTD utilization rates by employee right alongside each person’s name. Better yet, see how they did last year, too. My bet is that you will find some chronic utilization problems that need to be dealt with. Try this exercise at home and tell me if it wasn’t valuable. Policies. Vacation and sick leave policies can get out of hand, especially in older companies with a stable workforce. Here is a typical scenario of what can happen: When times are good, vacation accrual or sick leave accrual rates are increased. HR policies are geared to reward longevity and discourage turnover, and they often work too well. When the firm doesn’t grow, the result is a company in which 40% of the workforce is getting four or five weeks of vacation per year, and two or three weeks of sick leave. There’s no way you can make money if you are in that situation, unless your multipliers are a whole lot better than everyone else in this business. Get your policies in line with the rest of the industry. Automatic expenditures. “Automatic” expenditures are things like subscriptions that no one ever questions; conferences that certain people attend every year, whether or not the firm can afford it; deferred compensation plans that were set up under one scenario, but not revised when that scenario did not occur; lunches that principals take on the company credit card at the local club; and so on. Get your best bean-counter and go over the entire expense side of the P&L. Question everything. Cut anything that doesn’t help you make money or provide better client service. Office space. It’s not unusual to see a firm with profit woes that has twice the space it needs at a price per square foot that is higher than it can afford. This happens due to downsizing, but is exacerbated by stockholder- or partner-owned real estate corporations that are renting space to the A/E or environmental firm. The owners of those building corporations are also owners in the professional services firm. They don’t want to make rent concessions, nor do they want to be saddled with finding new tenants for empty space. But in my opinion, their first priority ought to be the health of the firm that pays them their salaries and rental income. That may require concessions on their part. Branch/satellite offices. A solid majority of firms in this business have offices that consistently lose money, yet nothing ever seems to be done about it. This is crazy! Get involved. Figure out what’s going on. Make the office match expenses to workload. Change the manager, if necessary. Carve off the office and sell it if you can. Close the office if necessary and finish the work from another office. But don’t do nothing! Meetings. Pointless meetings with too many people participating in them are very common in this business. Typical are situations like the following: Every Monday, all managers in a firm or office are gathered together to talk about workload and schedule; the HR department wants to explain the third quarter profit sharing results; top management wants to look at every single job opportunity and make a go/no-go decision; the board of directors meets monthly to review the financials and decide who gets to spend money on what. A lot of these meetings are a big waste of time. Why not have individual managers talk with each other, if they have an overstaffing or understaffing problem? What’s wrong with sending out the results for the profit sharing fund on paper and then telling folks whom to call if they have a question? How about coming up with a better way to make go/no-go decisions? Why can’t the board part with some of its control over every little thing? And finally, is it essential that everyone who is at these meetings be there? Firms interested in being more profitable would do well to answer these questions. This really is a pretty simple business, and contrary to popular belief, it can be profitable, too. Any firm can probably improve its profitability, and at the same time not jeopardize its future opportunities. Now may be a good time to look at how your firm stacks up on the six points above and to do something about deficiencies. Originally published 10/16/1995

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