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Average net profit for 2015

Scrolling through PSMJ’s website I found an article about A/E Profit Margins and how these margins have been on the rise for the three consecutive years. 2014 saw average profits of 14.3%, the highest they have been in six years. 

While this is good news, I don’t get too excited about a 14.3% net profit and prefer to see profits in the upper teens or low to mid 20’s. Remember that this is the average of firms and the average is simply “the best of the worst and the worst of the best”.

Founder and CEO of PSMJ Resources Frank A. Stasiowski, FAIA, also believes that the 14.3% shouldn’t “…be an acceptable profit margin at all for an A/E firm,” “There are plenty of A/E firms that can and do deliver profit margins far higher than this.” 

So does your firm measure up?  How are you performing compared to the rest of the world? Do you want to reach higher profit margins? Of course you do. 

Now I can’t promise that you will make higher profits, but I can tell let you in on a little secret that will help your business run more efficiently ~ our software.

Our business and project management software offers you everything you need to run a successful AE firm more effectively and efficiently.  With the help of our solution your firm can stay organized and on task with every project that comes through your office. 

Reviewing Insurance Coverage

When was the last time you reviewed your insurance coverage’s?

We all know it is a pain in the butt to meet with different providers when looking at either health insurance or liability insurance. However, failure to do so on an annual basis can cost you either hundreds or thousands of dollars in higher premiums.

It is worth it to take the time on an annual basis to shop around. Now if you have a great relationship with your insurance provider, I don’t know if I would be jumping ship to new provider for 1-2% saves. But if you shop around, there is a very high probability that you are going to find better rates somewhere else.

You may want to look around for a provider that specializes in provided coverage for architects and engineers.

Just make sure, that you are dealing with a reputable company and you are getting a quality plan to back you up.

Cut Five Percent

Whether you are sitting around the conference table of the office or the kitchen table at home, if you look at your budget of the last year, almost always you can find 5% that you can cut on your spending.

The challenge is… do you ever do this exercise?

When was the last time you reviewed your companies’ expenses? Did you look closely at whom you spend money with and ask if there was room to cut? Here is what you need to do.

Categorize your expenses by whom you spent the money with. Then sort the list by the amount spent so that the largest at the top and the smallest is at the bottom. You want to work with the vendors whom you spent the most money with, as there will be more room for trimming.

Here is another reason to focus on the larger accounts. If you cut 50% from an account that you do $500 per year with you will have saved $250 but if you could 5%, one tenth as much, from a client you do $20,000 per you with you will have saved $1,000 which is four times the amount but a much smaller cute percentage wise.

So what you want to do is look at where you spent you money and see if there are any areas you can cut and/or negotiate with your venders and suppliers.

There may be an opportunity for you to consolidate what you’re purchasing. If you are getting your plotters supplies from one company but you are doing all of your printing with another company, you may be better served and get better pricing if you did all this business with a single vendor.

Here is a reminder. DON’T BE A CHEAPSKATE.

You want to negotiate but you want to treat your venders with respect and fairness. Just as you expected to be treated from the people that are paying you. There is nothing wrong with asking for a discount, but be kind about it.

True Story… when I started my engineering practice, we just started getting our printing done at one of our local reprographics companies. Being an engineering firm we didn’t have nearly as much volume of printing as an architect office did. However, we had a project that came up where we were going to be doing a lot of printing so we went in and were talking to the manger about it. They pulled out this magical book that had these huge discounts. This pricing book is for their professional clientele not the people that come in off the street. We were paying the off the street price rather than the discounted price that had about a 40% savings.

We could have asked for better pricing two years early, had we done that we would have saved a lot of money.

So, there may be discounts out there that you just haven’t asked for.

So just ask!

“Do you have any discounts for the people in the industry?”

Again, just remember, nobody like cheapskate but you have the right to shop around because it is your money we are talking about.

In another upcoming post, we will talk about other areas that you probably have not looked at in a while that you could grant you a great deal of savings.

 

Billing Reimbursable Items

When billing reimbursable expenses there is a chance that a client, from time to time, might dispute one of your reimbursable expenses and hold up paying the invoice until the dispute is resolved.

A client of ours once had an invoice where the design fees represented about $60,000 on the invoice and the reimbursable expanses represent about a few hundred dollars. But because one of the reimbursable expenses was disputed, the entire invoice was not paid for several months until the dispute was resolved.

Had this firm submitted two separate invoices one for the design and one for the reimbursable expenses, then the design fees could have been paid more promptly and only the invoices with the reimbursable expenses would have been delayed.

This depends on you client and what the rules and operating procedures are. But some clients won’t pay any part of an invoice if a portion of it is in dispute.

So, if that’s the case, you may want to separate your billings into two invoices:

  1. Fees that most likely will not be disputed
  2. Reimbursable or other items that could become disputed

Hopefully, you will not have to deal with disputed invoices and will have happy cash flows.

 

Dating Your Invoices

No, I am not talking about taking them to the movies and buying them a tub of popcorn, I am talking about the date you put on your invoice. Here is a little un-known trick that won’t work for every client but it will work in some instances for you.

If it is April 3rd and you are doing your invoicing for work you completed in March date the invoices March 31st rather than April 3rd.

But why? Because then for the person receiving the invoice they will read it as a March Bill and most companies will pay their March billings in April., but if it is dated April, even early April, it becomes a May payable. So instead of receiving your money in April you do not get paid until May.

So you may be able to accelerate the payment by a month simply by dating it the last day of the prior month rather then the first few days of the current month. This is probably going to happen more when you are billing larger organizations or agencies because they have accounting departments who often function on the monthly cycle. If you are billing a small company or a homeowner this probably will not have the same affect, but it never hurts to try.

So if you are issuing invoices for your engineering or architectural service within the first couple days of the month try dating the last day of the prior month.

Key’s to a Successful 2015

2015 is here and so are New Year’s resolutions. There are the typical lose weight, save money and volunteer more, but what about for your business? Have you set any initiatives for your business for the new year?

I was scrolling through the Zweig Group’s blog and came across “Keys to success in 2015”.

Setting goals for your firm is a great way to have a successful year for your firm.

In the “Keys to success in 2015”, some of the “keys” I will be mentioning are some I think are important for any business.

Communication.

Not having any can lead to “misunderstandings”. Having good communication with everyone involved in your business can eliminate problems and lead to a thriving business.

Having Purpose.

Employees should have the purpose to create quality work they are proud of. Having a purpose can lead to an overall positive effect on individual motivation.

Working Together.

In the A/E field, working together is a big part to success. By not having a “solo performer” and having “team players” projects can get done more efficiently and your business can run more smoothly.

Of course there are more factors to running a prosperous business, but these three really jumped out at me. Running any type of business is not just about making money, its important but being proud of your work as well as helping others is really what matters at the end of the day.

With running a successful business, working together, communication, and having purpose are important factors; however having a “well oil machine” requires everyone in the office to be organized. Meaning, keeping track of money, time, and schedules is how your firm will run smoothly, and having software to make keeping track of necessary things is always a must.

With Praesto AE, keeping track of when things are do, who is doing them,how much is spent, and have we been profitable is easy.

Praesto AE allows you to keep track of everything from money; contacts, and building materials to ensure your business can run more efficiently and effectively.

 

 

Happy New Year!