Dear Dave,
A college buddy and I currently work for two firms in the metropolitan area, but we have remained close since graduating and recently met to discuss setting up our own firm. We have been out of school about nine years and both of us are licensed. I am more into the sales and management aspects of engineering while my friend is interested in the technical aspects of our work and is a genius when it comes to computers and automated design. Because of our complementary skill sets, we think we would make a good team. What steps do we need to go through to take the idea of starting our own firm from wishful thinking to reality?
K.H., Ga.

Dear K.H.,
First and foremost is to be sure you are both philosophically aligned with goals and expectations for your new firm. Too many firms come off the rails because firm owners don’t share a uniform vision of what it is they hope to achieve and eventually end up at odds (not unlike a bad marriage) when it comes to being in business with each other. For example, if you are ambitious and want to grow, but your partner would rather stay small and tinker with computers, you may end up mutually frustrated. What mix of client types and projects are you interested in doing? Where do you each stand when it comes to personal income and profit expectations? How about work ethics? Is one of you a 9-to-5er, and the other a workaholic? You need to discuss your differences and expectations thoroughly with the result being a well-defined frank understanding of what you expect of the firm and from each other. If you can’t arrive at a common agenda for yourselves and your business, best bet is to walk away now and stay friends.

What is your plan and likelihood for getting work and having a viable practice? What existing relationships and networks do you have to cultivate for projects? How much work can you realistically sell and when will it be available to be billed?

The next step is a detailed financial budget for the initial 24 months of operation. Set this up as a spreadsheet with each column as a month into the future. In the first row, enter the income you expect to collect (not bill) each month. In each subsequent row, enter an item of anticipated monthly cost such as payroll, insurance, heat, light, rent, computers, and software. Do not underestimate what it will cost each month to operate. Do your homework and be super conservative in planning. When you think you have a good number, add on 10 percent of your anticipated monthly costs as an additional contingency line item to complete the monthly income and expense forecast. Subtract the monthly cost items from the cash receipts. Do the receipts cover the expenses each month?

Chances are you are going to need to supplement client income receipts with your own money (capital) during the early startup months. Where will this capital come from? What is the source and amount of your back-up funds if your initial income or cost forecast proves to be inaccurate? Lack of access to adequate capital is a common reason why businesses fail. Make sure you have access to plenty of resources.

If your financial budget looks doable, the next step is to visit an attorney to set up the appropriate form of business organization and complete all the necessary documentation. Chances are your attorney will recommend some form of corporation, or a newer form of organization called a Limited Liability Company (LLC). The key is to select the optimum structure to protect your business and personal assets while getting the best outcome relative to tax issues.

From the beginning, engage an accounting firm to do your books and take care of taxes and other financial reporting requirements. The best bet is to find a small, local CPA firm to work with because the big firms will cost too much and not provide the access and turnaround time you’ll need. Have your accountant review your initial business budget and make suggestions for possible modifications. Once your new firm is up and operating, have your accountant generate a monthly income statement. You and your partner need to get into the habit of reviewing and discussing your financial progress on a routine basis and reacting quickly to any potential problems.

Stay focused on the firm at all times. When you go from working for someone else to working for yourselves, you have gone from being engineers in business to a business offering engineering services—a small change in words, but a huge change in responsibilities and daily priorities. Are you ready?

Paid professional development
Dear Dave,
Is it customary for firms to pay the salary and out-of-pocket cost for required professional development credits? Our firm does not cover any fees and expects staff to either make up the time spent in classes, or use our personal paid time off benefits for time spent to attend training.
C.J., Ohio

Dear C.J.,
Support is a privilege, never a right. I am not aware of a typical practice; it varies widely from firm to firm. Whether a firm does or does not provide financial support for required professional development is a function of each firm’s overall benefit package. As a professional, it is ultimately your personal responsibility to meet requirements to maintain your license.


David Wahby is president of Wahby & Associates (www.wahby.com), a management consulting firm serving A/E clients. He can be reached at 616-977-9756 or via e-mail at wahby@wahby.com. Get answers to your questions about design firm and project management, finances, marketing, and related topics by sending them to Q&A c/o: CE News, 330 N. Wabash, Suite 2525, Chicago, IL 60611, or faxing them to CE News at 312-628-5878. Include your name and telephone number in all correspondence. Your name will not be used in connection with published questions.