Engineering Inc - September/October 2017 - 22

"When employees understand how the firm operates
and what their individual impact is, they become more
motivated to improve the company's health."
TY KICKLIGHTER | KICKLIGHTER GROUP

DON'T LET SCOPE CREEP ERASE PROFIT
Not every contract lives up to its potential. Little by little,
firms add services that weren't in the original budget. If
program managers don't stop the bleeding or aren't tracking
performance closely, scope creep can turn an anticipated 20
percent margin into a 6 percent disappointment. That's not
the only danger. Leakage also undermines backlog estimates, which
means executives make business decisions based on inaccurate estimates of workforce levels and returns. "Backlog reporting is a critical
leading indicator for the health of your business. Firms really need to
be able to peel back the onion by understanding their leakage/funding not captured in determining how accurate their replenishment
rate truly is," Kemp says.
Jewell advises training project managers to estimate project costs
more accurately and write contracts with contingencies that account
for scope creep. For example, contracts should set a limit on revisions
for drawings. "If clients come back to request more revisions, you
can have discussions to help them understand that they will need to
pay more," Jewell says.

UPDATE MARKETING PRACTICES
Engineering firms may miss out on profit opportunities
because of outdated sales processes that rely on requests for
proposals and legal notices for new business. "It's a solicitation mindset that progressive companies are leaving far
behind," says Douglas Reed, president of FosterGrowth, a
business consulting firm. "Instead of thinking that clients are hiring
you, decide what types of clients are most profitable for you to work
with and then go after them."
An inbound marketing strategy is the modern approach that replaces
cold calls and promotional mail. Reed advises firms to use social media
tools, such as Twitter, LinkedIn and blogs, to display the firm's brand,
core values and visible experts to browsers that connect them to the
firm's digital sites. Reed also suggests using consultative email campaigns, YouTube channels and paid search ads to motivate viewers to
sign up for a webinar or a consultation. This action then reveals who
they are and indicates they have an interest in the firm. The overarching
goal is to encourage potential clients to seek out your firm.
To succeed with inbound marketing, many engineering firms will
benefit by investing in marketing-automation software and talent,
which includes but is a dramatic expansion of Client Relationship
Management platforms. These platforms and talent are largely found
outside the engineering industry where more progressive sectors are
leading the way.
"Most marketing departments in engineering firms are not given
direction to identify and attract inbound marketing and sales opera22

ENGINEERING INC.

SEPTEMBER / OCTOBER 2017

tions specialists," he says. "Once my clients understand what progressive marketing and sales is, they often conclude that instead of a marketing department, they have a proposal production department."

TAKE A BITE OUT OF TAXES
Employee Stock Ownership Plans (ESOPs) can help
firms reduce their tax liability and thus free up capital for
strategic initiatives, says Chris Staloch, managing director
at Chartwell Financial Advisory.
With traditional ownership models, employees may
be able to buy an interest in the firm, but they would do so using
after-tax dollars, he explains. Because ESOPs are classified as
qualified retirements plans, organizations fund them with taxdeductible contributions. "In an S corporation, the portion of the
company owned by the ESOP is exempt from federal and most
state taxes," Staloch says. "So, the
holy grail of ESOPs from a tax
standpoint is a 100-percent
ESOP-owned S corporation.
Then the company no longer
has to make any tax distributions to its shareholders, and
it can retain that cash to fund
growth in the company."

USE DEBT STRATEGICALLY
Interest rates have begun to inch up, but they remain at historic lows. This means engineering firms still have an opportunity to borrow money at cheap rates and reinvest it for

market-expanding acquisitions, to purchase productivityimproving technology or attract high-quality talent. First,
many executives must overcome their aversion to taking on debt.
"Engineers are by nature conservative, so many have been reluctant
to take on debt to capitalize their companies," Staloch says. "But
their firms may be undercapitalized as a result and not grow at rates
that are otherwise possible."
To avoid the inherent risks of taking on debt, company leaders
need an accurate estimate of how the borrowed money will pay off.
"The goal is to utilize less expensive capital-bank financing-to
fund an acquisition or other initiatives that will generate much
higher returns for your shareholders," Staloch says. "That requires a
well-thought-out business strategy." ■
Alan Joch is a business and technology writer based in Francestown,
New Hampshire.

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