BASEBUILDERS

How The Best Firms Get Better

Practical Business and Project Management Strategies

BASEBUILDERS

Doug Rawson, PE (YourFriend)

Education • Bachelor of Science in Electrical Engineering!

• Masters from School of Hard Knocks ~ Working on PhD!

Jobs • College Days: Gold Miner, Copy Maker, Box Tosser!

• Electrical Engineer ~ 1998-1995 (6 years)!

Founder • Pinnacle Engineering, Inc ~ 1995-2005 (10 years)!

• Base Builders, LLC ~ 2002-Today

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Scary Facts

• 40% of all new business fail in first year

• 80% done by end of 5 years

• 80% of the surviving 20% fail by end of 10th year

• Only 4% of business last past 10 years

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On The Menu

• Profit vs. Cash Flow

• Cash Flow Enhacement

• Increasing and Managing for Profit

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Profit vs. Cash Flow

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What is Profit?

• Profit is what you report on your taxes

• Profit affects, but is not, your bank balance

• Profit is a good thing

• You won’t last long without it

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Operating Profit

Gross Revenue - Direct Expenses

Net Revenue - Direct Labor Gross Income

- Indirect Labor - Other Overhead

Operating Profit

Your Fees

Sub Consultants, Prints, Models

This Levels All Projects/Firms

Labor Charged to Projects

Monies Left for Profit & OH

Marketing, Vacation, Etc.

Rent, Insurance, Benefits

Available for Distribution

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What is Cash Flow?

• Cash Flow determines viability

• Negative Cash Flow causes bankruptcy

• Cash Flow is what happens in your checking account

• Happiness is a positive cash flow!

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Cash Flow

Opening Balance + Income From Sales

+ Investor Capital + Loans

Available Funds - Expenses

- Debt Service - Capital Purchases

- Distributions Closing Balance

Money In The Bank - Start

From Your Accounts Receivable

From Your Pockets

Bank, Credit Card, LOC

How Much You Can Spend

From Bills Paid & Things Bought

Bank, Credit Card, LOC

Assets Bought

Into Your Pockets

Money In The Bank - End

Diff

eren

ce

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Profit vs. Cash Flow

• Negative Profit and Negative Cash Flow!

• Negative Profit and Positive Cash Flow!

• Positive Profit and Negative Cash Flow!

• Positive Profit and Positive Cash Flow

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Neg Profit ~ Neg Cash Flow

• Too Much Overhead/Too Many Expenses!

• Typical for a start up!

• Slow reaction to economic slowdown!

• Action - Cut Now and Cut Fast

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Neg Profit ~ Pos Cash Flow

• Credit Card Balance Growth!

• Not paying sub consultants!

• Asset Depreciation!

• This should raise some red flags

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Pos Profit ~ Neg Cash Flow

• Debt Reduction (Mandatory/Voluntary)!

• Back payments to Sub Consultants!

• Share Holder Distributions!

• This should raise some red flags!

• Can lead to major financial challenges

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Pos Profit ~ Pos Cash Flow

• What a Great Place to be...

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Cash Flow Enhancement Part 1

Getting Paid and Speeding Up the Inflow

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Time Line of Cash FlowStaff

Perform the work and your fee is earned. This is your

Earned Value!Day 1

Payday comes and you pay

your staff!Day 7 Client

is invoiced for the work!Day Client

feels generous and pays your invoice!

Day 80

Timeline of Cash Flow

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Acceleration of In Flow

• Increase Billing Frequency

• Delegate Billing and Collection to PMs

• Prep the Client

• Follow Up

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Increase Billing Frequency

• When a deliverable is completed - deliver it with an accompanying invoice.

• Do not wait until the end of the month to do your billing.

• Do not allow for your billings to fall through the cracks. I know you hate doing it - do it anyways.

• Forecast your invoicing and set goals.

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Celebration Fridays

• Celebrate the week’s accomplishments by billing your clients.

• Not every project can be billed each week, but each week there is usually something that can should be billed!

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Delegation Rocks

• Empower Your Project Managers with the Responsibility of Invoicing Their Projects.

• Provide Your Project Managers with Real Time Data.

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Prep Your Client

• Don’t let your bill be a surprise.

• Start by letting you client know that you plan to send an invoice out this week and you want to know if that will be alright?

• Then let them know how much (dollars or percentage) you plan to invoice and ask for their blessing.

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Follow Up

• Ask the client if they received your invoice.

• Ask them if they have reviewed it and do they have any questions.

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Two Tricks

• Put Your Reimbursable Items on a Separate Invoice From Your Design Fee.

• If an Invoice is Being Issued for March and it is April 3rd, Date the Invoice March 31st.

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Slow Payers

• I’m updating my Cash Flow Forecast and was wondering when...

• We hate to be a pain but…

• Will you be able to pay our invoice or should we start accruing interest?

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Summary

• Bill Frequently

• Communicate with Your Client

• Make Invoicing a PM Responsibility

• Be the Squeaky Wheel

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Cash Flow Enhancement Part 2

Managing Expenses and Slowing Down the Outflow

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Five Percent!

• You can always find 5% that you can cut.

• Where do you start?

• Start with the Largest Accounts - these typically have the most fat.

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Expenses by vendor

Vendor Amount

Model Builders 34,620

Network Services 6,699

Clean Windows Express 933

Black Lines Tomorrow 3,473

Left Side Out 2,500

East Side Printers 17,947

Pretty Good Provider 1,800

CYA Insurers 1,296

Interior Design by You Know Who 24,926

How Many Vendors Can There Be 4,823

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Expenses by vendor

Vendor Amount

Model Builders 34,620

Interior Design by You Know Who 24,926

East Side Printers 17,947

Network Services 6,699

How Many Vendors Can There Be 4,823

Black Lines Tomorrow 3,473

Left Side Out 2,500

Pretty Good Provider 1,800

CYA Insurers 1,296

Clean Windows Express 933

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Negotiation

• First Review Pricing and/or Rates and See if You Can Negotiate

• Second You can Request Extended Terms

• Can You Consolidate? If you Currently Do Business with Two Reprographic Companies, Will One of Them Give You Better Rates for ALL of Your Business?

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Negotiation

• First Review Pricing and/or Rates and See if You Can Negotiate

• Second You can Request Extended Terms

• Can You Consolidate? If you Currently Do Business with Two Reprographic Companies, Will One of Them Give You Better Rates for ALL of Your Business?

Caution! Nobody Likes a

Cheapskate

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Review Insurance

• Get a Fresh Set of Quotes on Health Insurance.

• Shop Around for Liability and Errors & Omissions Coverage.

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Health Benefits

• Nearly 20% of Americans Have Secondary Insurance. This Means That They are Covered Under Two Plans.

• Modifying Your Insurance Benefit to Require Employee Participation Will Encourage Some Employees to Move to Their Spouse’s Coverage.

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Review Employee Compensation

• Owner and Principals!

• Less Salary and More Profit Sharing!

• Staff Salaries!

• Rather Than Raises, Implement a Bonus Plan

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Reduce Overhead

• Read Chapter 9!

• Fire Someone Today by Bob Pritchett

• Reduce Staff - cut the dead wood

• Change Benefits

• Reduce Turnover

• Improve Efficiencies

• Become More Effective

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Increasing Profits

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Increasing Profits

• There are only two ways to increase Profits

• Method One: Increase Revenue

• Method Two: Cut Expenses

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Increasing Profits

• Target Better Projects!

• Pareto Principal (80/20 Rule)!

• Strategic Planning: Know Thyself – A Case Study by Michael Webber!

• Ramp Up Marketing Efforts!

• Raise Fees and/or Rates!

• Focus on Flat Fee ProjectsPSMJ

BASEBUILDERS

Increasing Profits

• Target Better Projects!

• Pareto Principal (80/20 Rule)!

• Strategic Planning: Know Thyself – A Case Study by Michael Webber!

• Ramp Up Marketing Efforts!

• Raise Fees and/or Rates!

• Focus on Flat Fee ProjectsPSMJ

Annual Revenue

Generation

Business Development

Budget

Repeat Clients 80% 20%

New Clients 20% 80%

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Profit Centers

• Profit Centers are how you categorize your projects and revenue

• Project Type, Client Type, Project Size, Geographical Location, etc

• Net Revenue, Operating Profit, % Profit

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Profit Centers

TypeNet

RevenuePercent of

Net RevenueOperating

ProfitPercent of Total Profit

Profit Percentage

Retail 100,000 14% 18,000 15% 18%

Office 140,000 20% 23,000 19% 16%

K12 200,000 28% 38,000 32% 19%

Barber 60,000 9% 18,000 15% 30%

Church 120,000 17% 10,000 8% 8%

Medical 85,000 12% 12,000 10% 14%

705000 100% 119000 100% 17%

TypeNet

RevenuePercent of

Net RevenueOperating

ProfitPercent of Total Profit

Profit Percentage

Retail 100,000 14% 18,000 15% 18%

Office 140,000 20% 23,000 19% 16%

K12 200,000 28% 38,000 32% 19%

Barber 60,000 9% 18,000 15% 30%

Church 120,000 17% 10,000 8% 8%

Medical 85,000 12% 12,000 10% 14%

705000 100% 119000 100% 17%

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Profit Centers

FundingNet

RevenuePercent of

Net RevenueOperating

ProfitPercent of Total Profit

Profit Percentage

Private 320,000 35% 38,000 27% 12%

Federal 120,000 13% 8,000 6% 7%

State 200,000 22% 38,000 27% 19%

School 60,000 6% 23,000 16% 38%

County 140,000 15% 23,000 16% 16%

City 85,000 9% 12,000 8% 14%

925000 100% 142,000 100% 15%

TypeNet

RevenuePercent of

Net RevenueOperating

ProfitPercent of Total Profit

Profit Percentage

Private 320,000 35% 38,000 27% 12%

Federal 120,000 13% 8,000 6% 7%

State 200,000 22% 38,000 27% 19%

School 60,000 6% 23,000 16% 38%

County 140,000 15% 23,000 16% 16%

City 85,000 9% 12,000 8% 14%

925,000 100% 142,000 100% 15%

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Profit Centers

Delivery Method

Net Revenue

Percent of Net Revenue

Operating Profit

Percent of Total Profit

Profit Percentage

Design Build 200,000 20% 47,000 31% 24%

Plan Spec 600,000 60% 68,000 45% 11%

Design Assist 200,000 20% 36,000 24% 18%

1000000 100% 151,000 100% 15%

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Finding Your Sweet Spot

Profitability Delivery Method

Design FeaturesType

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Finding Your Sweet Spot

Profitability

Delivery Method

Design Features

Type

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Ideal Client

• Home Owner!

• General Contractor!

• Public Works!

• Sub-Contractor!

• Big Business!

• Developer!

• Non-Profit

How do you define an ideal client?

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Ideal Project

• Large Project!

• Small Project!

• Primary Residence!

• Vacation Home!

• Office Building!

• Church!

• Restaurant!

• Retail Center

How do you define an ideal project?

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Ideal Project

• Large Project!

• Small Project!

• Primary Residence!

• Vacation Home!

• Office Building!

• Church!

• Restaurant!

• Retail Center

How do you define an ideal project?

Riches are in Niches

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Managing for Profit

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Managing for Profit

• When is a Project’s Profit Determined?

• How Do You Set Your Fees?

• How Do You Know How Much To Charge?

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Setting Fees

• Review Your Own Historical Data

• Industry Data Is Great But Yours is Better

• San Diego’s Daily Average Temp is 70.5℉• Develop Matrices to Compare Projects

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Matrices

• $ per Drawing

• $ per Area Unit (Sq Ft, Sq M)

• Hours per Drawing

• Hours per Area Unit

• $ per Hour

• % of Construction Cost

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Budgeting Hours

Phase

SD

DD

CD

BD

BN

CA

Percent

15%

20%

30%

10%

5%

20%

1

Fee

4,500

6,000

9,000

3,000

1,500

6,000

30000

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Budgeting Hours

Phase

SD

DD

CD

BD

BN

CA

Percent

15%

20%

30%

10%

5%

20%

1

Fee

4,500

6,000

9,000

3,000

1,500

6,000

30000

40% = PM 40% = Production 20% = Admin

$120/hr @ 40% = 48 $80/hr @ 40% = 32 $60/hr@ 20% = 12

Average = 92

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Budgeting Hours

Phase

SD

DD

CD

BD

BN

CA

Percent

15%

20%

30%

10%

5%

20%

1

Fee

4,500

6,000

9,000

3,000

1,500

6,000

30000

Hours

49

65

98

33

16

65

326

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Tracking Progress

• Review Progress Against Budgets

• Adjust Course

• Move Forward

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Tracking Progress

Phase % DoneHours

Budgeted Hours Actual $ Hours Difference

SD 100% 49 52 106% -6%

DD 50% 65 41 63% -13%

CD 0% 98 0 0% 0%

BD 0% 33 0 0% 0%

BN 0% 16 0 0% 0%

CA 0% 65 0 0% 0%

Phase % DoneHours

Budgeted Hours Actual $ Hours Difference

SD 100% 49 52 106% -6.1%

DD 50% 65 41 63% -13.1%

CD 0% 98 0 0% 0.0%

BD 0% 33 0 0% 0.0%

BN 0% 16 0 0% 0.0%

CA 0% 65 0 0% 0.0%

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Tracking Progress

Phase % DoneHours

Budgeted Hours Actual $ Hours Difference

SD 100% 49 52 106% -6%

DD 50% 65 41 63% -13%

CD 0% 98 0 0% 0%

BD 0% 33 0 0% 0%

BN 0% 16 0 0% 0%

CA 0% 65 0 0% 0%

Phase % DoneHours

Budgeted Hours Actual $ Hours Difference

SD 100% 49 52 106% -6.1%

DD 50% 65 41 63% -13.1%

CD 0% 98 0 0% 0.0%

BD 0% 33 0 0% 0.0%

BN 0% 16 0 0% 0.0%

CA 0% 65 0 0% 0.0%

Phase % DoneHours

Budgeted Hours Actual % Hours Difference

SD 100% 49 52 106% -6.1%

DD 75% 65 41 63% 11.9%

CD 0% 98 0 0% 0.0%

BD 0% 33 0 0% 0.0%

BN 0% 16 0 0% 0.0%

CA 0% 65 0 0% 0.0%

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Monitor Everything

• What gets measured gets managed

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Questions? !

doug@basebuilders.com