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An engineering firm’s first year income

In starting a consulting engineering practice, one of the most important things to do is to estimate your first year income or  “cash inflows”; Income received on a cash basis.

CLIENTS

First, make a list of your proposed clients. If you need to expand your list consider seeking referrals from: your contact list; consultants of a different specialty; land surveyors; and contractors in your specialty. Other potential clients are found in: the yellow pages, on the internet; and in newspapers.

Try to meet with potential clients privately at their office or over lunch at a quiet restaurant. Later, prepare a spread sheet to be included, as one of your supplemental materials, in your Business Plan.

Tell your potential clients that you are making a projection required by your bank. This will help to get their cooperation, but more importantly, their commitment. But, a word of caution here; don’t say anything to anyone to imply that you’re uncertain about being in your own private practice; you are just complying with your banks usual/periodic request. Above all, make it very clear that this discussion is “CONFIDENTIAL” and that you have not yet given notice at your present place of employment and it is very important that they keep this information “private”. This would also be a good time to ask for referrals; anyone else who might want to engage your services.

FEE PROJECTIONS

At the same time, make a list of anticipated projects from each client over your first 12 months in business; include estimated fees and start dates. This verbally commits the client to specific projects for you. This is FANTASTIC marketing strategy, disguised as information needed by your bank.  Actually, the answers to most of these questions will be unknown, but record what you can. Complete a spread sheet of this data using “unknown” for names of some projects, but estimating fees for each and, (based on start dates), the amount of revenue anticipated each month. Monthly cash inflow is difficult to predict. I have been told that the average is between 110 and 120 days.

I always billed monthly, based on my estimate of the % complete of the project phase on which we were currently working. However, some Clients only bill when a phase is complete or “when they get around to it”. I recommend calling the “slow-billers” a few days before the end of the month to verify the correct % and to pressure them to actually bill their client that month.

Create a spread sheet similar to Figure 4-6 FIRST YEAR CASH INFLOW. (NOTE: All spreadsheets can be downloaded from my website: TheEngineersResource.com, at no cost.) You will, most likely, need a “Crystal Ball” for these projections, but try to be realistic because your go/no go/wait decision will be based, to a great extent, on this information. After you have made a “go” decision, re-do your projections with a more optimistic view, before submitting your Business Plan for financing.

EXAMPLE

I filled out the cash inflow information in (blank) Figure 4-5, thus creating Figure 4-6. The result is a “hypothetical” first year cash inflow projection for fees to be received. Allow 2-4 months after billing to actually receive this income. Again, resist the temptation to proportion these estimates to your situation.

Figure 4-5

 

 

 

 

 Figure 4-6

 

“Excerpted from The Complete Guide to CONSULTING ENGINEERING © 2015 John D. Gaskell. Used with permission of Professional Value Books, Inc. All rights reserved. Order from http://www.TheEngineersResource.com.” Use discount code “paperback” and save.