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On Your Own: Starting an Individual Practitioner Consulting Business

Eugene Washington, P.E.

Course Outline

This one-hour online course discusses what led me to quit full time employment and start my own engineering company. In order to start such a business the engineer must have clients and a sound competence based on experience and integrity. Keeping the business growing and successful means you have to expand your talents in marketing, tax laws and bookkeeping.

This course includes a True-False quiz at the end.

Learning Objective

The purpose of this course is to introduce the prospective entrepreneur to the rewards, risks and trials of starting their own business. The undertaking must be planned and a number of elements must be in place in order for the enterprise to be successful.

At the conclusion of this course, the student will be able to:

Course Introduction

So you are thinking about starting your own small business. It is a dream for a lot of good engineers. What holds them back? For one thing it is a scary risk. There is no consistent paycheck. You have to make all the decisions and assume all the risks. Most engineers do not have an independent income, except maybe a working spouse. It is difficult to make the leap to independence when you have a family to support.

After 35 year of working for construction corporations, I decided to go out on my own. That move was based on several good, bad and indifferent reasons. From previous experience and observation I knew the hazard of failure, so it was not an easy decision. I was no longer challenged by my job, but my wife had restarted her career after 30 years of concentrating on raising the family. She did not want to move away from her friends and colleagues. My kids are all more-or-less independent. I had already done some minor consulting on my own to the point it was beginning to interfere with my day job. I had already written about 100 engineering design programs in Excel and have become semi computer literate. It all came together and seemed to make sense. So I made a deal with my boss to ease the transition and started pounding the pavement looking for work. Fortunately I have some very loyal friends who want to help me to succeed.

Course Content

I didn't plan as well as I should have, but I was smart enough to get experts to help me. In order to succeed you must have a market that suits your interests and talents. I am a civil engineering construction specialist. Ergo, I figured I would market my skills to the construction industry. Most small and medium sized construction companies occasionally need professional engineering services. Even some large companies prefer to hire outside engineering services. After working in construction most of my life I knew that they wanted inexpensive, simple solutions and they want an answer yesterday.

So I decided I would concentrate on that niche market because I relate easily to contractors and not many civil engineers pursue the work. I started seriously considering going out on my own after I was called out on an emergency. Slowly more calls started to dribble in as the word of my willingness to help contractors spread. For about seven (7) months I did various commissions on the side while continuing to work full time. I didn't fully appreciate what is like to be out on my own until I made the jump.

I got a lawyer to set up a Professional Corporation to limit personal liability. One major lawsuit can easily wipe out your assets. I also cannot afford a multi-million dollar liability insurance policy. Even though I am President, Treasurer and Vice President (as well as receptionist, bookkeeper, clerk and janitor) I have to have a formal meeting with myself and take minutes once a year to obey the articles of incorporation. I had to get an Employer Identification Number from both State and Federal IRS's. I also have to keep books and pay myself a salary out of the business proceeds. I also must pay out monthly and quarterly taxes. I have H&R Block working to keep me out of tax trouble. One friend who operates a small business told me it is 60% productive work and 40% file keeping. I am convinced. Because I have no major company property to depreciate or accrue I use the cash flow method to simplify bookkeeping.

First, we must be aware of the reasons small businesses fail. There are a number of reasons that include personal disaster. If you are disabled by disease or accident, you may not be able to actively support your business. It is prudent to carry a substantial health insurance, but now you must pay for it at several hundred dollars per month, unless you can get on your spouse's plan. But even that is commonly a significant extra expense.

Probably the most common problem is cash flow. Most small businesses take about three (3) years to become profitable. In any business there is investments to be made and normally a lag in payments. In the meantime all the usual living expenses will continue to accrue. You need a market for your talents in order to generate income. I went on the cheap as a one-man show. My initial expenses were a $300 Fax machine, incorporation lawyer fees at $1,200 and professional liability insurance of about $2,900 (paid in installments). My son had already built a state-of-the-art home computer for me. So for about $4,000 I started my working out of my home. With a $10,000 retainer in hand from my previous employer I went out to drum up business. My goal was to earn the equivalent to my salary the first year. I did that in the first nine- (9) months. But the cash flow lags and extra expenses put my income about equal to my previous employment earnings.

There are more hidden and subtle expenses, such as travel and taxes. While commuting is no longer an issue, I often travel over 100 miles to visit a client. These expenses are no longer reimbursed. Telephone costs are now higher at home. Office supplies must be absorbed. You now must pay the other half of FICA and Medicare taxes that the employer usually pays. All these extra minor expenses add up to $8,000 to $10,000 per year over and above normal living costs. Some of this will be recouped in tax deductions, but only about $1,000 of taxes can be saved. I have H&R Block working to keep me out of tax trouble. Even so I barely avoided a penalty when I send a tax payment to the wrong IRS address. My bank is a legal depository for monthly IRS payments. I pleaded ignorance and begged forgiveness; fortunately the IRS was very understanding.

If you want to go first class and open an office with all the latest gismos you can easily spent more than $50,000 just for yourself. Lease, plotter, computer, printer, desk, copier, cell phone, etc. costs will add up in a hurry. I don't buy anything until the need is demonstrated. You should research costs and figure cash flow for the first few months. Most of the time I am paid in about two (2) months, but I have a couple of deadbeats. A municipality owed me several thousand dollars for over six (6) months. I have no idea when or if I will get paid. I have decided to concentrate on working for private companies and individuals because usually a phone call will get you paid in a couple of weeks. At any one time, I expect to be about $20,000 in arrears. In any event, you should plan on having an income or saving that will fully support you and your business for at least six (6) months after you actually go fully on your own.

Many people fail because they think a few small successes translate into a get-rich-quick scheme. They over extend their resources by buying unnecessary luxuries and lavish self-entertainment. I have known several people who ended up being a flash-in-the-pan and broke because they lost sight of how they got there. One small contractor landed his first big job. The first thing he did was buy an XKE Jaguar and some expensive suits. He thought he had it made and stopped paying attention to his work. Before he even knew it, he had lost everything. Another young man inherited a construction business worth over $6,000,000 from his father. He was able to fritter every dime away in less than three (3) years. In order to be successful you must stay focused and committed.

I have expected and experienced busy and slow periods. About one third of the months are very good and about one third are very slow. Often I don't know how the next day will pan out. Recently I was planning to play golf on a Thursday and ended up being very busy, completing three (3) small commissions. No golf that day. Other days not even the Tele-marketers call.

The key to getting work is marketing. If no one knows you exist, you won't get any work. You have to build a clientele stable. First, you have to decide which part of the engineering market you wish to pursue. Then you must get the word out to likely clients. I decided to concentrate on heavy construction contractors. The word is slowly spreading, but no so fast that I turn down any commission that I am competent to perform. I have tried advertising and cold calls with very limited success. Mostly my work comes by word of mouth. A contractor will ask a friend if they know of a construction oriented civil engineer and my name may be mentioned. I also have some very good friends that are sales persons for a construction service and rental business that rents and sales trench support systems. We complement each other as I provide them an engineering service, which helps them promote sales. They make an effort to recommend me to their clients. A truly win - win situation. A few times a year I take them to lunch to show my appreciation.

I was contacted by an eminent author / engineer who was in the process of retiring and wanted to refer his business to me. What an ego boost it was to be noticed by such a distinguished gentleman. I immediately followed through and took him to lunch to get aquatinted. This immediately led to another meeting with another renowned consultant. That meeting resulted in referrals to a state government for expert services and also to an expert witness referral company.

The geographical area is important for several reasons. First, it is easier to start up where your name and reputation is already established. Secondly, the community has to be large enough to support your services. If you will work only in Podunk, Nowhere, you will probably starve to death. I live in the Phoenix, Arizona area. Phoenix is a rapidly growing area and I was here nine (9) years before I started on my own. This helped to jump-start my business. My local contacts know me and are more than willing to recommend me to others. Without these benefits and people it would not have been possible for me to succeed so early in my new endeavor or even make the attempt.

I actively try to promote new work. Whenever the opportunity presents itself it will hand out cards and let people know that I am available. This has led to some very interesting work. I met a diving contractor at one project site and within days he gave me two (2) commissions worth several thousand dollars. I have a casual agreement with an engineer that that works full time as a marketing director, but does civil engineering on the side. When he is too busy he refers clients to me.

Once you have a client in hand, you want them to keep coming back for more help. What does everybody want from a service company?

1. Timely service
2. Fair pricing
3. Quality product
4. The feeling that they are important to you.
5. Cost savings
6. The product they expect
7. Honest and expert advice

I deal mostly with experienced professional construction executives who are very knowledgeable. Most of the time they have a good idea of what will work and what is cost effective. After being in heavy and marine construction for 35 years, I think like a contractor. I know that they usually need an answer yesterday. Many of my commissions are small and can be accomplished in a few hours. Whenever possible I try to give them an answer the same day. Even though I try to arrange my appointments between rush-hour traffic. However, if it is important to them, I am available 24 hours a day, 7 days a week on a moment's notice. Sometimes contractors are only allowed to work at night and I have to meet them very late or very early. I don't grumble because they have no choice and want my help. I have been often told how they appreciate my prompt action.

I offer my best contractor clients free advice during the estimating stage. If they get the project, they usually remember me and I get a nice commission. I am flexible on pricing my work. I can work by the hour or fixed fee. I don't nickel and dime them for my auto commute or when they ask a question by phone. I do figure my fee portal to portal when I go to meet with my clients. When I give a fixed fee quote, I never ask for more even if I have to do more work than I anticipated, unless the scope changes. Sometimes I will give a range estimate. When I do offer a range, I always quote on the high side and always bill less. If I have to be available for long periods in the field to answer the occasional question or provide continual inspection, I reduce my hourly charge to 50% of my engineering rate. On large commissions I will agree to defer payment until the contractor is paid. Most of my agreements are handshake arrangements. I do ask for a purchase order number and details of the scope of the work.

Contractors need economical solutions to perform their work in a timely and profitable manner. To accomplish this goal I often design using materials and equipment the contractor has on hand or is readily available. The solution has to be workable and as simple as possible. I also try to help the contractor by offering better solutions than what they expect is necessary. For instance, I have been asked to design a pipeline shoring system where piles and lagging were alluded to by the specifications. In fact, the ground was so hard the trench could only be excavated using "tiger teeth" rippers mounted on a large crawler backhoe. To satisfy the specification of " Solid Sheeting" I designed the shoring system using plywood and hydraulic "Speed Shores". This saved the contractor several millions of dollars. The owner's construction manager became convinced when I explained that the ground was stable and pile shoring was virtually impossible.

Sometimes I can offer a simpler solution over the phone. A bore and jack contractor installed a 200 foot long by 60-inch diameter casing and grouted it in place nearly two (2) feet off elevation due to a survey mistake. The desperate contractor called me to design an internal support system so that the top half of the casing could be cut out so that a new casing could be installed. I knew the ground was firm and would easily stand, so I suggested that the existing casing be cut into about 20 foot lengths so that the casing could be jacked out with onsite equipment and salvaged for reuse. This saved hundreds of thousands of dollars. They insisted on sending me $100 for the fifteen-minute phone conversation. I figure the goodwill will come back to reward me in future referrals.

Before I start a design I make sure the contractor agrees and understands the solution. I also keep them informed if something must be changed. I do nearly all my design work on the computer, which not only saves a lot of time and design cost The computer also allows me to react quickly to any changed condition that may be discovered. I present a complete package that includes all necessary calculations, drawings and procedures that are stamped and signed. I usually fax these to the contractor to save time and money. I then call to make sure they received the fax and are happy with the solution. If they want some change, I will accommodate them if possible or explain why what I have done is necessary.

The goodwill of my clients is paramount. Their commissions are my primary source of income. I treat everyone as a knowledgeable professional, whether I am talking to a laborer or the president of the company. I answer their questions in a timely and thoughtful manner. I give full consideration to their concerns and ideas. Whenever possible I will incorporate the client's ideas into my design work. They often have good ideas and feel more comfortable if you can make their methods workable. Crew safety is a primary concern and I make sure everyone know that. They are important to me and I let them know that.

Making a first impression to prospective clients is very important. I try to show both self-assurance and a willingness to help. There is a real difference between displaying confidence and arrogance. A few people behave as arrogant snobs. I have found that such an aura is invariably just a ploy to cover incompetence. What a display of arrogance does accomplish is that no one wants to work with them. You want your customers to want to keep calling you. I have found that in order to be respected, you must first show that you respect the people you deal with. There is no such thing as a dumb question. The people I deal with are professionals who have their own areas of expertise. I try to give a complete answer in a way they can understand. I never try to snow them with technical jargon or brush them off.

I believe I am a good engineer, but I am not infallible. If I make a mistake, I admit it and correct it. The one place I will stand firm is on judgement. I will not put people at risk because a contractor wants to cut corners nor will I defer just because someone doesn't like my design. OSHA takes an ultra conservative approach to trenching in our area. To some extent for good reason, as there have been some needless fatalities in recent years. OSHA's attitude encourages contractors to come to me for an engineered solution. Occasionally an OSHA inspector or owner's representative does not like my design. Sometimes they want a gold plated solution regardless of cost to the contractor. Since the contractor employs me, I usually will not defer to an owner's request for change unless they can show a specific math error. I have never had one of my designs fail or cause injury to anyone.

If a contractor wants me to design something that I cannot justify, I will refuse the commission. A few years ago I was asked to travel to Canada to review a cofferdam design. After reviewing the design concept I told the owner in the review meeting I wanted no part of the commission. When I explained how dangerous the system would be, the owner agreed to change to a better plan. After the meeting, the principle engineer thanked me because he had been pressured into the design concept. He is a very capable and innovative engineer and it was a pleasure to work with him to develop a safe and workable scheme. The cofferdam was designed and installed with no problems and at about one half the cost of the original concept.

Personal liability is a significant concern. I do business under the protection of a professional corporation and carry liability insurance to protect my family assets. In this lawsuit-happy society that we must work in, it is necessary to assume that every document you generate will be an exhibit in court. I am very careful using accepted engineering principles and standard codes. Whenever prudent I include disclaimers with the design. Often designs for trenches and excavations are based on limited soil information. I always include a differing site conditions clause with the design.

In order to protect my engineering licenses I do not work outside the realm of my expertise. Each state that I am registered in sends newsletters that detail the disciplinary actions their board of registration has taken against engineers. Any complaint to a board of registration will be at least an inconvenience and may mean loss of license. Often other states will take complementary action. If that were to occur, I would be out of business. I am very careful to design and stamp my work in accordance with the accepted practices of each state I work in.

For 35 years I have tried my best to build a reputation of forthright honesty and design expertise. This attitude and experience is what is making me successful in my own business. I have never enjoyed my work more. I am meeting new people all the time, visiting job sites and providing a valuable service. I consider myself semi-retired but I am having the time of my life. I am working about one half time and earning at least my old salary. Yes, sometimes when the phone doesn't ring for a few days and I get a little worried. But overall being on my own is a wonderful experience. I don't have to put up with obnoxious bosses or punch a time clock. I don't miss the tedious estimate quantity takeoff grunt work or the endless and often mindless meetings. I enjoy getting out and meeting a lot of good people and being involved solving challenging and diverse problems.

Course Summary

Starting my own business was somewhat more complex than I envisioned, especially the tax laws and record keeping. Start up was an exercise in organized confusion on my part. But I was lucky to have so many people willing to help me. Before going out on your own you should have a good idea of the area of work you wish to specialize in. This includes the both the area of expertise and the geographical area. The most important part of start up is a client base that can be readily tapped for immediate income. Then you must stay focused and concentrate on providing timely and quality service to your clients.

Once you finish studying the above course content, you need to take a quiz to obtain the PDH credits.

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DISCLAIMER: The materials contained in the online course are not intended as a representation or warranty on the part of or any other person/organization named herein. The materials are for general information only. They are not a substitute for competent professional advice. Application of this information to a specific project should be reviewed by a registered professional engineer. Anyone making use of the information set forth herein does so at their own risk and assumes any and all resulting liability arising therefrom.