Article


Succession Among Professionals
Managing a professional services firm
By Donald Feldman
Date Published: 10/1/2015

 

Chuck Hufnagel is a professional engineer and in 1988 started his own firm. He specialized in land development and his clients included developers and a number of municipalities in the Philadelphia suburbs for whom he acted as a consulting engineer. Chuck had an excellent reputation and developers, architects and municipal officials loved to work with him. In 2014, Chuck was 64 years old and engaged me to assist him with exit planning. Chuck’s firm had survived a crippling recession and was doing about $3 million in revenue with 20 employees including 2 key employees who were 51 and 54 years old.

Chuck initially stated that he would prefer to sell to his key employees if possible. He wanted to work for another 5 years but he was adamant on one point—he wanted to work on engineering projects of interest to him but he didn’t want to have any management responsibilities. As I learned more about Chuck’s firm, I began to understand his disinterest in management. The accounting system was poor and the bookkeeper level employee who managed the finances was incapable of producing monthly statements. Twice a year, the firm’s outside CPA would come in and produce a six-month operating statement. Job budgeting and cost tracking were primitive and the key employees were particularly bad at billing the projects they were running. The firm was home to some excellent professional engineers who weren’t particularly interested in running a business.

Now taking an engineering firm—or any professional services firm—from zero to $3 million per year in revenue is no small feat and the firm’s overall success was a testament to its excellent professional reputation and high level of customer service. However, the firm’s poor management was becoming a significant obstacle to its future growth. Chuck hired a business consultant at my suggestion who, after familiarizing himself with the situation, estimated that the bottom line could be improved by $75,000–$100,000 by making some basic management reforms. This was in fact achieved.

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