Profit Enhancement Situation

This client was an engineering company with a steady $1,500,000+ in revenue.

Problem

As the client said: "Prior to working with you, my partner and I had some management experience, but we did not know how to run our company.  We were trying to run an employee friendly company but our employees were taking advantage of us." Billable hours were high even though average hourly rates were below the market for the quality of the engineering services being offered. Employees were delegating upward and all were working long hours.

Insight

There were 2 office locations and a third storage area for records and drawings. The staff was being billed out hourly and paid hourly so the more hours you worked the more money you made.  We carefully reviewed the cost of the satellite office and discovered that while it represented 30 % of revenue it accounted for all the loss.  In fact the loss was so great in this location (which focused only on low profit government bid work) that the entire company was unprofitable.

Solution

First we created a specific process of following up and collecting monies due. Proactive collections made a huge cash flow difference. We changed all employees to salary compensation with bonuses based on profitability. This stopped employees from wasting the day so they could stay late and collect overtime getting work done at night at a time and a half hourly rate.

We discovered that engineers at the satellite office had given 3 months notice before they moved to the client they were serving.

Results

We convinced the owners to accept their immediate resignations and generated a $150,000 profit swing during the quarter since costs both fixed and variable were cut and prior invoicing was collected. The company turned around in 90 days.

We closed the unprofitable satellite office and consolidated in new efficient office space, A/R was reduced to 28 days. The single office reduced rent and utility expense by 27% while providing better working conditions, and more control.

As the client wrote: “I feel that you have saved our business from going under and saved us from bankruptcy"