Profit centers? Meh
April 16, 2018
Banish profit centers in small to midsize firms. Focus on your people by letting each do what each is best qualified to do.
An engineering, architecture or planning professional services firm can be very successful – maybe more successful – if it maintains a “one company” philosophy without multiple profit centers or a chief financial officer. The key priority should be to stay focused on people – employees, clients, teaming partners, our communities – and not measuring things that don’t matter.
Over the past 20 years, Mead & Hunt’s revenues increased from $10 million to nearly $110 million by using a “one company” business model and culture. We’ve grown from two civil engineering offices in Wisconsin to more than 30 offices in 20 states with very diverse service lines in multiple markets. Not only has Mead & Hunt been profitable every year despite economic upturns and downturns, but we have typically exceeded annual industry averages. Throughout this financial success and fast-paced growth, our employee turnover rate is less than 7 percent and we are regularly named a “best place to work.”
How? There is a lot at play, but two significant elements are: no high-powered, profit-driven CFO and no profit centers. Small to midsize companies (most companies in our industry are small to midsize) should function better using this model.
Do we have a CFO? Yes, but not in the traditional sense.
The traditional role of a CFO is to review financial statements to gain a perspective on past performance to forecast the future. The CFO analyzes financial data, compares that information with industry standards and metrics, and works with operations to develop and implement strategies to improve the company’s future performance. This approach means that the company is leveraging financial data that may not apply to their unique business model. Decisions are being made strictly on metrics instead of insider market knowledge.
At Mead & Hunt, our CFO does not worry about collections, bad debt, staffing projections, or claims. He relies on the project managers and operations employees to do their jobs well and leverage their industry and market insights to expand services. He and his team assist the operations employees by managing the financial and regulatory processes and our internal policies and procedures.
In my experience, A/E firms are more profitable when the operations managers are engaged in winning and delivering projects that exceed clients’ expectations, rather than a CFO (or CEO for that matter) monitoring irrelevant metrics. At Mead & Hunt, we compare ourselves against our best years of the past, not against other companies. Yes, we review some industry metrics. However, each company is unique and industry metrics are very generalized. Those comparisons therefore have limited value in my opinion.
We want our staff to take care of their clients and projects. We want them to deliver great projects that stay within budget, are delivered on time, and make our clients happy. And, we empower our corporate team (finance, human resources, IT, administrative support) to do their jobs. We want our professionals to do what they do best: employ their training, education, and experience to make Mead & Hunt successful
READ MORE in The Zweig Letter
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