equity vs. debt capital trendlines - the zweig letter...debt. equity can be very expensive capital!...

T R E N D L I N E S

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F I R M I N D E X

M a r c h 1 2 , 2 0 1 2 , I s s u e 9 5 0

w w w . t h e z w e i g l e t t e r . c o m

Risk, growth, and capital balancing act

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xz TOP PLayER: Building on small successes. Page 3xz SEaRch Savvy: Remove the gauntlet from interviewing. 0xz FINaNcE: Out there fishing for credit lines? Page 11

HR budgets down

The percentage of a/E firms with a recruiting/human resources budget declined again this year, according to the 2012 Policies, Procedures and Benefits Survey.

Only 32 percent of respondents to the survey report to have a recruiting/hR budget, a 2 percent decrease from 34 percent in 2011. Last year, this number dropped 14 percent from a five-year high of 48 percent in 2010.

In previous years, the percentage of firms that reported having a hR budget had increased gradually from a low of 26 percent in 2005. – Margot Suydam, Survey Manager

T H E V O I C E O F R E A S O N F O R A / E / P & E N V I R O N M E N T A L C O N S U L T I N G F I R M S

HR | FINANCES U P P L E M E N T S

Pages 9 - 12

AECOM .................................................................. 6Cardno ................................................................. 12Clough Harbour & Associates ............................... 4Francis Cauffman ............................................ 5, 11Gryphon International Engineering Inc. ................ 4HR Green ............................................................... 9Infrastructure Engineers, Inc. ................................ 3Kleinfelder ............................................................. 5Miyamoto ............................................................ 12Thornton Tomasetti ............................................. 12

See MaRk ZwEIg, page 2

Mark Zweig

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Borrowing is much, much cheaper IF you have a successful, growing enterprise, Mark Zweig writes.

We had a long discussion in my entrepreneurship class the other night about using various forms of capital. It occurred to me that

if my largely business student class knew as little as they did about the pros and cons of various forms of capital that could be used to finance a business, our TZL readers may be in the same boat.

Let’s just start by saying that in the A/E/P and environmental consulting industries we seem to have a significant preference for equity versus debt. Most companies don’t think much about embarking on a plan to sell stock (equity) to some or all of their employees, while at the same time seeking to minimize all debt.

Why is this?

For starters, selling stock to employees is “the way things are done” in professional service businesses. It’s a big part of the culture of our industry and the expectation of many of our best people. We feel we have to “sell” them stock (give them stock) or they’ll all quit.

Second, we are scared to death of debt. “Debt is bad.” Our depression-era parents paid cash for everything and most of us – their children – still have a little guilt associated with borrowing even the smallest amounts of money. On top of it, we don’t like answering to a bank and are shaken by stories such as what happened to Cubellis in Boston, when their bank called their line of credit and put them out of business in December 2009.

On top of it, equity doesn’t have to be paid back IF the company performs poorly and loses the money, whereas debt usually does (and most debt taken on by A/E firms is personally signed for by the firm’s principals).

Equity vs. debt capital

Many firms don’t fully understand the ramifications of their preference for equity versus debt. Equity can be very expensive capital!

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ThE ZwEIg LETTER | MaRch 12, 2012, ISSUE 950

2 © copyright 2012. Zweigwhite. all rights reserved.

a/E BUSINESS NEwSONE tRIllION dOllARs: The cost of repairing and expanding U.S. drinking water infrastructure will top $1 trillion in the next 25 years, an expense that likely will be met primarily through higher water bills and local fees, a groundbreaking study by the american water works association shows.

The report, titled “Buried No Longer: confronting america’s water Infrastructure challenge,” analyzes many factors, including timing of water main installation and life expectancy, materials used, replacement costs and shifting demographics. Nationally, the infrastructure needs are almost evenly divided between replacement and expansion requirements.

The report is available at www.awwa.org/infrastructure. cities will be impacted in different ways depending on their sizes and geography. Many small communities will face the greatest challenges because they have smaller populations across whom to spread the expenses.

sustAINAbIlIty ANd REsIlIENCy: The U.S. green Building council and the University of Michigan’s Taubman college of architecture and Urban Planning released a landmark report that describes how green buildings advance resiliency in disasters. The report was released during the National Leadership Speaker Series on “Resiliency and National Security in the 21st century,” hosted by USgBc and IcLEI-Local governments for Sustainability USa. The report, titled “green Building and climate Resilience: Understanding Impacts and Preparing for changing conditions,” describes potential adaptive strategies available to green building practitioners. These strategies add an important new dimension to green building’s long-standing focus on reducing greenhouse gases through energy efficiency and renewable and low-carbon energy supplies. The report, which identifies the deep synergies between green building and resiliency, advances several firsts in the field, such as:

z Examining the implications of climate change for green building and identifies opportunities for resilience through the design, construction, and operation of buildings and communities

z analyzing how individual LEED credits support regional adaptation needs, such as enhanced water conversation in arid climates and water-sensitive regions

z Demonstrating how consideration of climate resilience in buildings can increase the likelihood of achieving performance goals throughout the lifetime of a project

MaRk ZwEIg, from page 1

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Mark Zweig | Publisher [email protected]

João Ferreira | Managing Editor [email protected]

Christina Zweig | Staff writer [email protected]

Tel: 800-466-6275 Fax: 508-653-6522 E-mail: [email protected] Online: www.thezweigletter.com Twitter: twitter.com/zweigwhite Blog: zweigwhite.blogspot.com

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The problem is that many firms don’t fully understand the ramifications of their preference for equity versus debt. Equity can be very expensive capital! Consider the case of “Bob,” a newly minted associate who is allowed to buy $20,000 of his firm’s stock. If the firm is growing by 20 percent a year and making a 10 percent profit, odds are that Bob’s shares are growing by at least 20 percent a year in value (if the stock valuation method or formula in any way parallels the market value of the stock) and he is getting a profit distribution in some way shape or form (could be disguised as bonus) of 10 percent or more of his share value. Add it up and you have a situation where Bob’s investment is turning out a 30 percent or better annual return. The typical A/E firm, during most of the last 20 years (the last three of four being exceptions), has consistently generated a 20- to 30 percent return on equity. Do this for five years in a row and Bob now has a valuable little nest egg. As the owners, we pat ourselves on the back for giving Bob such a great opportunity and for creating such fantastic returns on his investment.

Problem is what happens when Bob decides five years later to leave the firm and go to work for his company’s largest client. We now get to pay off his six-figure stock value and hope we can find six or eight other people with $20K each to invest, giving us the cash we need to pay off Bob’s shares.

If we had borrowed $20,000 from a bank, however (let’s assume there were assets we could use to secure this loan), we’d now only owe $15,000 back (assuming we paid down no principal) and would only have been out 6 percent or so annually for the interest. Borrowing is much, much cheaper IF you have a successful, growing enterprise.

On top of it, the owners would not have to give Bob the other special privileges owners get nor consult him on every major purchase or decision as is so often another part of the culture of firms in our industry.

Let’s take this argument a step further. Regarding sources of debt, I know of one firm owner who had

$400,000 in credit card debt that he used to provide the working capital for his growing firm. Today he is doing over $120 million in revenue annually and owns the whole thing. Yes, it took some guts to go that far into debt but he had the confidence in himself and his plan to make it work, and pulled it off. Most A/E principals would never even consider doing something like this. For most, if they could keep 10 percent of their firm and get it to $120 million they would be happy.

So why do we sell stock and avoid debt in this business? It’s more than cultural habit or ignorance. The reason we do it is to get those people we don’t want to lose, or cannot afford to lose, tied down. We want them to care about our business as they would their own (because it is part of their own). We want them to watch out for their investment and help make it grow.

The point is: there’s a balance that has to be struck between equity and debt. Understand the ramifications of each source of capital and then periodically revisit the path you are on. The pendulum may need to swing one way or another depending on the state – and needs – of your business as well as your own personal risk profile. MaRk ZwEIg is the chairman and cEO of Zweigwhite. contact him with questions or comments at [email protected].


3

hot Firm leader loves challenges and is always looking to push the envelope.

It may be tongue-in-cheek, but one can’t blame David Reser for lack of

ambition – he wants to buy giant URS in 20 years.

Ambition surely describes Infrastruc-ture Engineers, Inc. (Saint Cloud, FL), a 65-person transportation engi-neering firm Reser founded in 1994. He currently serves as CEO.

The firm is No. 56 in ThE ZwEIg LET-TER 2011 Hot Firm List.

In this interview, Reser describes how an earlier experience in the U.S. Army helped him understand the fundamen-tals of accomplishing success.

He also talks about the basic tenets be-hind his firm’s success and where the engineering industry is heading.

ThE ZwEIg LETTER: what does it mean to be a hot Firm?

David Reser: For our firm, this recog-nition validates the hard work and ded-ication of our staff.

TZL: how did you get where you are today?

DR: An outstanding education, experi-ence, hard work and good luck.

TZL: Do you remember your first paid job? what did you learn then that still influences the way you work today?

DR: My first paid job out of college was rather unique and requires some expla-nation. I was commissioned as a second

lieutenant in the U.S. Army and had several months before report-ing to active duty as an engineer-officer.

I was young and need-ed experience, so I con-vinced the ROTC Cad-re at Oklahoma State University to let me sign up with Oklaho-ma’s National Guard as a platoon leader in an infantry company.

My first drill was the annual two-week train-ing that focused on the evaluation of unit read-iness. I quickly discov-

ered that my platoon was comprised of all of the misfits and troublemakers; no one in the battalion wanted to work with them.

Initially, I was terrified and had no idea where to begin, but ultimately was suc-cessful in building a cohesive unit.

The platoon even received an award. I learned that even in the most hopeless situation, success is possible.

You can accomplish anything by stay-ing calm, breaking a daunting task into smaller units, exercising good leader-ship fundamentals and focusing on small successes.

TZL: what is it in your DNA that drives you to success? Is it audac-ity and risk-taking; a can-do at-titude and a relentless pursuit of perfection; something else more abstract?

DR: What drives me is challenge. I love a challenge. Once we approach the achievement of one business goal, I am looking toward the next one. I also like to push the business envelope.

TZL: In today’s difficult business climate, what does it take to suc-ceed? Is the spectrum of failure a motivator?

DR: Engineering firms that are success-

ful in today’s economic environment have good senior managers, a dedica-tion to client service and quality and a creative and supportive staff.

TZL: where do you see this indus-try in 10 or 20 years? what trends are influencing it? what about your company?

DR: Our firm operates in the transpor-tation industry, which I see as moving toward more public-private partner-ships for transportation needs. Our current funding model is not sustain-able. As for my company, we plan to buy URS in 20 years.

TZL: Do hold someone as a special mentor? how did this person influ-ence who you are?

DR: The person that most influenced me is my mother. As a single mom rais-ing two kids in rural Oklahoma, she worked all day and went to school at night to improve our lives. She taught me the value of hard work and family.

TZL: what’s the one trait you most admire in people and why?

DR: Honesty. Without it, our relation-ships and successes mean nothing.

TZL: Describe the most challenging thing you have ever done/the big-gest challenge you have taken on outside of work.

DR: Raising my children – challenging and rewarding.

TZL: what question would you ask of another hot Firm leader?

DR: I would ask, “How have you han-dled the internal friction generated by rapid growth?”

TZL: what lesson learned would you pass along to a recent college graduate embarking on a career in the A/E/P and environmental con-sulting fields?

DR: Be patient. You must become a technical expert in your field before you can run the company.

T O P P L ay E R

David Reser, CEO, Infrastructure Engineers, Inc.

“you can accomplish anything by staying calm, breaking a daunting task into smaller units, exercising good leadership fundamentals and focusing on small successes.”

Building on small successes



S U R v E y

New survey shows low levels of activity, but consistent themes emerge about who, what and why.

By chRISTINa ZwEIgStaff writer

Merger and acquisition activity is still slow, and unlike the real es-

tate market, it may be because demand is greater than viable supply.

In 2011, deal volumes showed many smaller and mid-sized firms buying their struggling competitors, but the A/E/P and environmental consulting firm marketplace is still lacking a vital component for a prosperous M&A mar-ket: healthy, high quality, mid-sized firms interested in being acquired.

In the most recent edition of ZweigWhite’s Merger & Acquisition Survey of Architecture, Engineering, Planning & Environmental Consult-ing Firms, W. Hobson Hogan, a con-sultant with ZweigWhite, said, “In all transactions, there has to be a will-ing buyer and a willing seller. In recent years, the market had many more buy-ers than sellers. The larger firms, which make many acquisitions every year, re-mained in the market, looking to drive their growth through M&A.”

The survey indicates that less than a quarter of respondents report they’ve made an acquisition in the past five years and only 3 percent merged with a firm. Still, 61 percent of respondents said their firm’s strategic plan involved a merger and/or acquisition within the next five years.

“After a big drop off in the number of deals in 2009, the last couple of years saw virtual stagnation,” Hogan said. “Is this year the year where the tide turns, and we begin to grow M&A volume? I think the answer to that question is a ‘yes.’ However, it is not likely that, un-der the still uncertain economy condi-tions in which the industry finds itself, we will see a precipitous climb back to the lofty deal volumes of 2007.”

Buying to compete. The Merg-er & Acquisition Survey revealed that among the few firms looking to make an acquisition, the highest-ranked rea-sons for buying are adding clients and expanding geographically.

A few recent acquisitions exemplify the trend.

In the last quarter of 2011, Clough harbour & Associates (Albany, NY), 700-person a full service engineering firm acquired gryphon Internation-al Engineering Inc., a power and en-ergy engineering firm headquartered in St. Catharines, Ontario.

According to a release, the acquisition brings the firm’s total number of offic-es to 30 with a staff of more than 725 employees.

“As a result, CHA’s geographic reach will extend into international territo-ry as St. Catharines will be the first city outside of the United States to host a CHA office,” Raymond Kinley, Jr., CHA’s President, said. “The acquisition of Gryphon supports CHA’s strategic initiatives – particularly our desire to grow in the power generation and en-ergy sectors.”

Through the acquisition, Gryphon’s cli-ents gained access to CHA’s full range of services. Conversely, CHA’s clients will now have access to Gryphon’s ex-pertise in thermal power generation, boilers and steam plants, district ener-gy systems, instrumentation and con-trols, electric transmission and distri-bution systems, and substations.

The Merger & Acquisition Survey found that 30 percent of firms were seeking to acquire a firm in the power/utilities market sector. Other top market sec-tors included commercial development (60 percent), and municipal, healthcare and federal (all 50 percent).

Stantec (Edmonton, AB), a 11,000-per-son multidiscipline firm with 170 loca-tions in North America and four loca-tions internationally, is another firm looking to expand geographically and strengthen its presence in energy mar-kets.

Stantec acquired five companies in 2011 (QuadraTec, Inc.; Caltech group; Bonestroo, Inc. and Bon-estroo Services, LLC; FSC Archi-tects and Engineers; and ENTRAN, Inc.). According to a news release, the firms added 725 staff to Stantec’s One Team; strengthened its presence in the U.S. Midwest and Southeast; and ex-panded its presence into all Canadian provinces and territories with new lo-cations in Nunavut and Yukon.

With such a complex group of transac-tions, integration undoubtedly rose as a challenge.

“Like every acquiring company, we ad-dress the traditional name and brand identity issues that come with the in-tegration process, but effective inte-gration starts much earlier than that stage,” says Eric Nielsen, senior VP at Stantec. “Before the acquisition even takes place, buyers and sellers need a truly open assessment of the opportu-nities and challenges that exist, so that integration plans can address those is-sues in the appropriate timeframes. Ul-timately, the process should result in mutual trust, loyalty, and respect.”

The additional services and client re-lationships from these acquisitions strengthen Stantec’s platform for growth in expanding sectors such as oil and gas, and also help align Stan-tec’s interest in emerging markets such as shale gas, as well as alternate proj-ect delivery models which continue to gain traction in the United States, the release said.

“Stantec continues to operate effec-tively and grow consistently, despite a challenging business environment in 2011,” said Bob Gomes, Stantec presi-dent and CEO.

“The diversity and strength in our re-gions and practice areas allows us to continue to deliver solid operational re-sults. This will continue to be our focus, and we remain on course to achieve our long-term strategic objective of provid-ing integrated services to our clients, which ultimately results in growth.”

Dearth of targets in M&A


5

walking the tightrope requires research, strategy, discipline, and knowing the market.

By LIISa SULLIvaNcorrespondent

Often firms have to perform a bal-ancing act between risk, growth

and maintaining a healthy level of op-erating capital. That’s a lot to juggle, but it’s certainly possible with the right strategy.

Top tips. William Siegel, president and CEO of Kleinfelder (San Diego, CA), a 2,000-person, employ-ee-owned engineering, science and architec-ture consulting servic-es firm, offers the fol-lowing tips for walking the tightrope between all three:

1) Risk what you can afford. Growth does take capital and every firm, es-pecially in these challenging economic times, needs to be mindful of their financial health. Almost every firm can risk some capital and leaders just need to make sure that the firm will be fine if the risked capital is lost.

2) Make your risks strategic. Don’t waste capital on random targets, op-portunities that are not well researched, or something that just popped up. First set your overall strategy, and then make sure that all your investments are com-pared against and in alignment with your strategic direction.

3) Be realistic. It is easy to fall in love with an idea or a project, but your inter-ests are best served by fully

accounting for all costs and efforts as-sociated with your growth. Set invest-ment criteria and ex-pectations in advance and stick to your plans. It’s easier to keep throwing good money after bad when things are not work-ing correctly than it is to stop the project. Similarly, it’s easy to get caught up in the euphoria of new growth and start putting more money in than planned, inadvertently adding to your risk.

Invest in people. James Crispino, president, Francis Cauffman (New York, NY), a 100-person architectural, planning and interior design firm, says that the number one key to balancing risk, growth and operating capital is to keep overhead down.

“We make an effort to keep non-bill-able staff to a minimum,” Crispino says. “Typically, non-billable staff such

as marketing, IT and administra-tion is kept to about 12- to 14 percent. We also try to ensure that our principal-lev-el personnel are high functioning and highly profit-

able through performance-based com-pensation incentives.”

Crispino explains that investing in people is the most important way to balance the tightrope between risk, growth and maintaining a healthy level of operating capital.

“You need to spend cash and invest time in strategic hires; it’s important to build relationships as it’s those peo-ple you rely on to build client relation-ships,” he says.

Analyze markets. It’s also impor-tant to know your markets. For ex-ample, Crispino says that traditional growth areas such as healthcare were bursting at the seams a few years ago,

but that has changed.

“Healthcare has somewhat flat-lined and there is now a greater level of com-petition when it comes to firms com-peting for that same business,” Crispi-no says. “As a result, we have been pur-suing new markets, such as financial, legal and technology. These areas are not as competitive.”

Francis Cauffman has pursued these markets with strategic new hires in New York and a recent new office addi-tion in Washington D.C. It’s these de-cisions that will help to deepen their growth in the legal, finance and the tech industries.

“It’s simple – you have to take risks if you want to grow,” Crispino says. “But there are strategic ways to do it.”

Siegel actually sees not growing as far riskier than growth. He explains that the key is to have “good growth.”

“Good growth creates opportunity for employees, expands a company’s expe-rience, skills and abilities, and adds to shareholder value through increased revenue and profits,” Siegel says. “Not growing can lead to stagnation, the loss of good employees, and the poten-tial loss of clients as the market pass-es the firm by. Bad growth eats away at a firm’s financial health, erodes profits, and is a huge distraction for the man-agement team.”

The bottom line is that good growth is targeted and follows specific strat-egies or goals. It requires investment, but that investment is returned in a reasonable time frame and at a reason-able rate of return. Provided that the growth is strategic, within the capacity of the firm, and provides a reasonable return, it’s generally not risky.

S T R aT E g y

William Siegel, President and CEO, Kleinfelder.

James Crispino, President, Francis Cauffman.

“It’s simple – you have to take risks if you want to grow. But there are strategic ways to do it.”

Risk, growth, and capital balancing act

“good growth creates opportunity for employees, expands a company’s experience, skills and abilities, and adds to shareholder value through increased revenue and profits.”



There is a concept in quantum mechanics called “entanglement.” It has to do with particles that

are somehow twinned. A force on one particle is instantaneously mirrored in the other particle – no matter how far apart they might be.

I believe the concepts of diversity and sustainability are so entangled.

To understand the import of this analogy I should begin by describing “sustainability.” Like diversity, the word sustainability stands for a set of ideas that can’t actually be captured in a word, thus allowing for an almost infinite set of meanings. Over time, we have reached a framework of discussion that is generally accepted by most. Sustainability is “meeting the needs – economic, environmental and social – of the present without compromising the ability of future generations to meet their own needs.”

What is important to note about this definition is that it is, like diversity, a people-centric vision. Sustainability is too often considered an end in itself: a green building, a wind farm, a piece of environmental legislation. However, sustainability is not the end, but the means to an end; that end being a happier, more equitable, more secure present and future for all people.

The systems that sustain us are profoundly complex. We live in a world where economic, environmental, human and social systems intersect and intertwine at myriad points around us. My entanglement analogy holds true here as well. Any intervention in one system has an impact, either positive or negative, on another system because everything is interconnected and interdependent. Sustainability is about mastering complexity. It requires that we understand the connections between economic, environmental, social and human capital in a vast number of contexts if we are to leverage opportunity and manage risk to secure a better life for all people. It is impossible to effectively address complexity without a diversity of experiences, insights and perspectives being brought to bear on the problems we need to solve. Of the four

kinds of capital mentioned above, human capital – and here I mean human intelligence, not just labor – is the most critical. It is the only natural resource on the planet that is improved, rather than diminished, by use.

Given the immense complexity of today’s problems and the need to address each issue in context, not just in depth but also in breadth, the solutions can be born only out of a great diversity of points of view working toward common objectives.

In my experience a major barrier to making more responsible decisions about the present and future is the number of individuals and groups active in the discussion who are absolutely certain about things for which certainty is irresponsible. One particularly virulent form of this phenomenon is the propensity of groups to be certain about the values, motives and desires of others without ever actually having an honest discussion about these matters.

The more inclusive and the more diverse the group of decision makers is, the less likely it is that the solution will favor the interests of one group at the expense of the ultimate goal: improving the lives of the population as a whole.

Sustainability is about creating the circumstances that allow improvement in people’s lives, all people’s lives. It is essentially a political exercise supported by rational techniques. Einstein had some pithy advice for engineers and all those whose tendency is to rush straight to a technical solution to an immediate problem: “Concern for man and his fate must always form the chief interest of all technical endeavors. Never forget this in the midst of your diagrams and equations.”

The drive toward more sustainable outcomes fails when we do not focus sufficiently on the big questions that shape our future. For most resources, innovation will likely allow future generations to succeed without regard to our consumption. However, back to our entanglement argument, failure to meet the basic health and nutritional needs of the present will have consequences for human intelligence and the capacity to learn – two prerequisites for innovation.

Human society’s progress depends upon us finding ways to translate the real needs and desires of all people into a more constructive approach to the future. This is only possible through engaging all members of society in a discussion about what a better future looks like for them. We cannot afford to be arrogant and judgmental; we cannot label people as “ignorant” or “unimportant” simply because they do not share our viewpoint. The solutions to today’s complex problems can only arise from our great diversity of culture, experience, expertise, history and gender. Better answers start with better questions. Better questions start with diversity and inclusion.

gaRy LawRENcE is vice president and chief sustainability officer at AECOM.

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Gary Lawrence

Diversity and sustainability entangledconstructive approach to the future involves engaging all members of society in a discussion about what a better future looks like for them.


7

As we search for good news about the impending economic turnaround we have all been waiting

for, there seems to be a mix of good and bad. One day we hear that unemployment is declining, a sign that businesses are hopeful and starting to recover. The next day we are thrown back into the fear of anoth-er recession due to credit problems oversees and our own potential government insolvency. These are defi-nitely difficult times to be a design firm principal and it is anyone’s guess as to whether we will see feast or famine in our future. So what should you do?

I have lived through several tough economic down-turns, yet none quite as deep or confusing as this one. I have seen clients go out of business, reorga-nize, sell out to the big guys, and severely downsize. Through layoffs and cutting the fat out of the budget, many companies were able to stay relatively profit-able and maintain the status quo for the last couple years. But just like a bad rain after a hurricane, there are still potentially tough times ahead, and today’s strategic decisions and investments are more important than ever.

While it may not be time to go out and start spending freely yet, there are still key decisions that need to be made to insure our firms are strategically focused in the right areas and competitive. If you believe

your business is an ongoing concern – it will be doing business in the future – then you need to make sure you have the tools and strategy to be competitive. There are several key areas that we have to take care of in our businesses in order to succeed, and keeping a clear focus on how to invest strategically will ensure we are able to not only weather the storm, but come out profitable and ready to tackle the eventual economic improvement.

z Strategic planning. If you haven’t developed a detailed strategic business plan before, now is definitely the time to start. Having a clear vision for the future, with well-laid-out milestone goals (annual, quarterly, monthly) can give your staff the focus they need to succeed. You wouldn’t drive without a clear destination and directions, and steering a business in the right direction is no dif-ferent. For an excellent resource on how to create a simple business plan and get your entire team or-ganized around it read, Mastering The Rockefeller Habits, by Verne Harnish.

z Budgets. Knowing what you plan to bill and spend each month can help you make better business de-cisions and determine the correct timing for capital expenditures and other investments. The budget will be a direct result of having a well-laid-out busi-ness plan that addresses the underlying assump-tions of the “who, what, when, how, etc.” of your business. The budget will serve as a guideline to let the owners and other key managers assess the per-formance of the company against expectations and make adjustments before revenues and expenses get too far off from manageable variances. Project budgets with real time reporting can make a huge difference in helping project managers stay on top of project costs and avoid overruns.

z Hire a good outside CPA and lawyer. While the “big guys” can afford to have CPAs and other financial experts on their staffs, small businesses usually have to outsource these resources. This can leave a smaller company with a competitive disadvantage when it comes to credit, cash flow management and contract negotiations. By investing a bit more up front, you can avoid costly problems with insuf-ficient contract terms, HR and payroll problems, tax issues and dips in cash flow that severely affect your ability to pay employees and creditors and keep the business operating. A good professional is expensive but can save you money in the long run.

z Eliminate inefficient processes for employees. As your employees work hard to keep projects on bud-get and on schedule, they need the right tools and processes to ensure they are operating efficiently. Because labor is one of your key assets, making sure that proposals are able to be prepared effi-ciently, time and expenses are captured accurately, and client invoices are billed and collected quickly is key to keeping your company operating smooth-ly. If employees have lots of manual or redundant processes, unclear guidelines for making decisions,

See JEwELL, page 8

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JuneJewell

There are several key areas that we have to take care of in our businesses in order to succeed, and keeping a clear focus on how to invest strategically will ensure we are able to not only weather the storm, but come out profitable and ready to tackle the eventual economic improvement.

Growing your business in times of uncertaintyImproving efficiency, reporting and infrastructure now will have a big impact on the bottom line and allow firms to position themselves for real growth when economic conditions improve.



and inconsistent methodology for managing the day-to-day operations of the business, they will not be able to maximize profits and, in turn, keep clients happy. Ineffi-ciency has a high cost, and understanding how to reduce this cost can pay off big time. Ensure that you have clear documented processes and procedures for all the things your employees do, and good systems to ensure controls are in place and transactions are recorded accurately.

z Improve your systems. One of the key ways to improve overall efficiency for the organization as a whole is to automate as much of the repetitive processes as possible. This will provide many cost savings to the company, such as reduced time spent on spreadsheets, better internal controls to improve accuracy and reduce the risk of fraud, and more timely information on project status for proj-ect managers and executives for better decision-making and reduced project budget overruns. In addition, auto-mated processes and a well-managed financial manage-ment, sales management and marketing system (CRM) will increase the value of the company for eventual sale or ownership transition.

z Look at the cloud. Systems are changing and we are be-ing increasingly bombarded with information about the cloud. With hosted, SAAS, and managed services offer-ings becoming increasingly more available, there are more choices than ever. We have been using cloud com-puting for years without really thinking about it – online banking, outsourced payroll, online purchases and even social media are ways of processing and storing data on the web. As there are few things more confidential than our banking and payroll data, you already trust the con-fidentiality of your private information to institutions. Now more of the systems that have been traditionally de-ployed on internal servers are available on the web. You may be able to recognize both short- and long-term cost savings by selecting cloud-based systems such as email, document storage, accounting and CRM applications and other frequently used applications. Cost savings are usu-ally most achievable in IT hardware and software licens-es, salaries and outsourcing costs, and disaster recovery processes. Cloud computing can be a good alternative next time you decide to upgrade your systems, and pro-vide both risk reduction and improved performance.

z Is it time to invest? I cannot provide a clear-cut answer to the question of when is the right time to invest in your business. If you have been holding back for several years waiting for the right time to improve your business op-erations and systems, then you may find yourself years behind the industry and your competitors when the market improves. Improving your company’s efficiency, reporting and infrastructure now will have a big impact on the bottom line and allow you to position yourself for real growth when economic conditions improve.

If you have questions about finance or business technology, please submit them me and I will answer them in a future column.

JUNE JEwELL, is president of acumen advisors, which helps a/E firms find opportunities, win business, deliver projects, and manage their organization. Reach her at [email protected].

JEwELL, from page 7 caLENDaRsOlvINg tHE CAsH FlOW PROblEM: growth – even profitable growth – without good cash flow can ruin your business.

It is a fundamentally unsustainable position unless you have a rich uncle who is willing to kick in the cash you need to meet payroll or other obligations any time you need it. For the rest of us, we have to maintain a decent cash flow. we don’t want to run out of money or jeopardize our credit facilities. cash to pay our bills is essential.

Smart cash flow management is key to the success – and survival – of your firm. careful planning and adherence to best practices for cash management will keep your firm healthy. This seminar will provide the tools and other information you need and show you the specific steps to take right away to gain control of your firm’s cash flow.

why you should attend this seminar:

z Taking a decisive approach to cash management is critical to survival

z Economic realities are taking a toll on company cash flow and planning

z Many clients are squeezing their professional service providers.Find out how to counter that.

z Losing control of cash flow is a slippery slope that can lead to the end of your firm

This course is a must for everyone running an architecture, engineering, or environmental consulting firm who wants to make sure they always have the cash they need when they need it.

cEOs, cFOs, cOOs, presidents, principals, department and division managers, finance and accounting managers can all benefit from the thorough and practical information that will be presented. Upcoming dates include april 5 in kansas city, Mo., and april 26 in Boston.

For more information or to register, call 800-466-6275 or log on to www.zweigwhite.com/seminars/ cash-flow/index.asp.

2012 M&A Survey: Is your firm considering a merger, an acquisition, or a sale? Or have you recently completed a merger or acquisition transaction? If so, then you’ll want to see the survey results in the 2012 Merger & acquisition Survey of architecture, Engineering, Planning & Environmental consulting Firms. The 22nd edition of this comprehensive report includes all the latest data on the state of merger and acquisition activity in the design and environmental consulting industry.

If you’re interested in a merger or a sale, you’ll be able to use this data to find out if there’s a market for your firm. Find out what types and sizes of firms buyers are looking for, and see what price you can expect to receive for your firm. See if buyers are still buying, or if the economy has cooled the market. If you’re interested in an acquisition, you’ll find out how successful other firms’ acquisitions have been and what you can expect to see in a purchase price. Other acquisition data included are the length of time it takes to buy a firm and whether firms are using asset or stock purchase deal structures to make acquisitions.

If you’ve recently completed a merger or acquisition deal, you’ll see how the price you paid or the amount you received compares with other similar deals and you’ll be able to compare other important details such as the degree of success or failure of the deal.

For more information or to buy a copy, call 800-466-6275 or log on to www.zweigwhite.com/zw-1131.aspx.

growth opportunities and healthy perks foster high retention.


In business since 1913, hR green was founded by a

young civil engineer named Howard R. Green. Over the next several decades, the firm grew and established a reputa-tion for technical innovation, community leadership, and ac-countability to the business concerns of its clients. Since Green’s death in 1969, the firm continues to grow and diver-sify. A hallmark of its business approach is its willingness to evolve, as needed, to meet the timeliest needs of its clients and their communities.

HR Green, based in Cedar Rap-ids, Iowa, offers professional engineering and technical con-sulting services throughout the United States and beyond. It helps public and private sec-tor clients to design, construct, own and operate successful en-terprises in five markets: trans-portation, water, governmental services, senior living, and en-ergy.

Embracing entrepre-neurial spirits. HR Green is also an entrepreneurial company that em-ploys professionals who seek a high-performing, client-focused enterprise that leads in the markets it serves.

“We accomplish this by hiring highly motivated people who share our values and priorities,” says Walter Hoeppner, vice president, chief HR officer, who has been with the firm for one year. “At HR Green, people will find challenging opportunities in an environment that recognizes and rewards exceptional performance. We seek experienced in-

dividuals capable of delivering a wide range of value-added services to our cli-ents while helping them to confront to-day’s critical issues head on.”

With 365 employees and 13 offices in nine states, HR Green places special fo-

cus on employee engagement, satisfac-tion and loyalty.

Growth opportunities. Flexibil-ity and career advancement continue to be top reasons for employees to stay on board.

“As I began raising a family, the flexibil-ity of my supervisors in giving me the ability to work from home has been vi-tal,” says Dawn Horner, a project direc-tor in the South Dakota office, who has been with HR green for 14 years. “The company has provided me with great mentoring and several opportunities to

grow and move throughout the various office locations. I still feel there are op-portunities for me to grow within the company.”

Healthy perks. Michael Halde, a project manager who has been with HR

Green for 12 years and works out of the Des Moines, Iowa office, says that, “One of my favorite benefits is the employee fitness member-ship reimbursement pro-gram. This program gives me freedom to choose fit-ness clubs that accommo-date my schedule. I even used this program to obtain a membership at a nearby pool, where I swim over my lunch hour. This arrange-ment allows me to fit more training in during my avail-able time, and has helped me to achieve my competi-tive goals as a triathlete.”

Perks benefit re-cruitment and reten-tion. “HR Green perks and benefits are incorporated in all phases of our recruit-ing process,” says Erin Du-sil, HR business partner at the Cedar Rapids office. Du-sil has worked for HR Green for five years and says that, “On the front line, our re-cruiting brochure includes

quotes from employees regarding the perks having most value to them. Dur-ing the interview phase, information regarding our benefits is shared with candidates. HR Green ‘offer letters’ re-inforce the immediacy with which the majority of our benefits take effect. Then, when a new employee begins work, our onboarding process includes one-on-one consultation with our ben-efits’ administrator to ensure that em-ployees understand the company ben-efits so that they may take full advan-tage of them.”

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HR Green staff at work during a public meeting.

Motivated force makes HR Green shine

“at hR green, people will find challenging opportunities in an environment that recognizes and rewards exceptional performance. we seek experienced individuals capable of delivering a wide range of value-added services to our clients while helping them to confront today’s critical issues head on.”

See hR gREEN, page 12



Often times the HR community takes extensive measures to ensure that hiring managers are

trained in effective interviewing techniques. As well they should – effective interviewing is a critical component of a sound selection process. But another critical component to fair and effective selection (though often overlooked) is the diligent preparation of candidates before the interview. It should be the objective of every recruiting enterprise to prepare candidates with the intent to see them succeed in the interview process. Yes, you read that correctly. If that statement surprises you, then you are exactly the person I hope to address in this article.

By “succeeding in the interview” I don’t mean that candidates should be prepped in a way that intends to promote their selection. What I mean is that your candidates should be given every possible resource to be as informed and competitive as possible in the interview, while still keeping the selection process equitable and fair. There must be a fundamental reversing of the traditional philosophical approach to selection if you are going to secure the market’s best and brightest talent. For starters, that means doing away with this pervasive mindset that relegates the professional interview process to a psychological gauntlet of sorts. You may scoff at that remark, but, honestly, our approach to “selection” usually takes on the appearance of “deselecting” everyone else. In other words, it is not a process or mindset aimed at candidate success that characterizes our selection philosophy. Rather, we typically set forth a process and mindset aimed at candidate attrition.

That does not mean an interview should not be very challenging – it should. That does not mean that candidates should not be held to a high measure of performance – they should. What it means is that we should do everything we can to educate and equip candidates as much as possible before the interview, in order to position them to be as successful as possible while not compromising equity and fairness. To embrace this you must first embrace the key philosophical ethic of respect for the individual. This is a seemingly waning attribute at many firms, but we must remember that candidates are not merely assets to be acquired. Rather, they are always, always

human beings who potentiate a relevant ability to impact your business positively. I hope this is a perspective that characterizes the culture of your hiring community and HR team. Are you diligent to equip the candidates you intend to interview comprehensively ahead of the interview session, or is there an almost clandestine aura surrounding the anticipated interview day? The latter tends to be true in many cases. We tend to think that the interview process, the format of the interview, the types of questions that will be asked, the people that may be involved, their character traits and countless other details should all be kept hidden from the candidate in some kind of covenant corporate secrecy until the candidate has taken a seat in the interview room, where we can begin to unleash our surprising interrogation of human discovery. (Ok… maybe I overdid it a bit, but you get the point.)

The interview is not a gauntlet, it’s a forum; an exchange of ideas between people intended to determine mutual relevance for employment. So let’s put forth an effort that positions candidates to succeed, rather than one that exacerbates failure. What follows are three recommendations with that end in mind.

1) Pre-interview call: Schedule a 10- to 15-minute pre-interview call with candidates two or three days before the interview. The purpose is to put the candidate at ease by addressing any last minute questions, discuss-ing logistical details, offering suggestions around in-terview attire (may vary from company to company), arrival time, etc. This is also a great time to discuss the design of the interview day. Discuss the number of interviewers, discuss the interview format (panel or one-on-one), discuss the expected duration for each interview. Be sure to provide names/titles and charac-teristics of the interviewers. Finally, discuss the culture of the firm and point them to resources with which to research the company further. Simple, right?

2) Interview itinerary: Provide a clear and professional itinerary in advance of the interview (Yes, even if it’s just one interview). This itinerary should re-commu-nicate some of the components discussed in the pre-interview call (logistics, arrival instructions, interview times, interviewer names/titles). Make it a practice to issue the itinerary at least two days ahead of the inter-view. Be sure to embed/attach it within a confirmation email to the candidate and don’t forget to provide the candidate with appropriate contact details in the event of complications or delayed arrival. Good details always give candidates a little more confidence going into the interview.

3) Catalogue accomplishments: Help candidates

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Jeremy Clarke

See cLaRkE, page 12

There must be a fundamental reversing of the traditional philosophical approach to selection if you are going to secure the market’s best and brightest talent.

Remove the gauntlet from interviewingInstead of setting candidates up for failure, set them up to be as successful as possible.

They are harder to obtain and should be used only for operations or to finance growth.


A line of credit could provide a life-line for a firm during difficult

times and a bank’s decision to cut the cord could mean the end of the road for firms in perilous positions – and there are sad reminders out there.

Experts say credit lines are harder to secure than ever.

“As a result of defaults and losses suf-fered by the banking industry in the last three years, bankers have become cautious and are managing their mon-ey tighter, becoming more restrictive with lending policies, and making such credit more difficult to obtain, especial-ly by small firms and more especially by small firms with modest net worth,” says Peter Piven of Peter Piven Man-agement Consultants in Philadelphia. “But, there are ways around it.”

Who should avoid/pursue credit lines? According to Piven, there are two types of firms that should avoid using credit lines altogether. They are: Firms with leaders who are per-sonally risk-averse and prefer to oper-ate on a cash basis without borrowing; or firms that are well-financed, either from initial and subsequent invest-ment or by retaining profit, and being taxed accordingly.

Other firms should only consider a line of credit for either nor-mal operation, when available cash is insuf-ficient to meet cur-rent expenses, or when growth requires addi-tional working capi-tal. However, having a source of funds in the form of a line of cred-it from a willing bank

often means using (drawing down) the line – but only when necessary.

Firms can meet their needs for working capital if they operate profitably and consistently, especially with regard to consistent turnover of accounts receiv-able. However, even with consistent collection rates, firms that grow require additional capital to fund the gap be-tween disbursing the funds needed to provide services (salaries, etc.) and col-lecting payment for them. Firms that operate consistently with respect to both size and collection may not need an additional source of funds in the form of a credit line.

Few firms are that consistent, and even those that are may not wish to risk al-ways being so. If they do not want to be indebted to the bank, or cannot find a banker willing to lend, then alterna-tive sources include profit retention, personal savings, credit cards, and out-side investors, of which there are very, very few.

Build personal relationships with banks. James Crispino, presi-dent, Francis Cauffman (New York, NY), a 100-person architectural, plan-

ning and interior design firm, says that his firm did not experience any difficul-ty in obtaining its most recent credit line. However, the firm has a very good relationship with a regional bank, rath-er than a banking behemoth.

“We use a regional bank and have worked with them for years,” Crispino says. “We have built a solid relation-ship; the bank understands our busi-ness and they know who we are.”

And when it comes to how they use credit lines, Crispino explains that since Francis Cauffman is an S-Corpo-ration, they tend to use them for tax planning and managing year-end fi-nancials.

“S-Corporations are generally taxed at a higher rate (typically 40 percent), so by using our credit line to pay down debts and prepay receivables and con-sultants, we show a reduced profit mar-gin,” he says. “We show no real debt or great profit.”

Crispino adds that they typically use short-term loans as opposed to credit lines for items like supplies and IT. Re-cently, the firm revitalized its IT infra-structure with a short-term loan to be one of the most robust in the nation.

Working for the govern-ment? There’s an option. The Small Business Administration has re-vamped its CapLine program, which could help bring more credit to small government contractors and other businesses.

In this program, the SBA gives a 75 to 85 percent guarantee on credit lines of up to $5 million with terms of up to 10 years. The government guarantee re-duces the risk for lenders, which en-ables banks to extend more cash.

The reformulated CapLine program, re-leased Oct. 1, has four types of loans: working capital, contract, seasonal and builders. The program has been around

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See cREDIT, page 12

Peter Piven, Peter Piven Management Consultants.

Out there fishing for credit lines?

“Bankers have become cautious and are managing their money tighter, becoming more restrictive with lending policies, and making such credit more difficult to obtain, especially by small firms and more especially by small firms with modest net worth.”



F IRMS ON ThE MOvEMiyAMoto growS: Miyamoto International’s continuing efforts to “make the world a better place” recently reached New Zealand and Thailand. Miyamoto, a west coast-based high-performance engineering services firm, has expanded to include these two countries, where natural-hazard disaster risk is high.

In christchurch, which was recently devastated by earthquakes and in other New Zealand cities where seismic risk management has become critical, Miyamoto has teamed with the global engineering company Cardno (Brisbane, australia). The joint venture Miyamoto + cardno combines the earthquake engineering expertise of Miyamoto and the multidisciplinary services offered by cardno. This team provides affordable seismic strengthening methods, works with city engineers, assists the insurance and banking industries, and works with developers to implement seismic risk reduction programs as a commercially viable business model. In Bangkok, Miyamoto has expanded our services to manage seismic and flood risk reduction programs for both the private and public sectors in Thailand and Southeast asia. In the last few decades, many high-rise buildings have been constructed on the soft soil of Bangkok without any seismic consideration. Evaluating and mitigating seismic risk preemptively

could not only save thousands of lives, but would cost less than 1 cent per dollar of potential reconstruction costs and economic damage. In addition, global weather changes have made Thailand and specifically Bangkok flood-prone, as proved by the 2011 floods. Miyamoto will implement flood risk mitigation for Thai facilities and buildings.

tt openS office: thornton tomasetti (New york, Ny), a 500-person engineering firm, opened a new office in Denver, colo., on Jan. 30. The firm, which now has 25 offices internationally, opened the new office to better serve current and potential clients in the western central region and Mountain States. Senior Principal Steve hofmeister will oversee the new office as manager of the company’s Midwest U.S. region. Located in lower downtown Denver, the new office will offer Thornton Tomasetti clients the services of its building structure, construction support services, property loss consulting and building performance practices.

“The opening of a Denver office provides an opportunity to deepen and expand our relationships with contractors and architects in the area. we are eager to assist new and longstanding clients to create new projects and improve existing structures throughout the region,” hofmeister said.

cREDIT, from page 11 cLaRkE, from page 10

understand the format of a behavioral-based interview and encourage them to reflect upon and catalogue legitimate performance examples in anticipation of behavioral-based questions (it would be helpful to inform them of situation-, ac-tion- and result-structured responses). Also, encourage candidates to catalogue their strengths and weaknesses and to be prepared to discuss them. Again, the goal is not to shroud these things in secrecy but to impart awareness to the candidate regarding the anticipated structure of the interview/interview questions in order to allow him or her to prepare accordingly.

Good firms understand that good selection dictates we do everything we can to educate and equip the candidate as much as possible ahead of the interview in order to position them to be as successful as possible while not compromising equity and fairness.

JEREMy cLaRkE is the director of executive search consulting with Zweigwhite.contact him at [email protected].

since the early 1990s, but hardly any banks used it.

Ted Lauer, head of SBA lending at Reston, Va.-based Access Nation-al Bank, explains that the require-ments were too imposing and risky for lenders who feared that a small error in processing would allow the SBA to deny or reduce the guarantee.

So, several months ago, the SBA asked Lauer and a handful of other local bankers to give input on how to revise the CapLine program to make it more user-friendly.

As part of the redesign, the SBA scaled back the requirements for cash flow controls and examinations of borrowers’ back-office operations. It also allowed contractors to use the lines of credit to fund all costs; previ-ously they could only be applied to-ward labor and materials. Addition-

ally, the revisions allow lenders to submit applications electronically, allowing for faster approvals. Access National Bank, the largest local bank lender of SBA loans by volume, has high hopes for this program.

“One bank was working on a million-dollar CapLine now,” Lauer says, for a line of credit that would fund growth for a civil engineering company that works for quasi-government agen-cies. “In December of 2011, the loan closed and was also increased to one million plus $250,000. The process was fairly straightforward and easy for all parties. The lending was based on a percentage of accounts receiv-able.”

The program is open to government contractors that are starting on a new contract.

Factoring companies, which lend to government contractors that don’t qualify for traditional bank funding, are also eligible.

Judging by the numbers, these perks and benefits help with employee retention. For example, HR Green boasts the follow-ing retention rates:

z 5 years or greater: 57 percent



Business accountability. HR Green’s company culture is still taking shape as the firm integrates recently ac-quired firms into its legacy.

“The ‘new’ HR Green is quickly coalescing around a branded culture of business ac-countability. This means we seek techni-cal solutions that also make good busi-ness sense for our clients,” says Chad Ma-son, corporate communications manager who has been at HR Green for six years.

Hoeppner adds that, “The senior lead-ership of HR Green recognizes that our clients need, and increasingly demand, business solutions to solve their business problems.

“Being the best – technically – isn’t enough. Our commitment to business ac-countability is a differentiator in the mar-ketplace and we believe that will be criti-cal to our long-term success,” he said.

hR gREEN, from page 9

equity vs. debt capital trendlines - the zweig letter...debt. equity can be very expensive capital!...

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