Challenges facing today’s AE firms

I spent my 43-year professional career working in or for architecture and engineering (AE) firms. I have been an owner in four of them, a board member in several more, and the firm we founded in 1988 that is today Zweig Group is the leading management consulting, research and training firm serving the industry.

So, I have a good perspective on the industry. And while some may think AE firms are raking in the big bucks with the construction boom we still have underway here, they face many challenges. Here are some of them:

Lack of public awareness and understanding of what these firms do. Most people think architects and engineers build things. For the most part, they don’t. They design them. And the design is critical to the success of any construction project.

You can’t put a project out to bid unless you have detailed plans and specifications that allow you to know that every contractor is pricing out the same thing. You can’t get a building permit without a proper set of plans. You can’t design a site without a survey.

Architects design buildings, both inside and out. Civil engineers and landscape architects develop the sites the buildings stand on. They also design roads, sewers, water utilities and more. Structural engineers make them stand and are an integral part of the design process. Electrical engineers design the power distribution, lighting, and communications systems. Mechanical engineers design the HVAC, plumbing, and fire protection systems. Nothing gets built without the involvement of architects and engineers. They improve the quality of life for all of us.

Difficulty in finding qualified people to fill job openings. There has been a long-standing labor shortage in the AE industry. It isn’t getting better. Schools are not turning out enough graduates. Experienced people are in short supply. Almost every company has job openings that they cannot fill. Salary expectations have risen accordingly. It’s an employee-driven labor market.

Ownership and leadership transition. Many AE firms of all sizes and types have aging owners. They tend to wait too late to sell ownership to key people equipped to take over the business when the founders retire. That not only creates a problem for the company but is also demotivating to critical people.

Lack of marketing knowledge. Architects and engineers often need more business training, and AE firms are notoriously bad at marketing themselves. They tend to grow when demand exceeds supply and contract when the opposite conditions exist. Many firms are still discovering how to employ marketing people and implement an actual marketing program that produces a consistent backlog of projects.

Strained working capital from poor cash flow. The average collection period on accounts receivable for AE firms is 70 to 90 days, depending on their specialties and markets served. That means they may need up to three months of operating expenses in working capital to operate. That’s a lot of money for a service-based business, resulting in an overreliance on bank lines of credit and constrained growth.

Of course, there are always things AE firms can do to address these challenges. And fortunately, we have some very progressive and well-managed companies here in Northwest Arkansas. But the truth is, there are still more companies out there that aren’t dealing with these issues effectively than those that are.