Strategic Financial Management Is Critical for AEC Firm Success

Architectural, engineering and construction (AEC) firms are designing, planning, constructing and leading projects worth hundreds of millions of dollars. These firms provide professional services that impact the quality and success of those projects. There is a public misconception that these types of businesses are highly profitable, but that is not always true. Some AEC firms maintain a decent profit margin, while many others struggle financially. 

There are many reasons why AEC firms are not profitable enough, but one main reason is poor financial management. Strategic financial management is essential for any business to be successful and sustainable. Strategically managed finances can result in a great success story or in a fatal nightmare if finances are not controlled.  

Architects, engineers and construction professionals do not get much business education relative to running a business while working on their professional degrees. And that is one of the major challenges these professionals face in running their business. 

Slow paying clients are one major challenge in the AEC industry in today’s economy. The problem of not being paid on time is a very serious issue for small and large firms. The issue is exacerbated because it is occurring when AEC firms are having significant difficulty staffing up to meet demands of their existing and new clients.  

Strategic thinking is critical to determine what strategies need to be considered for financial profitability. Strategies are needed to diversify clients and professional services to ensure a stable flow of income for firm growth and pricing projects accordingly.  

Working capital is a problem that many people in business do not understand and AEC firms need much more focus and education to deal with it. Wikipedia defines working capital as current assets less current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit and negative working capital. 

Positive working capital is required so an AEC firm is able to continue its operations and also have sufficient funds to satisfy short-term debt and ongoing operational expenses. An AEC firm’s current assets typically include accounts receivable. However, in reality that is not true if clients take a year to pay their bills.  

AEC firms must have enough cash to keep meeting payroll and all other overhead expenses for the time it takes clients to pay their bills for work performed by their firms. AEC firms must stop tolerating slow-paying clients and acting as a bank to finance their clients’ businesses and projects.  

Strategies that AEC firms must incorporate into their planning include: pursuing specific vertical markets and project types that are “recession resilient;” strategic focus on “Go – No Go” decisions on clients and projects; considering diversified business relationships and developing new strategic partnerships with other firms.  

Strong financial management deploys tools to achieve success. Some of those tools include:  

A management strategy for the direction of the firm. A forward look at the next quarter and the rest of the fiscal year, the next year, the next 2-3 years are important to determine that direction. The firm needs to set aside time to review and reflect on current workload and backlog, prospects in the pipeline, capacity to handle increased workload, any new skills or services needed, project management models, existing and desired clients, market trends, overall goals for the firm and other factors anticipated to impact the AEC industry.  

Agility and adaptability are two key words for the future in the AEC world. The pandemic certainly highlighted the need for each of those attributes. A successful AEC firm must be able to adapt to changes in the industry, the economy, markets and unforeseen influences that will impact their business.  

Business development is another critical tool for success in AEC firms. A firm cannot simply rely on work coming to them unsolicited and without strong ongoing relationships. Business development is a full-time task and is a “contact sport” that requires time to build and enhance relationships, research markets and forecasts, identify and qualify opportunities and work with the team to secure contracts and keep in touch periodically with clients during current projects.  

Another very critical tool relates to developing strategic and realistic pricing of professional services. There are not many resources available to help guide a person in the development of professional fees. The truth is that development of these fees is a combination of an art and a science and this skill is developed over time.  

Developing options to acquire working capital is also an important tool. One option is to secure a line-of-credit. Credit lines have been used by businesses for years to meet working capital needs. This resource provides a flexible loan from a financial institution that defines a specific amount of money the firm can access as needed and repay either immediately or over time. Lines of credit are often used to cover the gaps in irregular monthly cash flow or to finance a special purchase where it may be difficult to ascertain the exact funds needed in advance.  

AEC firms are some of the most complicated businesses to manage. Success requires a strategic thinking high level person that understands both the design process and the financial management process to oversee financial performance.   

Some important action items needed for strategic financial management include: 

  • Price: Learn from past experience to determine how many hours were spent on similar projects. 
  • Monitor: Regularly monitor projects’ profitability. 
  • Forecast: Obtain accurate projections for the firm’s projects and regularly review them.  
  • Allocate: Allocate staff and resources according to projections.  
  • Process: Create financial processes to support financial management, including project management, billing, change orders, collection, etc. 
  • Focus: Do not micro-manage. Focus on what makes a difference and helps meet financial objectives. 

Closing with great advice from George Washington: “To contract new debts is not the way to pay old ones.” 

Glenn Ebersole is a registered professional engineer and the Director of Business Development at JL Architects, a nationally licensed commercial architecture firm based in West Chester. He can be contacted by [email protected] or 717-575-8572. 








Fulton Financial sets earnings records

Lancaster-based Fulton Financial Corp. set records in several areas last year, as it reported its fourth quarter and 2022 earnings this week.

“2022 was a record year for Fulton, as we continued to execute on our strategy to grow the bank, deliver effectively for customers, operate with excellence, and serve our stakeholders,” Chairman and CEO Curtis J. Myers said in a release.

“I’m very proud of our team’s results, especially given the large number of strategic initiatives, we tackled, including the Prudential Bancorp acquisition – our first whole-bank acquisition in over a decade. Coming out of 2022, we are well positioned for continued success in 2023.”

The results for the third and fourth quarters include the impact of the Prudential Bancorp acquisition, which was consummated July 1, 2022.

Lacey Dean, director of corporate communications, wrote in an email that Fulton Financial set an all-time high in 2022 of $276.7 million in net income available to common shareholders.

Net income per diluted share, excluding expenses related to the Prudential Bancorp acquisition, was $1.76 for 2022.

In addition, “we saw strong loan growth in 2022, taking our loan portfolio over $20 billion for the first time in company history,” Dean said.

Certain fee-based businesses had a record year as well, she said, including Fulton Financial Advisors, the Commercial Cash Management Group and debit and credit card products.

For the fourth quarter of 2022, net interest income was $225.9 million, an increase of $60.3 million, or 36.4%, in comparison with the fourth quarter of 2021. Growth was primarily driven by rising interest rates resulting in increases in interest income from net loans, investment securities and other interest-earning assets of $81.6 million, $5.0 million and $3.5 million, respectively.

Also, increases in the average balances for net loans and investment securities of $1.784 billion and $408.4 million, respectively, driven in part by the Prudential Bancorp acquisition, contributed to the increase in interest income.

Paula Wolf is a freelance writer

Whiteboard: Kellogg’s splits up its empire of brands to grow an even bigger empire

The maker of Frosted Flakes, Pringles, and Pop Tarts has hit upon a new strategy to grow its brands: Get smaller first and bigger second. In June, Kellogg’s announced it will split its operations into three new companies, but not in a way you might expect. The new companies are being grouped not only by product type but also by geographics and ingredients.

The new companies, which are expected to have separately issued stock, are Global Snacking Co., North America Cereal Co., and Plant Co. Of these, Global Snacking is the big dog of the group with about 80 percent of current Kellogg’s sales, boasting major brands like Pringles, Cheez-it, and Rice Krispies Treats. North American Cereal will carry the torch for Apple Jacks, Frosted Flakes, Raisin Bran and Corn Pops, among others, and is expected to be relatively stable in revenue and profit. By far the smallest of the group, Plant Co., will focus on growing the brands in plant-based foods, many of which are not yet household names. Their lead brand may be familiar, Morningstar Farms, but other lesser knowns include Bear-Naked Granola and Incogmeato.

There is a cautionary saying in business, “How big can we get before we get bad?” Kellogg’s as a whole remains very big with about $14 billion in sales. But by taking this unique reorganizational approach they are betting they can grow faster with a more singular focus on their categories than by keeping all their brands on one mothership.

Kellogg’s is hardly the first company to do this, most recently Johnson & Johnson announced in December that they would be spinning off a consumer health business including brands like Listerine and Baby Powder (yes, it’s actually a brand name) from their pharmaceuticals and medical devices business.

This approach flies in the face of traditional corporate empires which often have dozens of brands under one entity and reap the tangible benefits of scale and consolidated resources. But Kellogg’s, J&J and others see how a company’s diverse brands and markets set up an internal competition for resources that may be self-defeating, or at least lacking the focus that can bring greater results over time.

Of the three new companies, Plant Co. would seem to have both the most opportunity but also the most pressure to succeed. Their revenue of $340 million is just 4 percent of Kellogg’s total and many of their brands are new and fighting for shelf space with dozens of plant-based food products looking to grab market share in this new category. Kellogg’s has stated that this spinoff may take longer than the other two. It could also be a neatly-packaged precursor to a sale of the company down the road if it is unable to grow its brands sufficiently.

So now brand managers at J&J don’t have to worry that the medical device business will take priority over Baby Powder. And brand managers at Morningstar Farms can expect to get out from under the shadow of Tony the Tiger. It’s a brand development strategy that makes sense but will still have to be proven in the marketplace.

David Taylor is president of Lancaster-based Taylor Brand Group, which specializes in brand development and marketing technology. Contact him via www.taylorbrandgroup.com.

Management consultant firm buys company, expanding reach nationwide

Harrisburg-based Dame Leadership, which does management consulting, recently announced that it acquired employee-assessment company Success Performance Solutions, headquartered in Wind Gap.

The transaction closed Aug. 1 and furthers Dame Leadership’s growth strategy, expanding its footprint and services nationwide. A release noted that the decade-old business grew exceptionally fast the past three years.

“At Dame Leadership, everything we do is to help others become better and more purposeful leaders,” said John Dame, owner and managing partner. “I have no doubt that the combination of Dame Leadership and SPS will help fulfill that mission.

Ira Wolfe, who founded Success Performance Solutions in 1996, will lead the assessment business for Dame Leadership and come on board as a senior consultant.

“I could not imagine a better next growth stage for the company and our clients,” Wolfe said. “John Dame was my Vistage chair 20 years ago. We share the vision of purpose- and people-driven leadership and the acquisition allows both organizations to help more business leaders grow and achieve their goals faster.”

Paula Wolf is a freelance writer

Midstate organizations make diversity a principal, not just a statistic  

To promote diversity and inclusion across its footprint, York-based WellSpan Health set a goal to increase diversity in its leadership team to 15%. To get there, it established four pillars it would abide by to increase awareness, pledged to recruit more diverse employees and identified the effort as a mission-critical strategy. 

The same is true for Carlisle-based Giant Co., which has set its own goal to be 100% inclusive. The company’s inclusivity goals are integrated into its business strategy and imbedded across departments. 

For Midstate businesses finding success as diverse hirers, company-wide diversity, equity and inclusion (DEI) goals have become less like objectives and more like a part of their DNA. 

Dr. Roxanna Gapstur, president and CEO of WellSpan Health. PHOTO/PROVIDED

“If you see any research on this work, one thing you always see is the importance of the commitment of the CEOs,” said Kimberly Brister, chief diversity, equity and inclusion (DEI) officer at WellSpan. “[WellSpan CEO and President Dr. Roxanna Gapstur] felt that DEI was critical to any organization’s mission and she wanted to be more intentional. It takes your CEO to be committed to stand in front of this work and identify it as a mission-critical strategy — not only for the team members but for the diverse community you serve.” 

At WellSpan that has meant enacting four key pillars of DEI, which include building awareness, recruitment and retention, addressing needs in the LGBTQA+ community and closing inclusivity gaps. 

As a part of Giant’s DEI efforts, the supermarket chain established an inclusion council; a team comprised of GIANT employees, community members and vendor partners that share insights and exchange ideas around diversity and inclusion. The team recently sampled Giant’s top 400 leaders for a training session on unconscious bias. 

An organization that prioritizes diversity is promoting an environment where employees can be themselves, said Nicholas Bertram, president of the Giant Company. 

“Creativity is the output of diversity,” said Bertram. “We are guided by our values, and they push us toward doing things like this. It’s made our company stronger.” 

Nicholas Bertram, president and CEO of the Giant Co. FILE

For organizations like Giant and WellSpan, imbedding DEI into the fabric of what they do provides a competitive advantage along with its social implications. 

Pennsylvania has seen a significant increase in diversity since 2010 across the board, according to the Pennsylvania 2020 Census. Since 2010, Black residents in Pennsylvania increased by 9.8%; American Indian and Alaska Native by 133.3%; Asian by 50%; and Hispanic or Latino by 35.2%. 

The census data reaffirms the importance of inclusivity and diversity efforts as a hiring tool, said Kevin Schreiber, president and CEO of the York County Economic Alliance (YCEA). 

This month, the YCEA launched Welcoming Workplaces, a coalition of employers that share resources regarding DEI. The effort launched with an inaugural class of York area businesses and will be accepting more businesses interested in joining the coalition and receiving the designation of Welcoming Workplace. 

Welcoming Workplaces creates a pathway for businesses to embed DEI efforts into their DNA similarly to how employers like Giant and WellSpan have. In order to receive the designation, a company needs to identify their DEI efforts with YCEA and put in place the steps necessary to embody the tenants of Welcoming Workplaces, according to Schreiber. 

As a Welcoming Workplace, businesses look to support the diversity of talent in the workplace through talent attraction, talent retention, policies and procedures and knowledge sharing. 

“The underpinnings of the Welcoming Workplace initiative is to attract and retain the best and brightest talented workforce to our county and her employers,” said Schreiber. “We look forward to growing this coalition and campaign.” 

The initiative was created by the Confronting Racism Coalition, made up of individuals and organizations from predominately York County. It was among a set of recommendations adopted by the YCEA in its strategic plan. 

The inaugural class of Welcoming Workplace includes YCEA, Traditions Bank, Crispus Attucks York and WellSpan. 

Inclusive leadership has been a key component of the process of Welcoming Workplaces,” said Gapstur, co-chair of the council. “Having a chance to gather the top leadership of our county’s largest companies was a unique and impactful opportunity as we learned from one another in a shared environment. As one of the largest employers in York County, WellSpan Health is proud to be part of this inaugural initiative.” 

For businesses taking that first step into growing their DEI effort, Bertram said that it’s vitally important to humbly ask questions. 

“Go in with a mindset of discovery instead of solutions and don’t be afraid to ask questions, hear truth,” he said. “The things that are unspoken need to be heard and if you aren’t a humble leader, you won’t be able to go in and make the change you seek.”