Raising Capital*

Because of their typically limited tangible assets (e.g., inventory and equipment), consulting engineering firms are handicapped when they want to raise capital.

In addition, most professionals prefer to maintain a closely held organization. This automatically limits utilization of traditional capital sources, such as small business investment companies and the general public through a stock offering. While venture capitalists make loans and invest in start-up companies and smaller firms, in return for their risks they generally expect significant equity participation.

Further, because professional services firms have little in the way of assets to salvage if the firm is not successful, venture capital firms are not generally interested anyway.

There are alternatives for professional services firms, however. Sometimes an outside investor can be found. Or, funds can be obtained through a stock purchase plan established for key employees at a predetermined price. Generally, the price is set at net book value or at some ratio of book value as of the latest year-end. The value is usually determined after an independent review or audit of the firm's accounts. Using net book value is appealing because this figure is easy to determine and does not involve judgment or estimates.

* Excerpted from Financial Management for Design Firms, by Lowell Getz, ACEC Bookshop #LW-322-00, $79 members, $99 nonmembers, $5 shipping/handling. Send orders to ACEC via fax (202-789-7220), or e-mail (publications@acec.org). Include your Master-Card, Visa, or American Express number with the expiration date, contact name, firm name, street address, phone number, and e-mail address.

Overcoming Government Competition
EVP Dave Raymond updated Directors on Council activities to overcome government competition (including California's Proposition 35, the Water Resources Development Act, and TRAC legislation). He engaged the group in an open discussion concerning the importance of undertaking related activities at the state level. Spiess encouraged MOs to "analyze what. s happening in your own state capitals and derive confidence from the Prop 35 victory for promoting aggressive outsourcing efforts in your state." Subsequently, Spiess sent a letter to the MOs providing specific guidance on undertaking such state activities.

Building a Legislative "War Chest"
Ray Flemons and Don Kinser of Georgia moderated a discussion on the future of ACEC's legal/legislative fund. The Directors endorsed the goal of achieving a $1-million fund in three years. The Budget Committee will continue its review of how best to reach a $1-million fund, with the understanding that a number of Directors voiced support for an approximately $150,000-line item in the budget and a continuation of voluntary contributions and interest income to reach the goal.