SHOULD YOU BUY YOUR OWN ENGINEERING CONSULTANCY? This month, City Accountants (London) Ltd look at the options open to young Civil engineers looking to go it alone. In recent years we have seen an uptake in the number of Civil and Structural Engineers setting up a consultancy. This is not surprising, after all the reason you studied Civil Engineering at University was to have your own Engineering consultancy one day. Setting Up From Scratch Squatting is probably the cheapest way of setting up. A small consultancy can be started from a budget as cheap as £40,000. This includes second hand CAD equipment, computers, marketing and working capital. If something a little better is sought, then £60,000 to £80,000 will buy you a state of the art Squat more akin to attracting the sought after corporate clients. The cost of the squat is broadly speaking tax deductible – a major advantage compared to buying a freehold or goodwill and a friendly boss may allow you to bridge out your existing Engineering job (spend 2 days at his practice and 2 days at your own) to ease your cash flow.

The problem with a squat is how long it will take you to start to break even. In our experience this is usually about 15 to 18 months. To set up a squat you will need some form of reputation locally, either as a specialist or a number of engineering roles under your belt. During that period you will need nerves of steel – and a clued up bank manager – as each month more money goes out than comes in! As construction accountants we have never had a squat that has failed; a very different picture for existing practices purchased. A squat has a large inherent capital profit when, at the end of the day, you sell. Don’t forget a squat is your opportunity to set up exactly how you want to, with staff chosen and trained by you. A chance to practice your own unique brand of Civil Engineering to your following of like-minded appreciative clients. OK that’s fine for some engineers, but squatting is not everyone’s cup of tea. So what are the alternatives? Buying A Small Consultancy This suits some civils as there is a client list from day one. The small size means you can to some extent, do your own thing and usually they are not too expensive. The downside is you may inherit problems with the existing clients, existing staff, existing equipment or the former owner’s reputation. Another problem is insufficient clients for your needs. It should be remembered that a practice that has only ever been part time is unlikely to support a full time engineer in the short to medium term.

Buying A Large Consultancy The attraction here is high profits – may be – in a stable environment with plenty of clients. The downside? Cost. Large consultancy’s can be quite expensive, especially the goodwill values. Are you up to all the responsibility? Particularly managing the existing engineers and associates who may well be older and more experienced than you! The associates may take a dislike to you and leave; this could be a very difficult situation to handle. Often joining as an “Associate Engineer with a view” to buying in is an ideal compromise, because you try before you buy, have continuity with the clients and you know how the consultancy runs. Sometimes you can negotiate a small reduction in price on this type of consultancy, although haggling can prove awkward in this closed environment. Going Into Partnership Tricky one! Buying a share in a partnership consultancy is a step into the unknown. You have the question of compatibility with the existing partners. You may find it difficult to implement changes in the consultancy, depending upon the attitude of the other engineers. In addition, the new partner is often labelled as the junior partner, particularly if he is younger than the other engineers, making change even more difficult. A useful question to ask here is whether the other Partners want you solely for your money? The advantages are you have an existing book to work and established consultancy systems and protocols and it is often easier to take a career break if the need arises. These are useful if you are a little unsure of things. The other advantage is they are often cheap to buy into because no-one else is interested!

City Accountants (London) Ltd are Specialist Civil Engineering and Construction Accountants based North of London. They advise on a wide range of Construction Tax issues and regularly write for the Construction Press. City Accountants have over 20 years’ experience in Construction and Civil Engineering Accounts and are recognised for their proactive approach to Taxation in construction and business problems. City Accountants (London) Ltd can be contacted on 01438 722224 or email kate@dentax.biz

Construction UK Magazine - April 2020 09