When we talk about licensing, engineers tend to think of their individual professional licenses rather than firm licenses, which isn’t all that surprising. Some companies operate in states where firm licenses — generally called certificates of authority — aren’t required. Where they are required, the cost of a license is minor, averaging $135 nationwide. As a result, engineering firm licenses are rarely top of mind — until they throw a wrench in your plans, that is, when those small-ticket items suddenly start making a big impact on the bottom line.
How big an impact? One of our clients recently missed out on a $1 million project in California because their company license came in one week after the deadline for submissions passed. Another came to us with more than $14,000 in penalties and a license suspension due to two lapsed firm licenses.
No one wants to miss out on a million-dollar opportunity over a $135 license, let alone be hit with $14,000 in penalties, but these kinds of dilemmas are actually very common in engineering, particularly for large or rapidly growing firms. Fortunately, they are also preventable. Following are seven license habits that cost firms opportunities and profits, and some tips for turning that small-price-tag/big-impact math around to work in your favor.
Rushing to respond to opportunities
The first habit to overcome is identifying opportunities first, then looking into the matter of licensing. In most states it is illegal even to offer services until you have a firm license, yet we hear from firms all the time that have responded to an opportunity in a new jurisdiction where they’re not actively licensed. This is one of the biggest causes of citations for unlicensed activity, and the consequences can be severe.
To avoid missed opportunities, don’t wait until you’ve identified a project (or worse, until you’ve responded to a RFP!) to think about your licensing plans. Licensing in a new state involves multiple layers and steps, generally including registering with the secretary of state and licensing through the state engineering board. Each state has unique licensing requirements, including obtaining documentation from the secretary of state. Since applications are generally approved at monthly or quarterly board meetings, a week’s delay in filing the application can tack months onto the approval process.
Include licensing in early discussions about growth strategies, research state requirements proactively, and identify prime states for future expansion (www.harborcompliance.com/information/engineering-firm-license-certificate-of-authorization). Then license proactively to meet your growth goals and strategy.
Getting stuck in your present footprint
It’s more cost effective to build revenues through existing clients than to acquire new ones, yet many firms miss out on prime opportunities simply by not lining up for them. Map out your clients’ footprints and ask if they have opportunities on the horizon that might be a match. Where you identify promising opportunities, license your firm to support them.
In addition to geographic expansion, firms can use licensing to diversify. For example, one of our larger engineering firm clients had become licensed for land surveying in a patchwork of states to meet project and client demands. They decided to proactively license for land surveying nationwide, a move that has opened up a new range of opportunities from existing and new clients (www.harborcompliance.com/information/land-surveying-license).
By positioning your firm to provide a wider range of services across your clients’ operations, you can deepen your relationships and build a stronger, more stable revenue base for your firm.
Often firms rush into licensing to beat a deadline for response, only to realize that they’ve missed a key step along the way. For example, in most states, secretary of state filings precede licensure through the state engineering board (www.harborcompliance.com/information/filing-authority/engineering-licensing-boards), but that’s not always the case. In others, key prerequisites must be met. Sometimes firms need to adjust their name or structure to fit the new state’s requirements.
Failing to research all of the regulatory nuances in a new state can lead to rejected filings, wasting valuable time. This can all be avoided by researching secretary of state and engineering board requirements together before beginning any applications.
No one in charge
Another license habit that often backfires is leaving individual licensing to your engineers. While many firms find it best to let engineers handle the applications and renewals, it’s critical that you install some means of tracking and verifying the individual licenses of engineers in responsible charge, at the very least. Firms often forget that wherever firm licenses are required, they are linked to the underlying individual licenses. In some cases, you can have multiple engineers in responsible charge of the firm depending on their field of licensure.
For example, you can have an engineer in responsible charge for mechanical engineering, one for electrical engineering, and one for civil engineering. Thus, if you lose that engineer in responsible charge in a particular field of engineering, you cannot practice that field in the state. If a responsible engineer leaves the firm or suffers a license lapse, your firm must appoint a replacement and notify state authorities promptly or risk forfeiting your firm license. Even if the responsible engineer in charge changes his or her address, you must notify the state.
Tracking continuing education requirements as well can help your individual engineers maintain continuous licensure.
While it’s important to license your company for growth, it’s also important to manage licensing where you’re no longer active. If you finish a major project in a state and don’t see immediate opportunities there, it’s important to either properly close down your presence or maintain it. Sometimes companies are tempted to just walk away, but that is by far the most costly and problematic option.
If you leave a state without meeting your tax obligations, closing your tax accounts, and terminating the corporate registration (www.harborcompliance.com/information/certificate-of-cancellation-withdrawal), you’re left with states that are going to expect you to file annual reports and other records every year, and will be assessing penalties if you don’t. If you allow your licenses to lapse, they will also accrue fees. These penalties and fees will keep accruing until you properly withdraw from the state or reinstate them, at which point you’ll have to do all those back filings and pay all those back penalties.
We had a client recently that had let their state registration and licenses lapse in Florida, thinking they would never go back. Then a big opportunity came along, and they had to submit back-due filings for each year, reinstate their licenses, and pay substantial penalties to do so. The process to regain good standing is time-consuming and expensive. In some cases, states may not even permit you to reinstate your entity.
Low budget, low priority
Maybe the worst license habit as far as the potential damage it can do to your firm is simply failing to make it a high enough priority. It’s very easy to lose sight of a $135 license in the midst of busy operations, particularly for firms operating in numerous states. Yet unlicensed practice is a misdemeanor in most states, carrying potential penalties of as much as $1,000 per violation per day in some jurisdictions.
Since discipline must generally be reported to other states, which often impose reciprocal discipline, the fallout from a single license lapse can be substantial. Citations are usually published online and have tremendous staying power, damaging your reputation and competitive abilities.
The final habit is not particularly destructive, but it’s one that presents great upside potential. When you work to ensure full licensure (www.harborcompliance.com/compliance-solutions-engineering-firms) and maintain it throughout your operations, you are a much more reliable partner and provider. Your business is built on a stronger foundation with fewer risks.
Yet firms rarely use their compliance as a selling point in their marketing efforts. Once you’ve invested in compliance, be sure to spread the word to partners, prospects, and clients. Talk about your commitment to employing licensed professionals and maintaining active licenses as a demonstration of your high professional standards, quality work, reliable performance, and ethical dealings.
License to succeed
Most of the habits in this article boil down to looking at engineering licenses as an obstacle rather than a source of strength, stability, and sustainability. By being proactive and positive, firms can enhance profits and growth and enjoy the peace of mind that comes from total compliance.
To learn more about licensing strategies for your firm, check out the following white papers:
• Managing Licensing to Maximize Returns: How 3 Firms Achieved ROIs of Over 30X (www.harborcompliance.com/landing-pages/managing-business-licensing-to-maximize-returns)
• Engineering Licensing: The Definitive Guide (www.harborcompliance.com/landing-pages/engineering-licensing-the-definitive-guide)
Jerri-Lynn Wier is an attorney and compliance specialist for Harbor Compliance (www.harborcompliance.com/compliance-solutions-engineering-firms), a provider of license and entity management solutions for businesses. She has 20 years of experience in insurance, business, and election compliance, and her team manages licensing for many top ENR firms. She is available to answer any questions about your licensing needs at 888-995-5895 or firstname.lastname@example.org. Detailed, specific state-level licensing information is available at www.harborcompliance.com/information/engineering-license. Disclaimer: Harbor Compliance is not an accounting or law firm and does not provide tax, financial, or legal advice.