Effective Financial Management of Architectural Firms

Basic-practice management techniques, financial tools, and applied software can help ensure a financially healthy architecture business
This course is no longer active
[ Page 7 of 7 ]  previous page Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7
Sponsored by BQE Software
C.C. Sullivan

Not Just Tracking: Marketing, Too!

As discussed previously, firms don't become a viable business just by tracking their activities and generating financial reports. They need to build business by meeting clients' needs and meeting new prospects and suspects. Yet financial planning and marketing go hand in hand.

Aside from the software, successful firms brainstorm frequently about what things they should be doing to make sure their firm is profitable. Let's assume a firm has already followed the advice given in this article and proffered by experts like Burns and Piven: They've created the firm's own operating budget (profit plan). That means the firm is positioned ideally to spend some time working on a marketing plan.

It is well understood that firms that use and follow their marketing plans are more successful than firms that don't bother creating a plan or create one but stick it in a drawer and don't follow it. A proper marketing plan should include at least the following sections:

▶ Marketing budget

▶ Image and brand

▶ Target markets

▶ Key differentiators

▶ Relationship marketing

▶ Networking and promotional opportunities

▶ Social media

▶ Public relations

▶ Fee structure

To be savvy as a businessperson, one of the fundamental traits that an architecture firm leader needs to develop is to be direct and matter-of-fact about fees. There's no good reason to be shy about asking for fees that are commensurate with the expertise and quality of service the firm provides. The firm leaders should be ready to properly present sound reasons why the fees you are asking for are reasonable and fair; with this as ammunition in hand, fees will not be an obstacle to the firm's winning a project.

“Even if you are interviewing for a small project, I recommend you rehearse this with your partner, a colleague or even your spouse so you don't go into an interview without having properly prepared,” says Burns. “If you spend more time developing pricing and negotiating techniques you will be able to be assertive and successful.”

Uncompensated Services and Other Flaws

One of the biggest flaws architects make is providing clients with uncompensated services. The firm must use solid architect-owner contracts that clearly spell out what is (and what is not) included in the fee. When a client asks the firm to perform services that are not in the contract, the first step is to bring this fact to their attention. It is at the firm's own discretion to opt to undertake the services for free the first time—“Just this one time,” they say—but the firm must also unequivocally let them know in the future you will have to charge them for any more additional services.

“Throwing the client a freebie can in fact be a good marketing tactic, but only if the client is first informed that the firm is doing them this one favor,” Burns explains. “But if you just give away your services without the client's acknowledgment, you will find them expecting free services in the future.” The first interaction will set the precedent, and this is another reason that architects often desire to become a savvier businessperson. The clients will respect their service providers for standing up for their rights. Though some clients may have nefarious aims, certainly not all clients want to take advantage of the firm leaders' better nature. Most clients are well meaning but need to have a provider with the backbone to stand up for its own rights.

One thing to keep in mind when providing free services: The standard of care and your exposure to liability are exactly the same as if you were being paid. So free services can come with a very high cost.

Here's an example of a firm that once got burned in a similar situation: The client decided to add a fireplace to a family room addition that a small architecture firm was designing for them. Of course by the time the client decided to go ahead with the fireplace, the firm had already completed the construction documents. It was a simple change to pop in a prefab fireplace, so the project architect went ahead and made the changes and got the revised sketches out within an hour. No charge. Weeks later, the firm realized that the exterior flue violated the building setback lines and it had to be removed and installed within the building. This cost money, and guess who the client expected to pay for these changes? No good deed goes unpunished.

Reimbursable Expenses and Markup

Based on visits to hundreds of architecture firms, consultants like Burns are familiar with what goes on in the architectural back office. One of the biggest areas where firms leave money on the table—beyond giving away services for free—is in their inability to capture and charge for their reimbursable expenses.

All contracts should include a clause allowing the firm to be reimbursed for certain expenses—travel, printing, messenger services, and the like. And just as important is to include a clause that provides for a markup. Many firms always include a standard 20 percent markup to expenses. While certain clients might balk or attempt to negotiate the markup, the firms are entitled to this because of the cost of overhead and administrative costs related to these expenses.

This brings the discussion back to the use of proper tracking software. With software as an ally, the firm will be certain that all the expenses incurred will be charged—if allowed by contract.

Even more so, by using proper tracking software, an architecture-and-design firm can be certain that all financial, enterprise management, and project management goals are being considered all the time. For example, if that expense is incurred, it will be charged if allowed by contract. Why? Because the trained staffer entered the data, so the tracking software now shows the occurrence and an automatic billing process will carry the charge forward.

“But wait, you're an architect,” Burns quips. “If you provide design services to create a timeless piece of architecture, why do you need to understand the business side? The main reason is so that your firm is as sustainable and healthy as the buildings and interiors you create.”

Chris Sullivan is an author and principal of C.C. Sullivan (www.ccsullivan.com), a marketing agency focused on architecture, construction, and building products.

BQE ArchiOffice

See how ArchiOffice can help your firm. ArchiOffice takes all the disparate information you deal with and organizes it brilliantly. It makes time tracking, project management, and billing easy with an intuitive, streamlined design. www.bqe.com/CEU

 

 

[ Page 7 of 7 ]  previous page Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7
Originally published in Architectural Record
Originally published in November 2014

Notice

Academies