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RIBA - Good Practice Guide - Painless Financial Management

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EN

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Copyright RIBA Publishing

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Copyright RIBA Publishing

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Other titles in this series:

Starting a Practice, by Simon Foxell (2006)

Negotiating the Planning Maze, by John Collins and Philip Moren (2006)
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Keeping Out of Trouble, by Owen Luder, 3rd edition (2006)

Employment, by Brian Gegg and David Sharp (2006)

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Fees, by Roland Phillips (2008)
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Copyright RIBA Publishing

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Brian Pinder-Ayres, Shepheard Epstein & Hunter

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Copyright RIBA Publishing

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Published by RIBA Publishing, 15 Bonhill Street, London EC2P 2EA

ISBN 978 1 85946 289 8

Stock Code 63509

The right of Brian Pinder-Ayres to be identiﬁed as the Author of this Work has been asserted in accordance
with the Copyright, Design and Patents Act 1988.
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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or trans-
mitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise,
without prior permission of the copyright owner.

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library.
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Publisher: Steven Cross

Commissioning Editor: John Elkington
Project Editor: Alasdair Deas
Editor: Andrea Platts
Designed by Ben Millbank
Typeset by Academic + Technical, Bristol
Printed and bound by Hobbs the Printer, Hampshire
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While every effort has been made to check the accuracy of the information given in this book, readers
should always make their own checks. Neither the Author nor the Publisher accept any responsibility
for misstatements made in it or misunderstandings arising from it.

RIBA Publishing is part of RIBA Enterprises Ltd.

www.ribaenterprises.com

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The RIBA Good Practice Guide series has been speciﬁcally developed to provide

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architects, and other construction professionals, with practical advice and
guidance on a range of topics that affect them, and the management of their
business, on a day-to-day basis.

All of the guides in the series are written in an easy-to-read, straightforward style.
The guides are not meant to be definitive texts on the particular subject in ques-
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tion, but each guide will be the reader’s first point of reference, offering them a
quick overview of the key points and then providing them with a ‘route map’ for
finding further, more detailed information. Where appropriate, checklists, tables,
diagrams and case studies will be included to aid ease of use.
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RIBA Good Practice Guide: Painless Financial Management

It may be a cliché but we as architects are neither educated to understand ﬁnan-

cial management nor apparently inclined to be bothered with it. All our learned
impulses, energy and creativity are channelled into designing the best building
we can; yes, to the satisfaction of the client but as often with a loftier ambition
to improve the world.
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However, we also have other professional responsibilities, many of which

compel compromise and seem to thwart this design vision. Not least among
these is the need to manage our ﬁnances so that we may continue to design
at our best. In a business where plans need to be continuously updated to
accommodate inherent unpredictability and yet where costs roll in relentlessly,
any antipathy to dealing with balancing the books is doubly challenging.
Architects have a choice – be subject to other people’s cost-based decisions,
or be sufﬁciently on top of the subject to manage the tension between design
and cost and thereby safeguard quality through their own imagination and
skill.

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The joy of this book is that Brian Pinder-Ayres, a chartered management accoun-
tant, acknowledges this central tension and indeed faces it head on with invalu-
able, straightforward and easily adopted advice. His accounting experience from
both architecture and other industries, combined with his friendly, sympathetic
writing style, make this a ﬁrst-rate blueprint for application in architectural prac-
tices both large and small.
Sunand Prasad
President, RIBA

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Over the course of twenty-ﬁve years, I have had the great good fortune to work

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with a variety of different professional ﬁrms, helping them with the management
of the ﬁnancial side of their practices. I have worked with management consul-
tants, property advisors, accountants and solicitors and, for the past ten years,
with architects.

At some point early in the initial conversations, I have become used to hearing a
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phrase something like ‘Of course, it’s much more difﬁcult for us in this profession,
we face problems that you simply do not ﬁnd anywhere else’.

I became accustomed to smiling politely while thinking to myself ‘That’s what

they all say, but actually it always comes down to the selling of professional
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time and expertise – and then making sure that you get paid for it’. So it came
as no great surprise when I heard a similar comment in my early days of working
with architects, and I quietly dismissed the idea as usual.

After ten happy, exciting and challenging years working with my architect
colleagues I have to confess that I have changed my mind and now I am ready
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to agree – it really is different in architecture! Architects face unique chal-

lenges, which stem from the intrinsic nature of construction projects, with their
long timescales and complex programmes. Experience soon teaches us that
most projects overrun their time and cost budgets, often very signiﬁcantly, and
that they will change and evolve constantly along the way, sometimes out of
all recognition.

This all spells trouble for the potential ﬁnancial health of the architect whose fee
payments are based on the achievement of deﬁned stages of the work as it was
originally planned. Project change usually means project delay, and this has an
inevitable knock-on effect in delaying the payment of fees.

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The practice’s outgoings, on the other hand, roll up with relentless regularity. The
monthly payroll, the rent or mortgage, income tax and VAT and all of the other
major costs that are involved in the running of the practice have to be met as
they fall due.

So, this is the core of the problem – how can the practice’s finances be kept on an
even keel when the inflow of money is subject to so many possible delays, while
the outflow of money is regular and unforgiving and largely beyond our control
in the short term?

This guide attempts to show the ways in which this ever-changing challenge can

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be met.

Brian Pinder-Ayres

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Brian Pinder-Ayres qualiﬁed as a chartered management accountant in 1984

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while working with Mobil North Sea. He has held senior roles in finance with
Polaroid, Braxton Associates (the strategy consulting arm of Deloittes) and a
firm of specialist City solicitors. He worked for five years as a management
consultant with chartered accountants Moores Rowland, during which time he
specialised in advising professional firms on a wide variety of financial manage-
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ment issues.

He joined YRM architects just after their successful management buy-out in

1997 and established the ﬁnance function for the new business. In 2001 he
took up his current role as Finance Director at architects and planners Shep-
heard Epstein & Hunter. He lectures regularly to Part 3 students on Finance in
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Architectural Practice at the Universities of Portsmouth and Cambridge and the

South Bank in London.
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One of the things that has often struck me in working with architects over the

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years is their openness and generosity. I have always appreciated their willing-
ness to take the time to share their knowledge and experience of practice,
often in the form of amusing or terrifying anecdotes.
I am deeply indebted to my fellow directors and colleagues at Shepheard
Epstein & Hunter and to the directors of YRM architects for all of their help,
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advice and support. I am well aware that much of what I have learned, and
which I am now putting forward in this guide, originally came from them. I
have also learned a lot from the feedback of the Part 3 students and lecturers
who have attended my lectures on this subject at the Universities of the South
Bank in London, Portsmouth and Cambridge. Their questions and comments
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have helped me to focus on the areas of practice that are uppermost in their
minds and to identify the most important areas to discuss.
I would also like to acknowledge all of the help that I have received from John
Elkington and Matthew Thompson at RIBA Publishing. I have appreciated their
constant encouragement and their patient willingness to answer a stream of
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naı̈ve questions from an anxious ﬁrst-timer.

Thanks, too, to Richard Brindley, Director of Professional Services at the RIBA
for his enthusiasm and energy in bringing the whole Good Practice Guide
series into being. Roland Phillips, who is the author of the companion guide
on Fees, was kind enough to read an early draft and offer valuable advice and
suggestions for improvement, particularly in regard to the new RIBA Standard
Agreements.
Finally, I must say a big thank-you to my wife, Liz, who has been a constant source
of encouragement and support throughout the whole project.
Brian Pinder-Ayres

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Section 1 The challenge of architectural practice 1

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....................................................................................................................

Section 2 Starting in practice

....................................................................................................................
9
Section 3 Firm foundations
....................................................................................................................
15
Section 4 Project reporting 25
....................................................................................................................

Section 5 Long- and short-term planning 35

6 Fee forecasting
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....................................................................................................................

Section 45
....................................................................................................................

Section 7 Resource forecasting 53

....................................................................................................................

Section 8 Cash-ﬂow forecasting 59

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....................................................................................................................

Section 9 Bringing it all together 65

....................................................................................................................

Section 10 Credit control 71

....................................................................................................................

Section 11 Leaving practice 81

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....................................................................................................................

Section 12 Conclusions – why architects go out of business

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87
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Bibliography and useful websites 95

....................................................................................................................

Index 97
....................................................................................................................

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In this Section:

. A healthy tension
. Control of working capital
.
.
So how can we accelerate the working capital cycle?
Multi-level management
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The practice of architecture demands a far wider set of skills than is generally
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required in the pursuit of other professions. Successful lawyers will have

developed sharp analytical skills that will allow them to follow principle and
precedent in the logical pursuit of the argument in their case. The law touches
every aspect of our lives, but the application of these skills is much the same no
matter which area of the law an individual may chose to practise. The successful
accountant will obviously have a facility with ﬁgures and an ability to ‘think with
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numbers’. Hopefully, this will be coupled with an ability to communicate the signif-
icance of the ﬁgures to colleagues in other disciplines. Once again, the potential
number of ﬁelds of application are many but the core skills remain much the same.

In contrast, the successful architect has to have the skills to be equally at home
with ‘blue sky’ conceptual design or the production of detail drawings with toler-
ances of only a couple of millimetres. They will need to be able to come up with
and visualise a building or scheme that could affect the lives of thousands of
people over many years. Furthermore, they will need to be able to communicate
that vision to potential clients. This communication has to be sufﬁciently dynamic
and exciting to persuade the clients to invest large sums of money in the

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concept. They may well have to perform this miracle of inspiration with little
more than a quick, outline sketch consisting of a bare dozen hand-drawn lines
on a piece of blank paper.

Yet, at the same time, they will need to be able to perform repetitive tasks with
great accuracy. They will have to be able to produce schedules of windows or
doors that will be in tune with the overall design, and actually ﬁt when they
are delivered to the site. They will also need to have an understanding of the
nature and qualities of the materials that are being speciﬁed and an appreciation
of the environmental implications of the choices made in this area. These are all

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quite different skills, yet the successful architect will be required to have a
command of them all. This is especially true for architects in small practices,
where the limited number of staff precludes specialisation in particular areas.

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This illustrates the underlying nature of the many challenges to be found in
practice. Architects need to be able to accommodate a wide range of people
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and situations. They must be able to reconcile conﬂicting agendas and demands
to achieve the balance that will lead to a practical solution. The architect stands
alone on the podium with baton in hand and attempts to bring the orchestra of
clients, planners, contractors, engineers, surveyors and staff together to produce
a wonderful symphony. All this, despite the fact that all these groups have different
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music in front of them and never seem to be playing all at the same time!

Within architectural practice these conﬂicts must constantly be managed, and

this is reflected in the financial management of the practice too. As with any
other business, the fundamental aim is to define the desired financial destination
and to steer a course towards it as steadily as possible.
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However, as the following sections illustrate, many potential sources of difﬁculty

lie in wait to drive the best-laid plans completely off course at any time. In the
case of an aeroplane making a transatlantic ﬂight, which is apparently technically
off course about 80 per cent of the time, it is the pilot’s job to keep making
corrections so that everyone arrives, as intended, in New York rather than in
Miami. So we, too, have to be constantly vigilant and prepared to make the
necessary corrections to our ﬁnancial journey along the way.

Our job is to develop a set of tools and indicators that will tell us quickly if we
are going off course, and where we need to look to ﬁnd a solution to the
problem.

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A healthy tension
In its purest form, the design process is a classic ‘right-brain’ activity. This term derives
from the work of the American psychologist Roger Sperry in the late 1960s. He iden-
tiﬁed two types of thinking which he described as being either ‘right brain’ or ‘left
brain’. Right-brain thinking is visual and processes information in an intuitive and
simultaneous way. It is a top-down approach, looking ﬁrst at the whole picture
before turning to the details. By contrast, left-brain thinking is verbal and processes
information in an analytical and sequential way. It is a bottom-up approach that
works by building up a sense of the whole from the detail of its parts. Many

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artists and architects naturally favour the right-brain approach to thinking.
When we are in right-brain mode we often enter a zone in which we lose touch
with the outside world while fully engaged in a task, and a common characteristic
of this condition is a sense of having lost track of time.
Actually, this is something we would generally wish to encourage. At the initial
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design stage we want our architectural designers to be at their creative best,
unconstrained by too many practical considerations. The grounding process
can come later, as the big ideas are translated into workable real world solutions.
As ﬁnance professionals, we live in a left-brain dominated world. The world of
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money is inextricably linked with the effects of the passage of time. Most of
our costs are measured and accumulated on a time-driven basis. We need to
pay our staff and our rent or mortgage monthly. We need to pay our utility
bills quarterly and our professional indemnity insurance and professional
subscriptions annually, and so on for every cost that we incur.
We prepare a ﬁve-year plan from which we derive our annual budget. From the
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budget we get our monthly forecasts of income and expenditure and conse-
quent cash ﬂow. This may lead, in turn, to weekly plans showing the projects
on which staff are going to be spending their time. We are constantly aware of
the relationship between time and money.
Thus, a tension arises. We expect and want our architect colleagues to ‘lose track
of time’ and to get carried away with the excitement of the creative process. It is
in this mode that they are the most likely to produce their best work.
Yet, we are also acutely aware that our ﬁnancial obligations accrue relentlessly on
a daily basis and that it is our responsibility to ensure that we will have the funds
available to meet them when they become due.

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So, a major part of the ﬁnancial management role is the creation and manage-
ment of a healthy tension. Without damaging or distracting from the creative
process, we need to be constantly reminding the team that there are time and
budget constraints within which we all have to operate. Ultimately, we will
have failed if we end up with the most wonderful design that we cannot
realise because we have bankrupted the practice in the process.

We need to create an atmosphere in which innovative design can ﬂourish. But it

must also be clearly understood that there is usually simply not enough time or
budget to go through the process two or three times before settling on a design

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solution. We need to guard against a failure to complete the design process at
the appropriate stage of the project. I have seen the consequences of designing
‘on the hoof’ at the working drawings stage. This is bound to result in change and
confusion, which will lead to delay and additional cost.
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Control of working capital

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One of our key tasks in the ﬁnancial management of the practice is the control
of working capital. The total amount of money invested is known as the
capital of the business. Some of this will be used to provide the permanent or
ﬁxed assets that are required, such as buildings, vehicles, furniture or computer
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equipment. The rest goes to provide the funds to pay staff and bills as they
fall due. This is our everyday working money and is what we mean by working
capital.

Working capital is often deﬁned as the value of all current assets less the value of
current liabilities. These are the terms used in the preparation of the annual
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balance sheet, so it is possible to calculate working capital by looking at the

most recently prepared set of accounts.

Current assets include the cash balance at the bank, the value of money owed to
us by our customers (our debtors) and the value of the work completed for which
invoices have not yet been raised (which we used to call ‘work in progress’, but
which should now, more correctly, be described as ‘accrued income’).

Current liabilities are the amounts that we owe to other people – mainly our
suppliers but also the tax authorities for VAT, PAYE and National Insurance,
and income or corporation tax. It will also include the bank if we have a short-
term loan or overdraft. These people and institutions all allow us some time to

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settle our obligations with them and are extending some credit to us, thus they
are known collectively as our creditors.

In summary:
Working capital ¼ cash þ debtors þ accrued income creditors

In other words, it is the money we have in the bank, plus the money that is owed
to us by our customers, plus the value of the work completed but not yet
invoiced, less the amount we owe to our suppliers.

The key to managing working capital successfully is to ﬁnd the right balance

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between liquidity and profitability. If we were to employ extra staff we could
undertake larger projects, which would hopefully result in greater profits.
However, extra staff cost money and could prove to be very expensive if there
are periods between projects when they cannot be usefully employed on fee-
earning work. Again, we have a conflict of objectives and a tension to be
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managed.

How much working capital we need is determined by the overall level of our fees.
We can divide our annual fee income by the value of working capital to work out
how many times the working capital circulated or ‘turned over’ in the year. This is
a good measure of how efﬁciently the practice is managing its ﬁnancial resources.
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Example:

Total practice fee income ¼ £200,000

Average working capital ¼ £40,000

In the above example the working capital circulated ﬁve times during the year,
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which could also be expressed as a relationship of 20 per cent. We can now

predict that if we were to increase our fees by a further £50,000 we would
require another 20 per cent of working capital, i.e. £10,000. This can be met in
part from the extra cash generated by the additional sales, but will probably
also require an increase in the short-term borrowing or overdraft facility. This,
of course, comes at a cost and begins to have a negative effect on our proﬁt-
ability.

However, there is another way to tackle the level of working capital requirement.
We can reduce the amount of working capital required by accelerating the rate
at which money circulates in the business. In our example, the money in the

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business turned over ﬁve times in the year, which equates to a working capital
cycle of 73 days. If we could speed up this process so that the money turned
over ten times, we would reduce the cycle to 36 days but also reduce the require-
ment to £20,000. In other words, the faster that the money owed by clients is
collected, the less working capital will be needed.
This is a crucial idea to understand. It means that two otherwise identical practices
could require quite different levels of working capital, depending entirely on the

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efﬁciency with which they can manage the circulation of their working capital.

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So how can we accelerate the working capital cycle?

By far the most effective way is to ensure that completed project work is billed
promptly and regularly and that the resulting invoices are collected and
converted into cash in the bank as rapidly as possible. We can assist the
process to a degree by carefully taking advantage of all of the credit that our
suppliers are prepared to give us. However, this is a limited process as there
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are costs involved in taking this too far. Taxes paid late will attract ﬁnes and
interest charges, and suppliers have a statutory right to punitive interest
charges if their agreed payment terms are exceeded, unless other-
See also
Section 10 wise speciﬁcally agreed in their contract.
Credit control,
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page 71 We will be exploring how we can do these things in Section 10 of this

guide.

Multi-level management

We need to manage the practice on a number of different levels simultaneously.

We need to be able to track ﬁnancial performance at the project level, but also at
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the client or group level as well as the overall practice level.

We want to ensure that the majority of our projects are more than covering their
costs and are making a financial contribution to the running costs of the practice
as a whole. We need to add up these contributions from all of the current projects
to ensure that, in total, they will be sufficient to cover the overhead costs and
generate enough profit to be reinvested in the growth and development of
the practice. We need to ensure that we have allowed the time and budget to
undertake projects which will not make much profit or, indeed, may cost us
money to carry out. It is wise to devote some time and resources to the
competitive tendering process as competition is fierce and only high-quality

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submissions are likely to win. It is important to offer staff the opportunity to enter
design competitions to enable them to exercise and develop their design skills at
an early stage in their careers.
So, once again, we see the need to manage conflicting demands and to deal
with the financial consequences of this conflict. Our aim is to create a financial
environment in which the architectural practice can flourish. All of the architects
that I have met have been far more concerned about the quality of the finished

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design than about making money. So, it is our overriding goal in ﬁnancial
management to ensure that money ﬂows smoothly and steadily through the

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business, so that a lack of funds does not become a constraint on the growth
and development of the practice.

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SUMMARY

. Architects need a wider skills set than most other professionals as

they need to be able to deal with the detail and the ‘big picture’
simultaneously.
. Architects have to be able to cope with a wide variety of people who
have differing agendas and priorities. The need for diplomatic handling
of conflict is key, and this is reflected in our approach to financial
management.

EN
. We need to maintain a healthy tension between the creative ‘right-brain’
nature of the design process and the ‘left-brain’ world of ﬁnance, where a
time-is-money mentality rules.
. One of our primary tasks is the management of the working capital cycle.
Whatever we can do to speed up the rate at which money ﬂows through
the business will reduce the total amount of money that we need to

.
finance the business.
IM
We need to manage the finances of the practice at a project level and
a whole firm level simultaneously to ensure that our overall financial
objectives are met and to allow the practice to flourish and grow
unhampered by financial constraints.
EC
SP

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Section 2
Starting in practice
In this Section:

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. Sole trader and partnership
. Limited liability partnership (LLP)

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. Limited company
. Raising finance IM
Starting in practice is a major, and probably life-changing, decision and there are
many factors to be considered. This section will focus on the financial aspects
and, in particular, the significance and implications of the choice of business
form. For a detailed examination of the whole process, readers are directed to
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the companion title in this series – Starting a Practice.

The initial choice of business form will have fundamental See also:
implications for the practice throughout its life, and will ultimately Section 11
Leaving
be of signiﬁcance to the individual when it comes to leaving or practice, page
81
retiring.
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Sole trader and partnership

The simplest business form in which to practise is as a sole trader or a group of

sole traders who form a partnership. Each of the individuals involved is self-
employed and responsible for their own tax affairs. Once you are registered as
self-employed, you are ready to ‘trade’. It is important to register with the tax
ofﬁce within three months of starting, otherwise a £100 penalty could apply.
This is not a great way to start your self-employed relationship with Her Majesty’s
Revenue and Customs (HMRC). For an individual architect starting out on their
own this is usually the sensible place to begin.

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The great disadvantage of this business form is the potentially unlimited personal
liability that it involves. Although you must have professional indemnity
insurance (PII) in place in any event to be able to practise, there is always the
possibility of a ‘doomsday scenario’ arising, where a successful claim against
you exceeds your PII cover level. In these circumstances it is possible to lose all
of your personal assets, including your home.
Many architects practised as partnerships for years and managed to sleep at night
despite the ‘joint and several’ liability that is a key ingredient of the partnership
mix. Sadly, the increasingly litigious world in which we now all live makes this an

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unacceptably risky model. It is widely known that professionals will have PII, and
it is widely assumed that they also have deep pockets. This has made us all into
potentially attractive targets. The solicitors and accountants who made up the
proﬁt-sharing ownership of the big ﬁrms became especially concerned about
this issue, and they were the ones who led the campaign for the introduction
of a new hybrid business model.
IM
Limited liability partnership (LLP)

In many ways this new business form is an attempt to give the professional in
practice the best of both worlds. Created by the Limited Liability Partnerships
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Act 2000, the partnership structure and ethos can be retained, yet the LLP also
has the all-important protection of limited liability, conveyed by its separate
legal entity status. In simple terms, it means that the partners will not all risk
losing their homes and other assets in the event of a successful claim against
the practice that exceeds the level of insurance cover.

As a consequence, the majority of the top 50 ﬁrms of solicitors and accountants

have either already converted or are in the process of converting to LLP status.
Traditionally, it was the fear of facing a large professional indemnity claim that
kept people awake at night. But, in a recent survey of law ﬁrms which had
converted, the reason most commonly cited for conversion to LLP was the fear
of the potentially unlimited damages that can result from an employment-
related unfair dismissal or discrimination claim.

Unsurprisingly then, this trend is also spreading rapidly to the other people-
based professions and a signiﬁcant number of architects are currently making
the same conversion decision. I would expect to see many others follow suit
in the next few years. Indeed, if I were advising someone contemplating
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establishing a new architectural practice today, I would strongly urge them to

consider the potential beneﬁts offered by the LLP.

The partners in an LLP continue to be treated for tax purposes as before, and
carry on with the familiar regime of income tax paid via the self-assessment
system. They do not need to trouble themselves with the adjustment in thinking
that is required of the limited company director, who has to become used to the
corporation tax regime, and to the delayed receipt of part of their remuneration
package as dividends.

One of the consequences of becoming an LLP is the requirement to ﬁle ﬁnancial

EN
information annually at Companies House. This step into the public domain will
be a first for many and is sometimes cited as a reason to remain ‘private’, as a
sole trader or partnership. Many partners have been concerned that their peers
and staff will be able to see how much (or, perhaps even worse, how little)
they have been earning. However, Companies House is well aware of the
IM
commercial sensitivities and allows for highly abbreviated accounts information
to be filed for all but the biggest companies or LLPs. For most small businesses,
and hence the majority of architects, this amounts to a basic balance sheet with
a few requisite technical notes being made available to the public. In most cases
it is very hard to deduce anything significant from these figures, in terms of how
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well the practice is doing or how much any individual is earning.

Limited company

The traditional alternative to working as a sole practitioner or partnership was to

form a limited company. As the practice grows in size and the amounts of money
involved become more substantial, a point tends to be reached where it makes
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sense to everyone involved to seek the protection of limited personal liability

which is provided by setting up a separate legal entity. The level of ﬁnancial
risk starts to feel uncomfortable to everyone.

The operation of a limited company does involve a degree of extra formality and
the need to ensure compliance with the requirements of Companies House and
the HMRC. Recent legislation, in the form of the Companies Act 2006, has been
designed to simplify and modernise some aspects of the running of a limited
company. However, there will always be a price to be paid in terms of disclosure
and public reporting in return for the beneﬁt of limited liability. Companies
House has the task of keeping records on every company on its register so
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that any creditor or other interested party can always ﬁnd out where a company
is based, who owns it and the identity of its directors. In order to ensure that this
information is kept up to date, it has the power to ﬁne companies for the late
submission of information. In extreme cases, it has the power to take legal
action against individual directors.

Some architects ﬁnd it difﬁcult to move from the informal culture of a partnership
to the more structured world of the limited company. Hence, the appeal of the
LLP, as described above.

EN
In a limited company the ownership of the practice is reﬂected by the holding of
shares. Shares can offer very useful ﬂexibility, as circumstances change over the
course of time. The more senior directors can sell or transfer their shares to the
next generation on a gradual basis as a part of a succession planning exercise.

However, dealing with the changes in practice ownership via shares can be
fraught with difﬁculty. Unless you have a shareholders agreement in place that
IM
deals with all of the eventualities, some very difﬁcult issues can arise that
revolve around the methods used to place a value on the shares held. The
outgoing director/shareholder will, of course, wish to maximise the value to be
received for the shares being sold. Equally, the acquiring shareholders will wish

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to buy the shares for the lowest possible price. Both parties will agree that a
‘fair’ price should be paid. But this is where problems can begin, as each has
quite different ideas of what a ‘fair’ method of calculation would be.

In order to avoid these problems, it is wise to ensure that all new shareholders
sign up to an agreement that speciﬁes exactly how shares will change hands
and how the values to be used will be calculated.
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Raising ﬁnance

One of the recurring themes of this guide is that architectural practices tend to
require more working capital than other businesses of a similar size because of
the extended time periods that are involved with construction projects. As a
consequence, architects will need more initial capital and must constantly
manage their cash ﬂow very carefully if they are to keep out of trouble.

Experience shows that anyone starting a new business tends to be over-

optimistic. We all tend to underestimate how long it will take our customers to

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become as excited about what we have to offer as we are ourselves. We all tend
to think that our sales will build up more quickly than they actually do, and we
also do not take into account how long it will take to actually get paid for the
work that we have done.

Talking to bank managers on this subject can be very revealing. They are in
the business of lending money to new businesses and they are generally very
keen to do so. However, they are well aware of this misplaced optimism on
the part of their potential customers in relation to cash ﬂow, especially in the
early months and years. In order to make adjustments for this ‘exuberance

EN
factor’, they will look at the projected sales line and discount it by one-third
or one-half to see what the consequent cash-flow effect will be. This then
gives them a much better indication of how much money the business is likely
to find itself needing to borrow. They can then apply their own lending criteria
to this adjusted set of figures to see if this is business that they wish to take on.
IM
Most start-up businesses will aim to finance their working capital requirements
by means of an overdraft facility. This is often the most sensible option. It is
important to match the type of finance with the expenditure. It obviously
makes sense to purchase property by using long-term finance, such as a
mortgage. However, it is also sensible to purchase assets with a medium-term
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life span such as computers or furniture using a three- or five-year term loan,
rather than by further extending the overdraft. Any mismatch of finance could
be regretted when trading conditions become difficult and cash is tight.

Studies of businesses that have gone into insolvency reveal that only a few failed
because they could not make a proﬁt or had a poor business model. The vast
majority that do go under simply run out of cash.
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SUMMARY

. This whole area is covered extensively in the companion guide in this

series entitled Starting a Practice.
. The choice of business form will have signiﬁcant implications for the
business from the outset. It will also affect the way that the owners
can exit from the practice when the time comes to leave or retire.
. Trading as a self-employed sole trader or partnership is simple and
straightforward but does come with unlimited personal liability.

EN
. The limited liability company is the traditional solution to this problem,
but this entails added complications in the form of compliance with
the requirements of Companies House.
. The introduction of the limited liability partnership (LLP) offers a hybrid
solution. Architects can retain the look and feel of a partnership, while
enjoying the protective cloak of limited personal liability.
.
IM
All new businesses have to raise finance and most tend to be over-
optimistic about the level of sales they will achieve in their early years.
It is important to build this factor into the business plan and cash-flow
forecast that is used to approach the bank for overdraft facilities. There
is a danger that insufficient money will be made available from the
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outset, which could lead to problems in the early days of the practice.
. Most new businesses of any kind that fail, tend to do so because they run
out of cash, rather than as a result of failing to run a proﬁtable business.
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EN
. The accounting process
. Monthly profit reporting
. Key performance indicators (KPIs)
. Cash-flow key performance indicator
IM
The most important function of financial management is the prediction of
what lies ahead. What profits are we likely to make? Will we have enough cash
to be able to operate in six or twelve months’ time? This needs to be
combined with an ability to communicate those forecasts to the management
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of the practice so that they can respond accordingly. However, we cannot

make meaningful projections if we do not have accurate historical information
available as our starting point. The accounting process has to tell us where we
are now, and we need to have conﬁdence in what we are being told. Every-
one’s faith in the numbers is soon shaken if there are glaring errors in the
ﬁgures that are presented to them. We are going to construct a complex
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model of our future, and make major decisions based on these foundations, so
they need to be sound.
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The accounting process

Underpinning the whole ﬁnancial process is the book-keeping system. It does

not matter if you are a sole practitioner or working in a practice with hundreds
of staff, there has to be some reliable way of keeping the ﬁnancial score. This
is required by law in any event to satisfy our tax reporting obligations. The
smallest of practices with only a few people involved may well be able to get
by using simple spreadsheets to record lists of income and expenditure that

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can be translated into a final set of accounts at the end of the year by an
external accountant. Most practices with more than a handful of staff will
choose to use an accounting software package which performs the mysteries
of double entry book-keeping for them in the background. These packages
will also produce a preliminary profit and loss account (P&L) and balance
sheet. More sophisticated packages will combine accounting, time recording
and project planning and reporting to provide an integrated approach to all of
the financial aspects of the practice.

A good book-keeping system will be:

EN
. simple to operate and maintain – entering information needs to be easy
and the transition from one financial period or year to the next must be
straightforward
. detailed – containing enough information to enable items to be found again
easily
.
IM
logical – items of a similar nature will be grouped together (for example, the
office expenses for gas, electricity and water will be next to each other in
the accounts list rather than being spread out and mixed up with other
types of expense)
. up to date – credibility is soon lost if financial information is presented that is
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immediately shown to be wrong because it does not reﬂect the current situation
. documented – each transaction should have a supporting document (for
example, an invoice or receipt to authenticate what has been recorded).

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We need to record information in a timely way and there are a number of
activities that have to happen on a routine basis. These procedures build up
over the course of the ﬁnancial year to enable the production of the ﬁnal
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output of the process – the ﬁnancial statements or annual accounts. The trans-
actions and events that have to be recorded and a suggested timescale for
each are detailed below.

Daily
. Money received – whether it is in the form of cheques or direct electronic
payment.
. Payments made – whether in the form of cash, cheque or bank transfer.
. Invoices raised and sent to clients.
. Invoices received from suppliers or other consultants.

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Weekly
. Staff timesheets collected and entered.
. Petty cash summarised and recorded.

Monthly
. Payroll processing.
. Staff expenses collected and reimbursed.
. Bank reconciliation – ensuring that all of the items on the bank statement have

EN
been recorded and that the bank’s records agree with yours about how much
money is left at the end of the month.

Quarterly
. VAT returns.
. The management information package which is needed to satisfy
IM
the requirements of the bank. This will include a cash-ﬂow forecast
See also
Section 6 Fee
forecasting,
and a report on the forward order book. page 45

Monthly proﬁt reporting

The gradual collection of all of this ﬁnancial information is necessary to be able to

produce a set of year-end accounts that will satisfy the requirements of all of the
various stakeholders in the business (i.e. owners, staff and the tax authorities).
However, this same information can also be used to provide management
information to inform decisions about the operation of the practice during the
course of the year.
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There is a distinction to be drawn between the approach to the management

accounting process, which produces information during the year, and the end-
of-year financial accounting process. The latter aims to give a complete, ‘true
and fair view’ of the business and is the definitive statement of what happened
financially during the year. This is produced mainly for tax and Companies
House compliance purposes and can often take a number of months to be
produced. By contrast, the practice needs management information to be
produced as soon after the period to which it relates as possible. Situations
can change so rapidly within the practice that information relating to one
month that is not available until, say, 21 days after the end of that month

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F I G U R E 3 . 1 : Monthly ‘flash’ profit and loss results – profit in the month and in the year
to date compared with the budget

Jan. Jan. Year to date Budget

£000 actual budget Variance 10 months 10 months Variance

Gross fees 150 1,650

Non-recoverable
sub-consultant fees –10 –100
Net fees 140 165 –25 1,550 1,500 50
Resource costs 85 90 5 950 800 –150

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Overheads 42 40 –2 385 400 15

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Net proﬁt before tax 13 35 –22 215 300 –85

could be of little or no value. Indeed, it could even prove to be a hindrance

because it could lead to decisions based on circumstances that no longer
apply. IM
So, management information needs to be made available quickly to the people
running the practice. I take the view that management ﬁgures must be available
within three working days of the end of the month. The major elements must be
reported as accurately as possible, but some of the detail may be glossed over at
this stage.
EC

In most practices the Pareto principle, or as it is also known the 80/20 rule, will
apply. Pareto was an Italian economist who observed that 80 per cent of the
income in his country went to 20 per cent of the people. Subsequent manage-
ment thinkers realised that this idea has wide application and 80 per cent of
the effect often comes from 20 per cent of the causes. In architectural practice
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we can get a good picture of our ﬁnancial position if we can reasonably estimate
the ‘big three’ numbers, i.e. sales income, staff expenses and overheads.

Expenditure on staff and premises will usually account for the majority of the
regular monthly expenses, and these can be estimated with a fair degree of
accuracy as soon as the month is complete. There is a conscious trade-off
between speed and detailed accuracy.
Even the ﬁnal ﬁnancial statements cannot be said to represent an objective
and truly accurate picture of events. In preparing these accounts we always
have to make some assumptions and exercise judgement about what values
to include.

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Financial data only becomes useful information when it has been understood. It
is important to consider the needs and preferences of the audience and to have
an appreciation of how they assimilate information. The primary need is to
communicate the big picture in as striking a way as possible. In order to
achieve this, it is important to evolve a reporting format that works well for
the right-brain thinking architects.
The monthly ‘flash’ profit and loss results chart shown in Figure 3.1 presents the
financial data in an immediately accessible format. The report is a condensed
summary of the profit and loss account, showing the performance in the previous

EN
month, together with the performance in the ﬁnancial year to date (YTD) and

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comparing each with the budget. The differences between the actual and the
budget figures for each of these time periods are shown in the variances
column. Variances are expressed following the usual convention that a positive
figure represents ‘good news’, such as higher income than expected or lower
expenses. Conversely, a negative figure indicates ‘bad news’, such as a shortfall
in income or an overrun on expenses.
IM
The monthly result gives a high-level overview, focusing on just a few key
elements of the business, so that it is immediately obvious if any areas of the
practice are missing their targets and experiencing problems.
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Income

Income is shown after making allowance for fees that are being collected on
behalf of other members of the design team. It is important to ensure that we
are only looking at the practice’s own net fee income. The architect will often
be appointed as lead consultant on a project and will administer the billing
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and collection of the fees of the quantity surveyor (QS) or the engineers. We
must ensure that we are not seduced into complacency by a healthy-looking
turnover ﬁgure that is ﬂattered by the inclusion of fees that do not really
belong to the practice.

Resource costs

This category includes all of the expenses that relate to people. In addition to the
direct payroll costs, there are the add-on employer’s costs of National Insurance
contributions, the cost of beneﬁt plans such as life cover, medical insurance,
permanent health plans, and the cost of training programmes and recruitment.

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Overheads
The term ‘overheads’ sweeps up all the other categories of expense into one
large pot. It is very easy to become bogged down in the detail when it comes
to overhead costs. It is important to review overheads from time to time to
ensure that money is not being wasted. It is a good idea for all items of
expenditure to belong to somebody in the organisation who is responsible for
keeping it within a predetermined budget. It is, however, unlikely that a
signiﬁcant ﬁnancial problem in an architectural practice is simply the result of
spending too much on overheads. It is far more likely to be a structural issue,

EN
such as the wrong number or the wrong mix of people for the work that is in
hand, which is causing a ﬁnancial strain. It is all too easy to avoid facing up to
these difﬁcult issues by becoming immersed in an investigation into a minor
overspend on stationery or telephone charges.

From the report we can quickly assimilate whether we are making a proﬁt or not,
IM
where we are in relation to the budget and whether this is a temporary problem
or a long-term issue.

In the example shown we can quickly scan the figures and draw the following
conclusions.
EC
. The month of January was a disappointing month with profits £22,000 below
the figure that was in the budget. A shortage of fees was the main problem. A
shortfall of £25,000 means that the net income is 15 per cent below the
budget. Small savings on resource costs were partly lost by an overspend on
overheads, but this made little difference to the overall result.
. The ten months of the financial year to date (YTD) – sadly, the cumulative posi-
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tion after ten months does not tell a happy story either. Proﬁts are £85,000
lower than was planned in the budget at this stage but the reasons are
different. Here, we see that the net fees are only a little off target, but the
major variance is a signiﬁcant overspend on resource costs. Although there
are small overhead savings, these could do little to rectify the overall position.

Key performance indicators (KPIs)

Another way to help with the rapid comprehension of the current ﬁnancial posi-
tion is to track proﬁtability KPIs as follows:
. turnover by director/partner

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Section 3: Firm foundations 21

FIGURE 3.2: Key performance indicators – the key measures of ﬁnancial performance
compared with the budget and with industry benchmarks

This This Year to Year to

month month date date
actual budget Benchmark actual budget Benchmark

Turnover by director – £000 35 40 30 36 40 30

Turnover per fee earner – £000 4.5 6 5 4.8 6 5
Profit as percentage of turnover 12 15 15 11 15 15
Profit per director – £000 4.8 5 5 4.6 5 5
Profit per fee earner – £000 1.8 2 1 1.6 2 1

EN
Liquidity – overdraft cover 1.8 2 2 3.5 2 2

. turnover by fee earner

. profit by director/partner
. profit by fee earner.
IM
The key performance indicators chart (Figure 3.2) summarises the comparison of
each of these figures against the budgeted values and also industry benchmarks
that are published from the results of inter-firm comparison reports.

Figures are shown for the current month and for the ﬁnancial year to date.
EC

The first five measures are concerned with income and profit; the last indicator is
a measure of liquidity, often quoted in bank overdraft agreements.

As with all ratio analysis, it is at its most useful when viewed in terms of a
trend rather than as an isolated value. Circumstances may conspire to make
the position at the end of a particular month unrepresentative of the general
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pattern. Looking at a KPI’s performance over a nine- or twelve-month period

will eliminate these sorts of anomalies. Each practice will develop its own
preferences as to the KPIs that best suits its circumstances and that it wants to
monitor on a regular basis.

Cash-ﬂow key performance indicator

For most practices there will be no need to produce a full set of accounts, i.e.
profit and loss (P&L) and balance sheet, every month. The profit and loss
account is designed to tell us how we performed over a period of time, usually
the twelve-month period that comprises our financial year. The balance sheet

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is a picture of the business as it exists at a particular point in time, usually at the

end of the twelve-month proﬁt and loss period.

For example, if our ﬁnancial year runs for twelve months from 1 April to the
following 31 March, then our P&L is expressed as being for the twelve-month
period ending 31 March, whereas our balance sheet just shows the closing posi-
tion as at 31 March.

The balance sheet is often analysed in terms of the ratios between its different
parts. This sort of analysis allows us to see the extent to which the business is
running on borrowed money rather than the money invested or retained from

EN
the profits of previous years. It shows whether there is a current liquidity
problem. Will the business have the cash available to pay the staff and its
suppliers as bills become due?
This approach is reflected by the inclusion of a liquidity KPI in the monthly
review, along with the profitability KPIs described above, in the form of overdraft
cover.
IM
Overdraft cover is calculated as the amount owed to us by our clients divided by
the current overdraft balance.
EC

Example: Overdraft cover

Let us assume that the total amount due from our clients at the end of the
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month ¼ £25,000, and the amount outstanding on the overdraft stands at

£10,000 at that time. The calculation would be:

£25,000 divided by £10,000 ¼ cover of 2.5 times

This means that we are owed well over twice as much money by our clients
as we owe to the bank on the overdraft.

This is a measure that is favoured by many banks, and is often written into
overdraft agreements as a condition of the granting and continuation of
their facility. The usual requirement is for a minimum of two times cover
– so, in the example above the test has been successfully met and the
bank manager will be reassured that the bank’s money is in safe hands.
By way of contrast let us take a different scenario.

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Let us assume once more that our overdraft balance stands at £10,000 but
this time we only have £12,500 owed to us by our customers.

The calculation now is:

£12,500 divided by £10,000 ¼ cover of 1.25 times

This clearly fails the bank’s criterion of two times cover, and would be
likely to prompt the bank to ask some urgent and difﬁcult questions. The
bank will be concerned, and feel that it is bearing too much of the risk

EN
in this business. If this situation has persisted over a number of months
and the bank’s management has become sufﬁciently alarmed, the bank
could decide to ask for its money back immediately by calling in the
overdraft. This may well be the end of the road, as the practice is very
unlikely to have the money available elsewhere to meet this demand.
IM
Regular and accurate book-keeping will provide the information from which
we can work out whether the practice is making an overall proﬁt. By its nature
the process is detailed and repetitive and does not naturally appeal to most
right-brain dominated architects.
EC

But it really does matter that it is done well, and not seen as a piece of time-
wasting bureaucracy, because it provides a ﬁrm and reliable springboard from
which to leap into the uncharted waters that are the prediction of our ﬁnancial
future.

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SUMMARY

. Our key role is to look ahead and predict what the ﬁnancial future holds
for the practice. In order to do this we need to have an accurate picture of
where we are now, and this is what the accounting process is designed to
provide.
. The ﬁrst requirement is for a sound book-keeping system that is simple
to use and keep up to date. If the routine tasks that are required on a
daily, weekly and month basis are maintained, it is easy to produce

EN
useful management information.
. There is a difference in approach when producing ﬁgures for manage-
ment purposes as opposed to those produced to satisfy the legal
requirements of HMRC and Companies House. The emphasis in the
production of management information is on the speed of reporting
and a degree of estimation is acceptable so long as the overall impres-
IM
sion is accurately conveyed. We need to produce information that can
facilitate rapid action to remedy a situation before it develops into too
great a problem.
. If we have accurate ﬁgures detailing our income and outgoings on our
people and property, we will already have a fairly good picture of the
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proﬁtability of the practice in that period of time.

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. Key performance indicators help us to assess quickly which areas, if
any, are a problem and need to be addressed. KPIs cover not just
measures of turnover and proﬁts but also of ﬁnancing and liquidity.
Each practice can evolve its own KPIs to suit its particular market and
organisational situation.
SP

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EN
. The calculation of cost
. Project performance

In the management of the practice our aim is to ensure that we always have the
ﬁnancial resources available to allow us to do the sort of architectural work that
IM
we would like to do. It is a hard fact of commercial life that a practice will not be
able to realise its creative potential unless sufﬁcient attention is also paid to its
business side.
In order to do this we must ensure that, after everything else has been paid, we
EC

make sufficient profit that can be retained in the business to sustain the practice.
The best way to ensure that we arrive at the correct overall result at practice level
is to monitor the performance of each project as it progresses and to react to
problems on each project as they arise. Adopting the discipline of planning
the financial outcome of each new project as it comes into the office, and then
comparing its performance to that plan, offers a far better chance of achieving
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the overall result desired at the practice level.

It is often difficult to gather the necessary financial information at the outset of a
new project. The elation that comes from having won the work carries over to a
natural enthusiasm to get started on the design process. It is all See also
too easy at this stage not to worry about what may seem to be Section 1 The
challenge of
peripheral paperwork. This is one of those occasions on which it is architectural
necessary to establish the balance of tension described in Section practice,
page 3
1 between the design process and financial reality.
If we fail to establish at the outset what we intend to be paid for this project, and
what we intend to spend to earn this fee, then there is a significant chance that

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we will eventually ﬁnd ourselves at the end of the project with only a vague sense
of whether the project was ever ﬁnancially worthwhile.

It is essential that we take the time to think through the project plan in terms of
the resources that will be needed for each stage and for how long. This can then
be translated into a cost plan by work stage, against which we can monitor actual
performance. Certain information must be known from the beginning.
. How much is the overall fee?
. Are there other members of the design team that need to be paid from this

EN
fee?
. Is there an agreed fee schedule?
. Is there a detailed resource plan showing who is allocated to the project on a
week-by-week and stage-by-stage basis?
. Are there signiﬁcant other expenses involved (such as travel, hotel or printing
costs) that will need to be absorbed as a part of the fee?
IM

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If this information is not already in place, we must risk unpopularity by continuing
to ask for it until we receive it. Once we do have the information, we can develop
a ﬁnancial performance model that can be used to monitor the project as it
progresses.
EC

The calculation of cost

The largest cost on a project of any size will be the architectural resources used –
in other words, the cost of the people working on the job. This may also include
the cost of architectural services that are being bought in on a temporary or
contract basis. Architects are paid on a time basis – an annual salary is essentially
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a contract to purchase a package of professional hours over the course of twelve

months. So, the logical way to measure the cost of our people is by a time-based
calculation, and for this we need a time-recording system.

The detailed recording of time is one of those left-brain activities that does not
come readily to many architects. The advent of electronic time recording
systems has made the whole process much easier in recent years. Yet, in any prac-
tice, it seems that there will inevitably be about 10 per cent of any group of
people who will always be late in submitting their timesheets (and expenses)
regardless of the procedures in place. This is not restricted to architects, by the
way; every professional services ﬁrm encounters the same sort of issue.

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The most workable solution to bringing the minority of tardy timekeepers into
line would seem to be an automated reminder system, backed up with tenacity
and a sense of humour. It is, however, essential for the integrity of the costing
system that all time is eventually recorded.

We need to develop a cost rate for each person expressed in terms of pounds per
hour. The cost calculation needs to encompass not just the salary and any regular
overtime payments, if applicable, but also the add-on costs of beneﬁts and
employer’s National Insurance contributions (NICs).

A typical calculation is illustrated below.

EN
Example: Annual costs

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Base salary £36,000
Employer’s NICs £3,940
IM
RIBA/ARB subscriptions £300
Life insurance £150
Health insurance £300
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Total £40,690
Next, we need to calculate the number of hours available for work in a year.
Assuming ﬁve weeks of paid leave, there are 47 working weeks in a year.
Deduct three further weeks for bank holidays and an allowance for sickness.
So, we have 44 weeks with, say, 35 hours per week ¼ 1,540 hours per year.
SP

Thus, the calculation of the cost of a standard hour for this person is as
follows:
£40,690 divided by 1,540 hours ¼ £26.42 per hour

Once established, the cost rate calculation can be performed for each member of
staff. Problems can arise if individual rates are published as there is a close
correlation with the underlying salary and pay differentials can be accidentally
exposed. To avoid this problem I would recommend that a standard average
cost rate is used that applies to each group of people (for example, all Part 3

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F I G U R E 4 . 1 : Project resource plan spreadsheet, showing how the cost proﬁle is calculated for a project (the number of profes-

No reproduction or networking permitted without license from Accuris

sional hours needed per person per month multiplied by their cost rates)

--```,,,``````,,,``,,,`````,-`-`,,`,,`,`,,`---
Hours
SP
Jan. Feb. Mar. Apr. May June July Aug. Sep.
Director 50 40 40 5 24 25 50 5 2
Painless Financial Management

Associate 95 125 125 55 95 50 95 55 8

Architect 290 350 350 200 500 350 290 200 76
Asst Arch. 400 500 500 262 600 250 400 262 92
Total 835 1015 1015 522 1219 675 835 522 178
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Direct costs
Cost rate Jan. Feb. Mar. Apr. May June July Aug. Sep.
per hour: £
Director £50 2,500 2,000 2,000 250 1,200 1,250 2,500 250 100
Associate £40 3,800 5,000 5,000
IM2,200 3,800 2,000 3,800 2,200 320
Architect £30 8,700 10,500 10,500 6,000 15,000 10,500 8,700 6,000 2,280

Not for Resale, 09/18/2023 10:50:59 MDT

Asst Arch. £25 10,000 12,500 12,500 6,550 15,000 6,250 10,000 6,550 2,300
Total £25,000 £30,000 £30,000 £15,000 £35,000 £20,000 £25,000 £15,000 £5,000

Cumulative total £25,000 £55,000 £85,000 £100,000 £135,000 £155,000 £180,000 £195,000 £200,000
EN

Licensee=Dublin Institute of Technology/5946591001, User=Roe, David

Section 4: Project reporting 29

students are costed at £15.00 per hour). These rates will, of course, need to be
recalculated when salaries change during the year.

This calculation uses just the elements that comprise the remuneration
package; consequently, the result is described as the direct cost. It is also
possible to add in an allowance for a share of the ofﬁce overheads, which are
known as indirect costs. This allowance can be calculated in a variety of ways,
but is often derived by dividing the total overhead costs by the total number
of planned chargeable hours. Thus, if all of the fee-earning staff perform the
planned number of chargeable hours, then all the costs of the practice will be

EN
covered.

Other than for the very smallest of practices I prefer not to include indirect costs,
as the calculation of these charges can be difficult and, since the calculation is
forever changing, the results can be misleading. I would recommend the
simpler ‘contribution’ approach. Using this method we take the direct resource
IM
costs, as calculated in the example, away from the fee and we are left with a
‘contribution’ to the rest of the overheads of the office. We need to ensure
that the total contributions received from all of the projects over See also
the course of the financial year are sufficient to cover the overheads Section 9
Bringing it all
and to provide the desired level of profit. This subject will be together, page
EC
65
addressed in more detail later.

The ‘direct cost’ rate is different from the ‘charge out’ rate. Charge out rates
should include an allowance for indirect costs, non-fee-earning time (i.e. practice
administration, marketing and training) and also a project margin.

We can now work up a detailed project resource plan, as illustrated in Figure 4.1.
SP

This shows us the number of hours of each grade of person that we will need on a
month-by-month basis. These hours are then translated into cost by multiplying
by the appropriate cost rate.
These values can then be plotted on a graph, as shown in Figure 4.2, together
with the projected fees, also shown on a month-by-month basis. This project
performance chart allows us to see how the planned contribution (planned fee
minus planned direct cost) builds up over the course of the project.
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Project performance

As the project progresses, we can plot the actual ﬁgures.

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FIGURE 4.2: Project performance chart 1 – a ﬁnancial overview of the project at the
outset

400

350

300

250
£000

200

EN
150

100
Projected fee
50 Projected cost

0
Jan. Feb. Mar. Apr. May June July Aug. Sep.
IM
The project performance chart shown in Figure 4.3 illustrates the same project
but with its actual fees added. From this we can see immediately where the
project has deviated from the original plan. The purpose of this chart is to
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allow us to see problems as they arise in a clear graphic format. This should

FIGURE 4.3: Project performance chart 2 – actual fees tracked against projected fees

400

350
SP

300

250
£000
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200

150

100 Projected fee

Actual fee
50 Projected cost

0
Jan. Feb. Mar. Apr. May June July Aug. Sep.

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FIGURE 4.4: Project performance chart 3 – actual fees and costs tracked against the
projections

400
Projected fee
350 Actual fee
Projected cost
300 Actual cost

250
£000

200

EN
150

100

0
Jan. Feb. Mar. Apr. May June July Aug. Sep.
IM
--```,,,``````,,,``,,,`````,-`-`,,`,,`,`,,`---

prompt an investigation of the situation until the cause of the deviation is

understood. This graphic approach means that many projects can be reviewed
quickly. Hopefully, most will be more or less on track and not require any
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further attention. Our time can then be spent managing those projects that
seem to be going off course.

Figure 4.4 completes the picture for this example project by adding the actual
costs extracted from the time recording system. This example does not make
for happy reading. The ﬁnal fee has turned out to be less than was originally
planned, whereas the actual cost has turned out to be well over the original esti-
SP

mate. Consequently, the planned contribution of £145,000 has been reduced to

an actual contribution of only £75,000.

These charts tell us when something is not going to plan, but this does not
necessarily mean that things are going wrong. A squeezing of the planned
contribution, as demonstrated by the narrowing of the gap between the actual
fee and cost lines, is prima facie evidence of a problem. Yet it may simply be
that the client has expanded the scope of the work and therefore more people
have been working on the project than was intended. As long as we remember
to negotiate an additional fee for this work, this is potentially good news for
the practice.

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Over the course of time these project profiles can grow into a useful reference
library. We can build up information and start to look for patterns and trends.
Do we experience particularly high or low levels of contribution in particular
sectors or types of project? We soon learn that it is hard to make good levels
of contribution on small-scale projects and that our profits tend to come from
the larger projects in the office. We need to try to ensure that we maintain a
healthy mixture of both.

Project performance is particularly prone to the effects of practice myth and

rumour. I know of a practice that used to have its own conventional wisdom

EN
that hotel work was unprofitable and should be avoided. Hotel work was duly
turned away for the next few years. Yet, when some brave soul undertook to
analyse the actual figures on projects that had been completed, it emerged
that the work on hotels had been of average profitability after all. It is often
surprising to discover that projects which ‘everybody knows’ are unprofitable,
may not actually turn out to be so when some real historic data becomes
available for analysis.
IM
Every project is different and one of the few things that we can say with any
certainty is that situations and problems will arise that no one could have ever
imagined at the outset. It is therefore important to have a monitoring tool avail-
EC

able so that the ﬁnancial effect of these events can be seen and responded to as
rapidly as possible.

I have always encouraged the sharing of project performance information with

the team working on the job. People enjoy the sense of involvement that this
brings, and it allows them to understand how their own activity ﬁts into and
affects the project performance overall. People take their work to heart and
SP

like to be a part of a successful project. If we provide them with an awareness

of the job’s ongoing status, there is far more chance that they will align their
own performance with the overall needs of the project.

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SUMMARY

. Overall practice proﬁtability is only likely to be achieved if individual

projects are targeted and monitored. By ensuring that the majority of
our projects stay on track and deliver the profit that we planned for
them to make at the outset, we have a far greater chance of ending up
with a profitable business.
. The first step is to find a way to understand what it is costing us to carry
out the work. We need to develop a method of calculation that will tell us

EN
the cost per hour for each person who is working on the job.
. We need to develop a detailed resource plan that shows the people
we need and the periods of time for which we need them. Then we
can apply the hourly cost rates to come up with an overall cost for the
project.
. We can monitor the actual performance of the project against the plan as
IM
the project progresses. This can be achieved most easily using a chart or
some other form of graphic reporting. This allows us to quickly pass over
those projects that are on course and to concentrate our attention on the
few that are not.
. Sharing information with the members of the team gives them a sense of
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involvement and responsibility and will allow them to align their own
actions with the best interests of the project overall.
SP

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EN
In this Section:
. The ﬁve-year plan
. The annual budget
.
.
Zero-base budgeting
IM
Identifying the key or limiting factor
. Flexible budgets
. Capital expenditure budgets
. Budgets for the sole practitioner or small practice
EC

Having got the accounting foundations in place, so that we know where we are
and how we got here, we can then have the conﬁdence to turn our attention to
the future. Armed with the knowledge of our past performance, we can start to
predict what we expect or would like to happen next.
SP

It is important to have a long-term plan. Occasionally, we need to break free in

our thinking from the tyranny of the accounting year. Although the twelve-
month ﬁnancial period is a natural and convenient period of time to use, it can
result in an unhealthy focus on the short-term view. This is a problem for
many businesses, but is particularly out of step with the long-term nature of
construction projects.

The ﬁve-year plan

In my experience, there is a strong correlation between those businesses that are
ﬁnancially successful and those where the management team have taken the

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FIGURE 5.1: Five-year plan performance targets

Current year Year 1 Year 2 Year 3 Year 4 Year 5

Sales: £m 1.2 1.5 1.8 2.0 2.2 2.4

Profit before tax: £000 72 105 144 180 220 240
Profit: % 6 7 8 9 10 10
Number of qualified staff 10 12 14 16 18 20
Healthcare as percentage of sales 5 7 9 10 12 12

time to develop and share a vision of where the business will be in ﬁve or ten years’
time. The RIBA Small Practice Survey 2007 indicated that practices who have

EN
business plans are more profitable (achieving upper quartile performance) than
practices who do not have this financial planning in place. The practice that has
worked out what it has to offer that is special or different, and has identified the
sort of client who would be attracted by that sort of service, has gone a long way
to ensuring that it is likely to succeed. Thus, the annual budget process should
IM
ideally be preceded by the development of a long-term, five- or ten-year plan.

This plan needs to outline the strategic objectives for the business, and then
express them, year by year, as a series of measurable targets or benchmarks
that can be monitored.
EC

Let us assume that our practice has identiﬁed the following strategic objectives:
. to double the size of the practice
. to improve proﬁtability by 10 per cent
. to expand within the healthcare sector.
Figure 5.1 shows the key performance targets that have been selected to be
SP

monitored across the ﬁve years of the plan. If these measures remain on track,
then it is safe to assume that the practice will be achieving its strategic objectives.

This is a small enough range of targets to be monitored regularly. There should

be an annual review and feedback report which gives a clear indication of the
progress being made.
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Most professionals, including may architects, often seem reluctant to engage

with a long-term planning process and ﬁnd it difﬁcult to escape from the
‘noise’ of day-to-day practice. It can seem like a great indulgence to take time
out for ‘blue sky’ thinking and debate. There is often an anxiety that arises
when we ask ourselves to look beyond the immediate future. We all fear the

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potential embarrassment of setting out a grand plan and then publicly failing to
achieve it. Yet those who undertake this sort of exercise regularly, are convinced
of its beneﬁts.

We seem to lose sight of the fact that even when the exercise is complete,
bound and published this is still only a plan. This is not to say that we should
abandon the plan at the ﬁrst sign of trouble, but, equally, we are not inextric-
ably bound to it and the plan could (and should) be revisited and revised in
the light of experience.

It is obviously a worthwhile exercise to deﬁne the direction in which we would

EN
like the practice to go. The younger architects in the practice will look to
their directors or partners to provide clear guidance on the ethos and design
aspirations of the ﬁrm for which they are working. I have always been
impressed by the desire of young architects to have a wider appreciation of
the work that they are doing and by their hunger to understand how their
IM
work ﬁts into the practice’s design philosophy and mission. They want to work
and they want to learn but they also want to feel that they are part of a larger
architectural vision and purpose.

In the absence of a plan, there is a strong possibility that we will be taken in

whatever direction events happen to lead us.
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The annual budget

Having settled on the ﬁve-year plan and broken it down into annual targets, we
are now ready to tackle the budget for the coming year. It is logical to use the
actual results of the previous ﬁnancial year as a starting point, but it is also impor-
SP

tant to ensure that we do not simply carry forward and incorporate past errors.

Many expenditure budgets are prepared by just adding an inﬂation factor to the
previous year’s value. This is an easy, but not always helpful or intelligent, way to
approach the exercise. It may be a reasonable approach with some routine items,
such as utility costs, but it is dangerous to simply apply it across the board.

Zero-base budgeting
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It is a good idea to go through a ‘zero-base’ budget exercise every few years. The
idea of the ‘zero base’ is to ignore the current situation and all its commitments
and to start with a blank sheet of paper. We ask ourselves the question:

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If we were just starting out in practice again today how would we go

about it?

This approach involves taking a critical look at every item of expenditure and
asking difﬁcult and searching questions, such as:
. Do we really need to spend this money?
. What would be the implications if we did not spend this money at all?
. Could we get more or less the same result if we were just to spend, say, 50 or
75 per cent of the current amount?
. Is there another, less expensive, way to achieve the same result?

EN
This can be a challenging but rewarding exercise. Many practices do not invest
the time in the budget process that it deserves, and consequently they miss
out on its very signiﬁcant beneﬁts.

--```,,,``````,,,``,,,`````,-`-`,,`,,`,`,,`---
For example, we could consider the amount spent on the office rent or mortgage.
IM
Normally, this would not be given any attention in the budget process as it is
simply taken as a fixed cost. Given that, frequently, there are break clauses
only every five years in rental agreements, this is often true in the short to
medium term, but we should still try asking the zero-base questions and see
where they lead us.
EC

. Do we really need an ofﬁce of this size?

. Does it really need to be in this location?
. Is there more scope for people to work ﬂexibly, perhaps from home?
. Do we make best use of the available technology to make ﬂexible working as
easy as possible?
SP

. Would hot-desking work for us?

. Could we outsource some work?
. Why are we renting when we could be buying? (or vice versa).

This can be a liberating intellectual process that forces us to consider how our
practice really operates and how we would like to see it develop.

Identifying the key or limiting factor

Having taken the turnover and profit targets for the coming year from the five-
year plan, we now need to focus on identifying the one area that is most likely
to make it difficult for our plans to be achieved. This is often referred to as the

Copyright RIBA Publishing

key or limiting factor. It is easy to assume that this factor will be the level of sales,
i.e. will we be able to win and deliver enough work to be able to invoice our
clients for the amount that we are targeting? But other factors can also be
involved. Increasingly, in architecture, we ﬁnd ourselves limited by the availability
of people with the degree of skill and experience that is required. Some practices
may be limited primarily by a lack of space or computer equipment or software.

It is important to identify this factor as it provides a starting point for the process.
Let us assume that we have decided that the main issue is a shortage of people
with the right skills. This leads us to consider how we can address this problem.

EN
We need to budget for expenditure on recruitment advertising or agency fees,
but, probably more importantly, we also need to budget for the time that our
current staff will spend interviewing and administering the recruitment activity.
In architectural practice we need to budget our people’s time carefully, as this
is our key resource and the main thing that we have to sell. We need to allow
time for marketing activities and professional training and development. A
IM
number of the senior people will have a variety of responsibilities for managing
the practice and this, too, has to be taken into account. However, we also need to
ensure that, across the practice overall, we have enough time available to deliver
the required level of project work.
EC

Budgets work best when those in the practice have a sense of ownership of the
ﬁnal result. Budgets that are imposed without any consultation by a remote
management team are likely to be resented and resisted. The process should
begin with the various individuals or groups being invited to make a budget
proposal of what they would like to spend and why. It is useful to invite them
to a budget review meeting where their ideas can be discussed and where
SP

they can present the ‘business case’ for the money that they would like the
practice to spend. It must, however, be clear that these can only be proposals
until the budget is ﬁnalised. It is frequently the case that, when you add together
all the proposals for expenditure from the various budget holders, they total
150 per cent or more of the available funds.

Our job is to reconcile the top-down approach that comes from the targets for
the financial year set by the five-year plan, with the bottom-up approach that
comes from the individual budget holders or groups. The identification of the
limiting factor will help us to decide where our efforts, resources and money
can best be used.

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Once the process has been completed, it is important that each person or group
involved receives feedback on their submission. They will need to understand
why their submission has been approved or amended in the context of the
overall budget for the year. Hopefully, they will be able to appreciate how
their individual budget will ﬁt into the goals of the practice as a whole.

Flexible budgets

Once the budget for the year is agreed and published, it becomes an authority to
spend the money that has been approved. As expenditure arises it should be

EN
approved by the appropriate budget holder before it is processed for
payment. The budget holder should also receive regular feedback, perhaps
once a quarter, on what they have spent and how the expenditure in their
area compares to the budget.

However, there is a danger that, if the level of overall activity is far greater or less
IM
than was anticipated, the approved levels of budgeted expenditure will no
longer ‘fit’. We need to review the actual financial results on a quarterly basis
and decide if we need to ‘flex’ or adjust the budget accordingly. It will obviously
be a problem to maintain expenditure at the agreed level if fee income is 25 per
cent lower than anticipated. Equally, however, it would be problematic to main-
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tain the original budget level of expenditure when fee income is 25 per cent
higher than expected. This is likely to require some support in the form of
extra expenditure.

These later adjustments should be a ﬁne-tuning exercise rather than a repeat of

the whole process. We should not simply abandon the original budget, but rather
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update it as the year progresses with reﬁnements in selected areas.

Figure 5.2 is an example of an annual operating budget. It shows the amount of

proﬁt which the practice plans to make in the year and compares this year both
with the previous year’s actual performance and with the original budget for the
previous year.

Capital expenditure budgets

For accounting purposes, a distinction is drawn between revenue and capital

expenditure. Capital expenditure is the money spent on items that are long
term in nature and will remain in use in the business for longer than the

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FIGURE 5.2: Annual budget for the twelve months ending 31 March

Budget: Previous year Previous year

£000 actual: £000 budget: £000

Gross architecture fees 2,500 2,355 2,400

Other income 15 12 –
Total income 2,515 2,367 2,400
Less
Sub-consultant costs 125 115 50
Net income 2,390 2,252 2,350

EN
Project-related resource costs 1,250 1,305 1,275
Non-project-related resource costs 355 400 300
Total resource costs 1,605 1,705 1,575

Other expenditure
Property costs 225 215 210
Ofﬁce costs 275 300 275
Insurance incl. PII
Travel and entertainment
IM 40
50
45
55
45
35
Advertising and promotion 45 40 45
Legal and professional 25 20 25
Other expenses 15 15 15
EC

Total other expenditure 675 690 650

Operating proﬁt before tax 110 –143 125

Interest costs or income 15 20 16
Proﬁt before tax 95 –163 109

Corporation tax at, say, 20% 22 –29 25

Proﬁt after tax 88 –114 100

current ﬁnancial year. Examples of capital items are vehicles, furniture and
computer equipment.

In architectural practice there is a continuous need to upgrade and replace

computers to ensure that they can operate the increasingly sophisticated
drawing and modelling software as it becomes available. Failure to use the
most up-to-date software could pose a serious threat to the practice’s ability
to compete for work. Clients have ever-rising levels of expectation when it
comes to the quality of presentation and visualisation material they want to

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see from their architects. What was considered to be cutting-edge graphics tech-
nology two years ago is now expected as standard. If a practice failed to employ
the latest techniques that others were using in their presentations, clients would
notice and draw their own conclusions. As electronic drawings and 3D models
become more complex, they require increasing amounts of electronic storage
space. This means that money also needs to be spent continually on servers
and back-up facilities. We need to budget for the expenditure that will be
required to allow the practice to function effectively in this area.

One of the key reasons that an adequate level of proﬁt is vital is to provide the

EN
funding for this sort of reinvestment in the business. By their nature, capital
expenditure budgets are often prepared on a medium- to long-term basis.
From this plan, the capital expenditure budget for the coming year can be
agreed and integrated into the annual budget process.

Figure 5.3 is an example capital expenditure budget, showing the amount of

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money that the practice has agreed to devote to long-term expenditure. The
items detailed are not included in the annual proﬁt and loss account as they
will have a value for the business for several years.

The value of each item is charged gradually to the proﬁt and loss account over a
number of years in the form of depreciation.
EC

FIGURE 5.3: Capital expenditure budget for the year ending 31 March

Proposed spend in the year: £

IT equipment
Projector for client presentations 2,000
3 new printers 3,600
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Graphics card upgrades 3,000

7 new computers – rolling update programme 11,900
Expand capacity of e-mail server 5,500
£26,000
Ofﬁce improvements
Reception area upgrade 2,000
Replace entrance screen 2,000
Kitchen refurbishment 3,000
Ofﬁce lighting improvement 2,500
£9,500

Overall total £35,500

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Budgets for the sole practitioner or small practice

Those working in a smaller practice, or perhaps on their own, may be wondering
how they can apply these ideas. As with all of the various tools and methods
described in this guide, the underlying principles remain the same, regardless
of the size of the practice. I feel that even the smallest of practices could
beneﬁt from having some version of all of the tools and reports described.
Judgement is needed, of course, in deciding how to scale and adapt each of
the particular techniques to suit the smaller practice.

I would certainly recommend that every practice, even sole practitioners, should

EN
set aside some time to work out and write down a three- or ﬁve-year strategic
plan, and to then produce a budget for the coming year accordingly. I believe
that it is very important to end up with a written plan and budget, as this
forces us to be clearer and more decisive in our thinking. The plan become
more ‘real’ when it is given a physical form.
IM
It is always a fascinating exercise to go back to an earlier statement of intent to
compare what has actually happened with what we had planned. It is also
surprising, and often quite revealing, to revisit the original plan or budget and
remind ourselves of what it actually said. Our memory can make subtle adjust-
ments to our recollections over time, and it is interesting to take note of
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where this has occurred as it gives us clues as to our areas of weakness and
our ﬁnancial blind spots.

The budget provides a map of the ﬁnancial journey ahead and a point of refer-
ence for comparison purposes along the way. The pay-off for investing in this
process comes when the comparisons to the plan or budget prompt us to ask
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questions that we would not have asked otherwise. This is more likely to lead
us to the real source of the problem rather than relying on our feelings or
instincts, which are coloured by our preconceptions or prejudices.

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SUMMARY

. Given ﬁrm accounting foundations, we can start to look to the future,

which is the main purpose of the budget process. It is designed to pro-
vide a way for us to determine our own destiny, rather than being at
the mercy of whatever our current clients would like us to do.
. Successful businesses of any kind usually have a strategic, long-term
plan and the management team shares a vision of what and where the
business will be in ﬁve or ten years’ time. This is then translated into a

EN
ﬁve-year business plan.
. The annual budget is derived from the ﬁve-year plan and describes what
is going to happen in the coming twelve months, as an aid to achieving
the long-term goals.
. It can be useful to adopt a zero-base approach to the budget process
every few years. This is a challenging exercise, which starts by taking
IM
nothing for granted and asking if each of the things on which we
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spend our money is really necessary.

. Every practice will need to identify its key or limiting factor. This is the
single most important element determining whether we are going to
be successful in achieving our budget targets. Often, the limiting factor
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will be our ability to achieve the desired level of sales, but it could also
involve having the correct mix of people, or sufﬁcient space or techno-
logical resources.
. Budgets need to be kept under review on a quarterly or half-yearly basis.
It may be necessary to ‘ﬂex’ or adjust the budget if a far higher or lower
level of activity has resulted than was originally planned. This does not
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mean that the original budget is abandoned, but rather that it is scaled
up or down as appropriate.
. Large-scale capital expenditure also needs to be budgeted, and this must
be integrated into the process.

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EN
. Future captive fees
. Future possible fees
. Combined fee forecast

At this point we should know where we are, how we got here and where we want
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to go next. I have always promoted the idea that accounting is more of an art
than a science – indeed, the picture of the past that it paints is much more in
the style of the Impressionists than the Realists.
Financial statements have a comforting and seductive air of accuracy and authority.
EC

Yet, those of us who have been involved in their production know that there has
been considerable scope for judgement and interpretation in putting the
numbers together. This means that the resulting ﬁgures are the best approximation
of the business situation as we see it. Others may have taken quite a different view
and would have produced an equally ‘accurate’, yet dissimilar, set of results.
The accountancy bodies have worked for many years to produce a series of
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standards that will result in ﬁnancial statements being produced in a consistent

fashion. This quest has been expanded to a global level with the recent
emergence of a set of international accounting standards. Yet the problem
remains that businesses are so diverse that it is impossible to formulate a
single set of rules that will apply in all cases. Hence, there will always be a
need for judgement and differences of opinion and approach.

Future captive fees

So, if arriving at an accurate image of the past is so difﬁcult, how are we to

approach the task of working out what the future will hold. The starting point

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FIGURE 6.1: Captive fees forecast – contractually agreed fees for current projects

£000

Project Apr. May June July Aug. Sep. Total Future years
Project A 75 75 50 10 210 150
Project B 50 50 75 100 25 25 325 250
Project C 25 25 15 65
Project D 10 10 10 10 10 10 60
Project E 75 20 15 20 130

EN
Total 235 180 150 155 35 35 790 400

has to be the prospects for future income represented, in the architect’s case, by a
schedule of future fees. IM
Figure 6.1 shows the fees which the practice plans to invoice in the coming
twelve months. This is the best indicator of how busy the practice is going to
be in the short to medium term.

You will note that this report shows fees that are described as ‘captive’. This
means that they are agreed, fully documented, contractually binding and sched-
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uled fees for current projects. Only when they have achieved this degree of
certainty are they allowed onto this chart. Prior to achieving that status, they
form part of the mixed bag of ‘possible fees’ described below.
Figure 6.1 shows, on an individual project basis, the fees that we expect to be
able to invoice on a monthly basis. These are then added to arrive at a total
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for each month. In our example, six months are shown, but in practice this
would probably be extended to twelve months or more.

As the year elapses we replace the forecast figures with the actual figures
achieved and revise the balance of the forecast accordingly. It is a revealing
exercise to compare the forecast billing in each month with the actual figures
to see what differences arose.
As we have noted earlier, our ability to invoice is often delayed by events on the
project that are beyond our control. Consequently, we often find that we need to
slide a fee profile sideways across the chart, indicating that we will be raising
those invoices in later months. It is useful to take steps to stop this process

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from becoming too ‘slippery’. If a culture arises in the practice whereby it is

considered acceptable, or even expected, for fee schedules to slip, this can
lead to a dangerous short-term cash-ﬂow position. It is good practice to
promote a culture of fee commitment in which everyone understands that an
entry on the captive fees schedule is taken as a promise to deliver that fee for
the beneﬁt of the practice in that particular month. Fee slippage is then
viewed in a poor light and discouraged by peer pressure.

As with most ﬁnancial reports, it is most easily read from the bottom up. From the
budget process we will have calculated what our monthly expenses are and have

EN
a monthly cash break-even figure in mind. (The cash break-even figure is simply
the accounting break-even figure with non-cash items such as depreciation
added back.) We can quickly scan across the months and see if there is a
problem. Let us assume in our example that the cash break-even figure is
£180,000. We see that April and May are fine, but there is currently a problem
in June and July and we would like to see more fees in that column to at least
bring us up to the £180,000 figure. Beyond that, August and September are
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currently a long way short. If the forecast proved to be the way things actually
turned out we would have a serious problem!

Happily, the gloomy scenario predicted for six months or so ahead never seems
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to catch up with us. This chart typically has a ‘cliff edge’ proﬁle, as illustrated in
Figure 6.2.

FIGURE 6.2: Captive fees – the ‘cliff edge’

250
Captive fees
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Cash break-even
200

150
£000

100

0
Apr. May June July Aug. Sep. Oct. Nov.

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This profile reflects our normal work winning/delivery cycle. Most architects find
themselves in the position of being too busy right now, reasonably busy for the
next few months and then seriously short of work thereafter. The trick is to ensure
that the ‘cliff edge’ does not advance any closer. As long as we can keep our
captive fees forecast at break-even level or above for about the next six
months, all will be well. If the ‘cliff edge’ does start to become uncomfortably
close, say only two or three months away, that is the time to devote substantial
energy to the sales and marketing front, to see if any of the possible jobs that
have been incubating for some time can be encouraged to hatch.

EN
The comfortable position for the cliff edge will vary for each practice, depending
on the nature of its work. Practices working on smaller and more sudden ‘quick-
ﬁre’ projects can be comfortable with a cliff edge of, say, three to six months. For
a practice focusing on larger, longer term projects that take longer to secure,
such as hospitals or infrastructure projects, a cliff edge nearer than twelve
months may indicate a real problem.

Future possible fees

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As described above, all of those future fees that we hope to earn, which are
anything other than completely certain, should only be classiﬁed as ‘possibles’.
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This can often constitute quite a long list and may include many different
projects and situations. These can range from a project that is all but won, but
which is awaiting the ﬁnal sign-off from the client, to a project in which we
have done no more than express an initial interest. It is useful to keep a
written record of all of these and to track their progress. Hopefully, there will
be a gradual conversion process underway, taking projects from the possible
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list to the captive fees list.

The mixed nature of these projects presents us with a problem, as some are
much more likely to become real jobs than others. We need to develop a way
of quantifying the probability of winning each job, and thus arriving at some
sort of weighted average total that can be compared from month to month.
Figure 6.3 estimates the likelihood of future fees levels by taking all of the poten-
tial work that is currently being pursued and applying a success probability factor
to each project. All of these probability- and time-adjusted values are then
totalled to produce a value that can be compared to the equivalent value in
earlier months. The aim is to predict medium- to long-term fees.

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FIGURE 6.3: Possible fees forecast – estimated likely future fee levels

Project Project Probable Probable fee

value: Fee: fee: No. of per year:
£000 Fee % £000 Prob. % £000 years £000

Project A 25,000 4 1,000 25 250 2 125

Project B 350 7 25 75 18 1 18
Project C 12,000 3 360 50 180 3 60
Project D 1,500 3 45 75 34 1 34
Project E 52,000 4 2,080 10 208 4 52

EN
Project F 45,000 5 2,250 5 113 4 28
317
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The example shown in Figure 6.3 presents a wide variety of projects in terms
of size, fee and likelihood of winning. Project A has a 25 per cent probability of
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success – this could be because we are on the ﬁnal shortlist of four ﬁrms.
Project B is shown with a 75 per cent probability of success. Perhaps this
represents a new instruction from an existing client, where there is no other
architect involved and hence no competition, but the project still needs
budget approval before it can begin. Project F is considered to have just a 5
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per cent chance of happening – perhaps this is a project that is just at the
‘expression of interest’ stage.
Furthermore, if these fees were to be won they would be earned over different
periods of time. Some will happen in the coming year but others will only be
earned over a number of years.
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We need a method that attempts to reconcile these variables and give us an

indicative value that can be compared from month to month, so that we can
see if a trend is emerging. There is no ‘right’ way to do this and the method
described below is just one possible suggested solution. Each practice should
derive its own model to suit its particular needs based on its own experience.
What is important is that some attempt is made to predict the future levels of
fees that will result from all of the current marketing activity.

In this method we derive an adjusted value for each project by taking the fee
value, applying the probability factor and then annualising it by dividing by
the number of years.

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Example: Possible fees forecast

Potential fee £100,000
Estimated probability of winning 25%
Period over which fee will be earned 2 years
Annualised adjusted value ¼ £100,000 25% 0.5 ¼ £12,500

EN
The same calculation is performed for each potential project, and a total ﬁgure is
derived. In itself, this ﬁgure has no great meaning. However, when it is tracked
over a number of months it can be a useful predictor of future fee levels. The
resulting chart is shown in Figure 6.4.

The possible fees chart can be strangely cruel. Imagine that you have just won a
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major new project which you have been pursuing for some time. The successful
team who were involved in the bid are applauded, the champagne is duly sipped,
the design team is assembled and work begins.

Possible fees chart – possible future fee levels over the coming months
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FIGURE 6.4:

2,000

1,800

1,600

1,400
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1,200

1,000
£000

800

600

400

200 Possible fees

0
n.

ay
ar

ar
No
Ju
Ja

Ja
Se
M

M
M

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We then revisit our possible fees chart to update it a few days later and
discover, to our dismay, that it is now plunging downwards. The winning of
the job means that it has become a captive fee and has therefore disappeared
from the possibles list and total. This serves to remind us of the harsh reality of
our situation. It is great to have won some new work, but we must now set in
motion the strategies that will win the work we need to keep us going in nine
to twelve months’ time.

Combined fee forecast

EN
Smaller practices may ﬁnd it helpful to prepare a combined fees forecast, as
shown in Figure 6.5, which shows the overall fees picture on a month-by-
month basis. It is of course important to continue to appreciate the distinction
between those fees shown in the top half of the chart, which are already
contractually agreed, and those in the bottom half, which we can only hope
will happen.
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As this example shows, the overall monthly totals seem to be reasonably consis-

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tent throughout the period of the forecast. However, in the latter months of
August and September the forecast is still heavily dependent on fees that are
yet to be conﬁrmed and therefore we need to try to convert these into captive
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fees as soon as we can.

FIGURE 6.5: Combined fees forecast

Captive fees £000

Project Apr. May June July Aug. Sep. Total Future years
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Project A 75 75 50 10 210 150

Project B 50 50 75 100 25 25 325 250
Project C 25 25 15 65
Project D 10 10 10 10 10 10 60
Project E 75 20 15 20 130
Total captive fees 235 180 150 155 35 35 790 400

Possible fees
Project X 15 15 10 40
Project Y 20 25 25 15 45 45 175 125
Project X 25 75 90 190 75
Total possible fees 35 40 35 40 120 135 405 200

Combined total fees 270 220 185 195 155 170 1195 600

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Combining these two fee forecasts can give a good idea of how busy we are
going to be in the short to medium term. We can see whether we need to put
more resources to do the work that we have on hand, or perhaps step up the
marketing drive in place to ensure a ﬂow of new work in the future.

SUMMARY

. In order to have an idea of how busy we will be in the future, we keep

track of the potential fees that we have in hand that we can consider

EN
as firm or captive. This means that they are covered by a contractual
agreement and are, as far as anyone can predict, definitely going to
happen at a particular time.
. When shown on a graph, the captive fees tend to follow a familiar
pattern. We know with reasonable certainty what we will be doing for
the next three or six months, but beyond that we fall off the edge of
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the cliff to a level of fees that would not be sufficient to sustain the
practice. Our constant mission is to ensure that this cliff edge does not
come too close, but is kept at a constant distance in the future.
. All other potential fees are classified as possible fees. We need a way of
converting all of the different levels of potential for winning these jobs
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into a single indicator that can be compared from month to month.

This then gives us some sense of how much time we should be devoting
to the marketing effort now in order to ensure that there is new work in
the pipeline in nine or twelve months’ time.
. The possible fees chart can be cruel. A job won transfers onto the
captive fees chart and boosts those ﬁgures. However, this then leaves
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an equivalent hole in the possible fees chart, which will now show a
downwards trend that will require new potential jobs to reverse.
. By monitoring these two measures we can obtain a good sense of the
short- and medium-term prospects for work that can be invoiced.
These charts need to be constantly updated as events change, if they
are to retain their relevance. These charts tend to be on my desk all of
the time, so that I can scribble in pencil amendments as they become
known. I then update the spreadsheet properly once each week.
. Projects are often delayed or rescheduled and this will have a knock-on
effect on fee billing, which needs to be kept under constant review.

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EN
. People allocation forecast
. Project resource forecast
. Project resource allocation
IM
The captive fees forecast described in Section 6 tells us how much work we have on
hand and gives us a good idea of how full our forward order book is for the next
three to six months. This information can then be linked directly to See also
the cash inﬂow section of our cash-ﬂow forecast, which gives us a pre- Section 6 Fee
forecasting,
diction of our solvency position over the next nine to twelve months. page 45
EC

What we now need to know is whether we will have the right See also
number and mix of people available to be able to deliver the work Section 8
Cash-ﬂow
we have lined up. We start this process by producing a people forecasting,
page 59
allocation forecast, as shown in Figure 7.1.

Figure 7.1 shows how work has been allocated to each individual person in
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the practice over the coming weeks. Our example is, of course, simpliﬁed for
illustration purposes. In reality, people may well be working on a number of
projects simultaneously.

The report takes account of people being away on holiday, study leave, sick-
ness, etc. and these values are deducted in arriving at the ‘people available’
total. This total can then be carried forward to the project resource forecast,
illustrated in Figure 7.2, which compares the total practice requirement with
the total current availability in order to predict shortages or spare capacity.

This is a rolling weekly forecast of the number of people that will be needed
on a project-by-project basis. This is then compared to the total number of

53
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FIGURE 7.1: People allocation forecast – people available for project work

May June
Week 3 10 17 24 31 7 14
Name ending

John Project A Holiday Project A

James Project B Project C Marketing

Sandra Study Project C

Emily Project A Project C

EN
Jane Project A Project C Holiday Leaver

Total available 4 5 5 4 4 3 3
for project work

Study 1 0 0 0 0 0 0
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Holiday
Marketing
0
0
IM 0
0
0
0
1
0
0
1
1
1
0
1
Total people 5 5 5 5 5 5 4
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F I G U R E 7 . 2 : Project resource forecast – the number of people required on current

projects and predicted shortages or spare capacity
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Number of people required May June

Week ending 3 10 17 24 31 7 14

Project A 4 4 4 4 3 3 2
Project B 2.5 3 3 1 1.5 0 0
Project C 3.5 3.5 3.5 4 2 2 1
Project D 2 2 2 1 3 3 3

Total required 12 12.5 12.5 10 9.5 8 6

Total available 14 14 12 12 12 10 10

Net position þ2 þ1.5 0.5 þ2 þ2.5 þ2 þ4

(surplus/shortage)

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FIGURE 7.3: Project resource forecast plotted – the ‘cliff face’

16
People available
14
Number of people 12
10
8
6
4
2

EN
0
Jan. Feb. Mar. Apr. May June July Aug. Sep.
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people available. From this report we can see immediately where we can
expect shortages or surpluses to occur. It is prepared on a weekly basis to
reflect the way that the resourcing needs of projects tend to fluctuate as the
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work progresses. Like the captive fees forecast, it needs to be updated continu-
ously to reflect the inevitable changes that occur. These are not only project
changes but people availability changes too.
This does require an individual within the practice to commit to investing their
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time in keeping the chart up to date. We ﬁnd that this effort is well rewarded
by providing an early warning system, allowing us to see resource problems
coming a month or two ahead. This generally allows sufﬁcient time to react
and solve the problem before it becomes a crisis.
The project resource forecast will tend to echo the shape of the captive fees
chart. But, whereas the captive fees chart could have its ‘cliff edge’ some six to
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nine months away, the resource chart will show a reverse pattern, with a ‘cliff
face’, illustrated in Figure 7.3, that also appears in approximately six to nine
months’ time, when it appears that there will be a lot of people free with no
project work to do.
It is important to plan for some ﬂexibility, so that there are always people
available to help with the general marketing effort, whether it be submissions
for new work, working on design competitions or updating the practice’s
website or promotional material.
This can be very hard to achieve, especially when there is great pressure on teams
to deliver against a deadline, but it is just another aspect of the constant need to

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keep winning work for the future to ensure that the practice can survive. The
forecast may show that two people are allocated to ‘marketing’. However,
what this usually means is that, say, ﬁve people will each be spending some
part of their time on these activities over the course of the week, blended in
with their other activities. When all of these pieces of individual activity are
aggregated, they will amount to the equivalent of two people working full
time on the marketing front.

Like most of the charts in this guide, project resource forecasts are most useful for
showing trends over time. They tend to follow a familiar pattern. There always

EN
seems to be more work to do now than people to do it. The weekly total
column may well show 2 or 3, which means that we could really do with a
couple of extra people right now and next week. However, it does seem that
things will calm down after that and that balance will be restored – the chart
total shows 0. So we have to get our heads down (again) for the next week or
so to meet our deadlines. We are comforted by the knowledge that things will
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become easier soon, as the cavalry arrives in the form of people becoming free
of their current project commitments – the chart perhaps starts to show þ2 or
þ3. Then we hit the ‘cliff face’ in about six months’ time, where it appears that
most of the practice will be sitting around drinking coffee and reading maga-
zines, waiting for the phone to ring.
EC

In reality, this tends to be a fairly constant situation. As new, smaller pieces of

work ﬁlter in, or current projects expand or change, there is always more to do
now than we had anticipated. So when we see a consistent number of weeks
with a 2 or 4 total ahead, we then know that it is time to look for some
extra people. This may either be through the recruitment of permanent
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employees or by arranging temporary resources to meet speciﬁc project

deadlines.

Experience teaches us that projects rarely run to their expected timetable. They
can suddenly accelerate when a client makes a project change or brings a
deadline forward or be temporarily frozen, as the result of an unexpected
delay occurring in gaining a planning consent, or funding not becoming available
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at the time that it is expected. Each of these events causes a rapid shift in the
resources balance and the need for some swift revisions to the plan.

As well as the capacity to deal with project and client changes, an additional
factor to consider is the need to accommodate the aspirations of the individual

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architect or design team. Understandably, the individual is looking for the

stimulation of new challenges and to gain experience in a variety of building
types across a range of sectors. Yet, from the practice’s point of view, the most
efﬁcient way to resource a project is to use people who have recent experi-
ence of working on a similar sort of project. They will have gained expertise
that will enable them to deliver a good result quickly and efﬁciently, which, of
course, also means at a lower cost.

The need to manage this potential conﬂict successfully makes the resource
planning process critical to the success of the practice. It requires a detailed

EN
knowledge of how projects work, complemented by a sensitivity to the needs
and desires of the individuals involved, combined with an intuitive feel for
how a particular group of people will function as a team. Getting the balance
right is quite a feat to keep pulling off every week.

Frustratingly, once this elusive balance is achieved, the chances are that some-
IM
thing will come along to upset it within a matter of days, so that the whole
plan will need to be reviewed in order to reach a new balance.

We learn from the competitive tendering process that clients tend to want
architects with a strong, recent track record. When commissioning a new hospital,
it is entirely understandable that the client will choose an architect who has
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successfully built three hospitals in the past two years over another, equally
competent, architect who has built only one hospital in the past ten years.

So, as a practice, we tend to win the same sort of work that we have won before.
Equally understandably, our own staff want to work on a variety of different
building types in a number of different sectors. They may become bored and
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dispirited if they feel they are becoming typecast in a particular sector or as a

particular type of architect. Eventually, they may decide that they need to
move on to another practice in order to further their development and career.
We may also need to develop a reporting procedure that documents our
reasoning in making our resource allocation decisions to support our equal
opportunities policies.

Resource forecasting is probably the hardest part of the whole process as it has to
try to predict what the practice’s people situation is going to be. People never
cease to surprise us, especially the sort of intelligent, young creative people
that we ﬁnd in the architecture world.

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Yet it is still very important to try to predict and control this area, as such a large
proportion of the practice’s ﬁnances are invested in it – just be prepared for a
bumpy ride!

SUMMARY

. As well as having a sense of what work we will have in the future, we also
need a way to predict whether we will have enough people with the right
level of skills available to deliver that work. This is the function of resource

EN
planning.
. Resources also need to be planned for all of the other essential but
non-fee-earning tasks, especially marketing. It is a constant challenge
to maintain the right balance between delivering the work that we
have in hand and ensuring that there will be sufﬁcient work to do in
six or nine months’ time.
.
IM
Resource planning needs to take account of the professional aspirations
of the individual architect. From the practice’s point of view, it may be
most efﬁcient to allocate people to the sort of work that they have
done before. However, the individual is likely to be looking for variety
and new experience in order to further their knowledge and expertise.
EC

Once again, this is a potential conﬂict that needs to be carefully

managed.
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. Resource prediction is the most difﬁcult part of the whole process of

ﬁnancial forecasting, but it is vital as so much of our money is invested
in this area.
SP

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EN
. Cash inﬂows
. Cash outﬂows

Accountants and bank managers love cash-ﬂow forecasts. The reason that they
IM
like them so much is because they know that they are the most accurate way
to predict the future of the business, in both the short and medium terms.
Accountants know from their experience of dealing with insolvency that most
businesses fail simply because they run out of cash. The popular misconcep-
tion is that businesses become insolvent because they fail to make a proﬁt or
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find sufficient customers. The truth is that the majority are forced to close
because they could no longer meet their financial obligations as they fell due
and the bank’s goodwill had been exhausted.

You will commonly hear the directors of a recently declared insolvent

company say things like ‘If only that major customer had paid us on time, then
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we would have survived’. Indeed, insolvency can also be the direct result of
success. The receipt of a major new order or the winning of a signiﬁcantly
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large piece of new business can result in ‘overtrading’. This is a situation where
the business does not have the working capital to cope with the increased
volume of activity and consequently cannot meets its obligations.

Another factor contributing to the failure of many practices is ‘the dreaded

quarterly VAT payment’, so called because it is often the ﬁnal straw. It is the
last large payment that simply cannot be met, which pushes a business that
has been teetering on the edge of its overdraft limit for the past few months
over the edge.

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FIGURE 8.1: Cash-ﬂow forecast – the amounts of money predicted to ﬂow in and out of
the practice each month and the projected closing bank balance

£000
May June July August Sept. October Totals
Opening balance –32 88 45 55 39 –60
Fees collected (60 days) 250 145 175 155 165 225
VAT collected 12 15 18 16 18 20
Total cash inﬂows 262 160 193 171 183 245 1,214

Net payroll

EN
66 68 70 75 75 75
PAYE/NI 26 27 28 30 30 30
Rent and service charge 12 12 15 12 12 15
Prof. indemnity insurance 0 7 7 7 7 7
Sub-consultant payments 5 5 5 5 5 5
Supplier payments 30 IM30 30 30 30 30
Input VAT 3 3 3 3 3 3
VAT payment 0 50 0 0 45 0
Corporation tax 0 0 0 0 50 0
Capital expenditure 0 0 25 25 25 25
Total cash outﬂows 142 202 183 187 282 190 1,187
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Closing balance 88 45 55 39 –60 –5

May June July August Sept. October

So the cash-flow forecast is the most important tool that we have for
predicting the continuing financial health of the practice. A typical cash-flow
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forecast, detailing the amount of money predicted to ﬂow in and out of the
practice in the course of a month is shown in Figure 8.1. This is the classic
report prepared by ﬁnance people all over the world and the bank manager’s
favourite.

Like many ﬁnancial reports, these can most easily be read from the bottom up.
The line at the foot of the page shows us the predicted closing bank balance
at the end of each month. This tells us immediately if we have an impending
problem, and when it is likely to arrive.

It is worth looking at the forecast in some detail to see how we arrive at the
ﬁgures.

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Cash inﬂows
This is the money coming into the practice, of which the largest element is the
collection of fees from clients. We need to establish a realistic assumption
about how quickly our fees are collected. Our standard payment terms may be
30 days, but that does not mean that is what we usually achieve. We need to
judge the reality of the situation based on experience, which can be done by
the calculation of ‘debtor days’ as follows:

Annual fee income £200,000

EN
Average amount due from clients (debtors) £33,000
£33,000 divided by £200,000 365 ¼ 60 days (approximately)
i.e. on average it takes 60 days to collect the fees that we invoice.

This then becomes our working assumption to be used for cash-flow purposes. IM
So, we can fill in the ‘fees collected’ row by taking the figures from our captive
fees forecast and entering them into the cash-flow two months later. This
means that fees invoiced in January will be assumed to be collected in March,
and so on.

For the cash-ﬂow forecast we need to account for all of the money going in and
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out of the practice, so we have to allow for the effects of VAT. Assuming that our
clients are UK based, we need to add 17.5 per cent to the fees collected as an
inflow. We need to estimate how much VAT we pay to our suppliers and enter
that figure as an outflow. Then we need to plan for the payment of the net
VAT difference (i.e. VAT collected on sales less VAT paid on purchases) on a
quarterly basis. As already mentioned, it is very important to be prepared for
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this large payment that falls due to HMRC every three months.

Cash outﬂows

The first thing to notice on Figure 8.1 is that there are many more rows in the
outflow section than there are in the inflow section. As in the rest of life, there
always seems to be many more ways to spend money than there are to earn
it. Even in this simple example there are a number of lines that represent
groups of expenses. It is worth taking some time to ensure that all of the
many forms of practice expenditure are included somewhere. It can be useful
to pour over old bank statements or cheque stubs to look for items that have

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been missed or only arise occasionally, for example annual subscriptions or

insurance renewals.
The largest cash outflow is likely to be the payroll. The income tax and National
Insurance contributions that are deducted from salaries have to be paid over to
HMRC by the 19th day of the following month. Thus, the total payroll figure for
any given month is split between two months, with the net pay going out in the
first month and the tax deductions in the next month. In the normal course of
events this makes little difference, as the total outflow is much the same from
month to month. However, it is important to model the effects of the annual

EN
pay review and the payment of any bonuses.
It is useful to identify signiﬁcant single items, such as the professional indemnity
premium, which may have to be paid in a single instalment or perhaps spread

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over a number of months, as shown in Figure 8.1. It is also helpful to identify
the payments that need to be made to other members of the design team
where the architect is acting as lead consultant for invoicing and payment
IM
purposes. These can be significant amounts and could have a serious impact
on the cash-flow, especially if the architect ends up having to pay the consultant
before having collected the equivalent funds from the client. This can represent a
significant area of risk for which the architect usually receives little, if any, reward.
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We need to ensure that we include those items of capital expenditure that were
identified in the budget. Once again, these can require large sums to
See also
Section 5
be spent at a particular point in time. The cash-flow forecast may
Long- and lead us to consider entering into finance arrangements, such as
short-term
planning, leasing for the purchase of computer equipment if outright
page 35 purchase would seem to be straining the cash-flow unduly.
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The payment of tax is yet another important item to include in the list of expen-
diture. For a partnership or LLP there will be self-assessment income tax
payments to be made in January and July. For a company there will be an
annual corporation tax payment to be made within nine months of the end of
its ﬁnancial year end.
In common with the captive and possible fees and resource charts, this is a rolling
forecast. In this example, it is a rolling six-month forecast. This means that we
revise the forecast each month and, in so doing, remove the ﬁrst month
(which has now become the current month) and add a new month on to the
end. Each practice will need to establish a suitable forecast period to suit its

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own needs. For smaller practices it is likely to be up to six months, whereas larger
practices may well be able to work meaningfully with a twelve- or eighteen-
month forecast.

The example cash-ﬂow shown is a normal operating model. If the practice is

considering approaching the bank for the financing of a major project, such as
the purchase of new premises or the acquisition of another practice, it will
need to produce cash-flow forecasts that extend over two or three years in
support of the application. For end-of-year accounting purposes, the accountants
or auditors may request a similar long-term cash-flow forecast to support the

EN
‘going-concern’ assumption for the business.

It is interesting to check the total value of inflows against outflows over the fore-
cast period to get a sense of overall liquidity. In the example, total inflows over
the six months are £1.214 million whereas the total outflows are expected to
be £1.187 million, indicating a potentially balanced position. However, as this
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forecast is directly linked to the fee forecast described in Section 6, it will tend
to follow a similar pattern. Most cash-flow forecasts show an improving position
over the next quarter or two and then a rapid deterioration six See also
months or so later. This reflects the uncertainty of future fees that Section 6 Fee
forecasting,
practices all tend to face in the medium term. page 45
EC

The cash-ﬂow forecast is one of the documents that the bank will want to see on
a regular basis in support of its overdraft facilities and it is important to ensure
that it is as accurate as possible. Banks do look back and review the accuracy
of the cash-ﬂow forecasts that they have been given. They understand that
these are forecasts and will not be entirely correct. However, if they can see
that the forecasts they have been given are consistently inaccurate, they will
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begin to have doubts about the competence of the management team and
the practice’s ability to manage its ﬁnancial affairs. If the bank feels uncomfor-
table, it may be unwilling to renew the overdraft facility when it falls due,
which could have serious implications as this situation could arise at very short
notice.

Cash-ﬂow is often described as the lifeblood of a business. It is useful to think of

cash in these terms, as something that needs to keep circulating in order to keep
all the parts of the practice healthy.
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SUMMARY

. The cash-ﬂow forecast is one of the most important ﬁnancial control

documents. If money has been loaned from the bank, it will certainly
expect to see this forecast at regular intervals.
. A lack of solvency is the most frequent cause of business failure. It often
comes as a surprise to learn that an apparently proﬁtable and successful
business or practice has gone into liquidation or receivership. This will
simply be because they ran out of cash, rather than because they were

EN
unable to attract profitable business.
. Periodic payments like income tax or VAT, which occur on a quarterly or
annual basis, are often the last straw. The practice may be just managing
to keep its head above water, in financial terms, from month to month
when a large tax bill becomes due, which simply cannot be paid.
. Cash-flow forecasts need to take account of other items such as capital
IM
expenditure on cars, computer equipment or furniture. These can require
large amounts of cash to be found at a particular point in the year and
could throw the whole forecast out if not planned for accordingly.
. Cash is the lifeblood of any business. It represents the flow of energy
through the body of the practice. It needs to be kept moving and it
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needs to be constantly refreshed.

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EN
. Financial management in practice
. Turnover analysis
. Benchmarking
IM
The previous sections have covered the various individual tools that we can
use to get an idea of how much work we will have, whether we will have the
people to do that work and what it should all cost. From this information we
can produce a cash-ﬂow forecast that tells us whether our ﬁnancial future will
be a comfortable glide or a white-knuckle ride.
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The process of successful ﬁnancial management is somewhat like driving a car.

You need to have the majority of your attention focused on the road ahead
and what the other trafﬁc (your clients and competitors) is doing. But you also
need to be constantly glancing down at the dashboard to check that there are
no warning lights ﬂashing. When a light does show, you need to understand
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how serious the problem is – can you keep going for another few months and
ﬁx it later, or is it an urgent problem that could bring the whole practice to a
sudden halt if not dealt with very soon.

The journey that we are planning to take is mapped out by the annual budget.
Progress is monitored on a monthly basis by comparing where we are with
where we planned to be at this time. This is the satellite navigation system
with which we can get back on track from wherever we ﬁnd ourselves.

The view through the windscreen of the road ahead is the captive fees forecast.
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This gives us the best indication of where we are going, how busy we are going to
be and for how long. As we saw in Section 6, this chart tends to have a familiar

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shape to it. We can see clearly what we will be doing for the forthcoming month,
and probably for a month or two after that. The next three months after that are
sketched in, but the timing is much more subject to change. Beyond that period
we may have fees totalling about 50 per cent of what we actually require
planned, and then, after that, very little at all that is ﬁrmly
See also
Section 6 Fee
committed. If this eventuality actually came about we would be
forecasting, out of business very rapidly. Most practices will have a forward
page 45
order book proﬁle that looks like this.
In most cases, the cliff-edge tends to be six to nine months away. The trick is to

EN
ensure that it always remains that far away. If it creeps closer and becomes only
three or four months away then we know that we need to get busy trying to
convert some of those possible fees into captive fees. Larger practices may well
have a ‘cliff edge’ that is 18 to 24 months away, whereas a small practice may
only have three or four months of conﬁrmed work in front of them at any given
time.

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IM
Our list of ‘possible fees’, as described in Section 6, is our best indication of how
much fuel we have in the tank. It aggregates all of the work that we have some
chance of winning. This can range from projects that are all but won and just
need a ﬁnal sign-off or approval to become captive, to jobs where we are
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long-listed and are just one of perhaps nine or ten practices that are still being
considered. This list of potential jobs is often quite long, which can be decep-
tively comforting. So we need to keep an eye on the trend of the line on the
chart that attempts to factor in the probability of success for each
See also
Future
job. If all we really have is a very long list of jobs that we are unlikely
possible fees, to win, then we are going to run into trouble in about six months’
page 48
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time.
There is a long time lag between the ﬁrst hint of a new job and the ﬁnal winning
of it, and we need to ensure that we are keeping the pipeline of prospective
projects topped up on a constant basis.

Turnover analysis

As well as ensuring that we are growing the practice and making a proﬁt, we
also need to maintain the balance of the expenditure proﬁle or relative shape
of the practice. The turnover analysis chart in Figure 9.1 illustrates a way to do
this.

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FIGURE 9.1: Turnover analysis – how the practice is spending its income compared with
an industry benchmark target

100
90
80
Percentage of income

70
60
50

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40
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30
Profit
20 Overheads
10 Property
Staff
0
2002 2003 2004 2005 2006 2007 Benchmark
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This chart analyses the turnover of the practice each year in terms of the percen-
tage of the overall total that is spent in the main practice areas. These are the
same ‘big three’ categories of cost that we used when preparing the monthly
ﬂash proﬁt report in Section 3 – these are staff, premises and all other overheads.
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The right-hand side of Figure 9.1 shows the target or benchmark performance
that we are aiming for. In this example, we have deﬁned the target proﬁle as:
. staff – 50 per cent
. property – 12 per cent
. overheads – 20 per cent.
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This leaves 18 per cent as profit or funds available to contribute to the future
growth and development of the practice, shown as the top slice of the bar.
We then plot the actual performance year by year against it in the same format,
which allows us to see very quickly if we are moving towards the benchmark, and,
if we are not, to identify the area that seems to be ‘out of shape’.
In our example we see that in the first year, 2002, this (fictitious) practice made
only a very small percentage of profit – a mere 2 per cent. The problem is
immediately apparent – far more was being spent on staff costs as a per-
centage than the target. Actually, the cost performance in the property and

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overheads categories was better than the target, but it was not enough to
rescue the overall position.

Some small level of progress in the right direction is made in 2003 and 2004 but,
again, this is achieved by the further squeezing of property and overhead cost
rather than by addressing the proportion of total spend that is going on staff.

This situation reaches a crisis point in 2005. Although property and other over-
heads are again kept well down, the staff costs percentage increases once
more and, as a result, almost no proﬁt is made at all. This level of thin proﬁt-
ability is dangerous. At this level there are not enough spare funds being

EN
generated to provide the money that will be needed to replace
See also and upgrade computer equipment. This will become an opera-
Capital tional necessity very rapidly as the continual development of
expenditure
budgets, architectural software requires quicker and larger capacity
page 40
machines to be able to function.
IM
This seems to have finally prompted the management of the practice to take
some remedial action. We see that in 2006 staff costs are finally reduced and a
degree of profitability is restored. Further significant progress is made in 2007
and the practice turns in a very creditable 15 per cent profit performance.
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It is important to appreciate that these are percentages and not absolute financial
values. It is quite possible that the practice described above was enjoying rapid
expansion in the years of very low profit margins. Almost all businesses find it
hard to maintain their profit performance in terms of profit margin during a
period of growth.

It is easy to see how this could happen in an expanding architectural practice. It is

only natural when a practice wins a large new project that one of their ﬁrst
actions will be the recruitment of some new staff to help deliver the work. It is
unlikely that the practice would have people ready and available just in case
such a project were to arrive. Most practices tend to run a bit light on resources
as there always seems to be just a bit more work on hand than was expected. So
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there can be something of a panic reaction, especially if this is a new client and
the practice is keen to impress.

This is absolutely ﬁne while the new project is in its early design stages and is at a
labour-intensive phase. Yet, this time will pass and people will gradually be
released from the project onto other work. They will probably have useful

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fee-earning work to do, but it may not be as proﬁtable as the initial work on the
major project. In this way, additional resource cost gets built into the practice,
and the relative cost shape begins to suffer.
Another new project is won and the cycle repeats itself. Once again, six months
later, we have built in even more staff cost. This may seem to be acceptable as we
are increasing turnover, so it is only natural that our staff budget will be
increasing too. It is only when we come to review the overall shape in percentage
terms, as in Figure 9.1, that we discover the problem. It is a common experience
for growing businesses to ﬁnd that, despite a doubling of turnover, the amount

EN
of profit they have made has stayed the same or even fallen. This can be a source
of great disappointment, prompting responses such as ‘Why did we bother to do
all of this extra work if we were only going to end up with the same amount in the
end?’
The answer, of course, is to find a way to maintain the turnover at its new
increased level, but to address the cost profile issues so that a satisfactory
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margin of profit is made. At the increased level, action to adjust the cost
profile should produce a very healthy amount of money as a profit, which will
provide the practice with opportunities and choices.

Benchmarking
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While reviewing the performance of the practice at the overall level, it is inter-
esting and instructive to see how other practices of a comparable size are
performing. Participating in inter-ﬁrm comparison exercises is a great way to
do this, and the RIBA has launched its own online service in this area in collabora-
tion with the training and advisory company, Colander, which have been
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providing this service for a number of years.

This is an exciting development as it will allow each practice to get a different
view of itself in relation to its peers. The survey covers all areas of practice and,
although ﬁnancial performance is covered extensively, there are also sections
on marketing, the winning of work, use of technology and HR issues.
On a monthly basis we need to gather all of the various sources of information
that we have assembled and put it together. Over time, we can become very
skilled at drawing conclusions from all of the data we have in front of us. This
will allow us to tackle problems at an early stage, when they should be easier
to deal with.

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SUMMARY

. Having developed a number of indicators to show us how the

practice is doing and where we are going, we need to learn how
to read all of these signals simultaneously, so as to avoid getting
bogged down in any one problem area.
. We need to develop skills akin to driving a car, in which most of
our attention is focused on the road ahead (our conﬁrmed future
fee income) while continuously glancing down at the fuel gauge

EN
(our potential fee income), the oil pressure (the cash-ﬂow fore-
cast) and the engine warning light (the resource forecast) and
also looking in the mirror by comparing our current performance
to the budget and our performance in previous years.
. It is important to keep an eye on the overall cost shape of the
practice. Especially in periods of rapid growth, it is easy to allow a
IM
particular category of cost to become too great a proportion of
the whole. In architecture we often see this with our people
costs. Our natural tendency is to recruit when we win new
projects, but we can accidentally build up staff numbers, and
consequent cost, on a permanent basis if we do not keep this
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under review. It is useful to consider other forms of more short-

term resourcing, sometimes utilising temporary or contract staff,
or perhaps some form of outsourcing.
. It is helpful to refer to and to participate in inter-ﬁrm comparison or
benchmarking exercises, such as the service now being offered by
the RIBA. This covers all areas of practice and peer comparison,
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which can be very revealing.

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EN
. Late payment
. Aged debtor report
. The ‘drop-through’ and ‘multiplier’ effects
. Resolving fee problems IM
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Having gone to all the trouble of winning a project, seeing the work through
to the client’s satisfaction and sending in the fee invoice, it is hard to
understand why any architect would then neglect to ask for the bill to be
paid. Yet it is surprising how often this seems to be the case. The professional
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time and effort to which the bill relates probably took place a number of
months before, so why should we accept any further delay at the payment
stage.

Good organisation is the key to effective credit control. The collection process
does not need to be either aggressive or apologetic; it just needs to be done
in a calm, regular and determined way until the desired result is achieved.
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There is still some reluctance among architects and many other professionals
to talk to their clients about outstanding fees. There can be a sense that this
sort of conversation will damage the relationship with the client. In fact, I have
found the opposite to be true. Clients do not respect architects who do not
run their own business affairs in a professional way. Indeed, they may wonder
how professionally and efﬁciently their architect is dealing with their project
and money, if they do not seem concerned about running their own practice
in a business-like manner.
The credit control process should really begin before any design work has been
done at all. Unless the client is known to you from a previous project or is a

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referral from a trusted source, it is wise to undertake some form of credit checking
to see if they have a good record of keeping their payment promises. Companies
such as Dun & Bradstreet and ICC provide reports that give an objective view of a
potential client’s creditworthiness, based on the experience of others. It is not just
a question of whether they pay or not, it is also a matter of how quickly they pay.
It could make quite a difference to your cash-ﬂow if a major client routinely takes
an average of 60 days to pay rather than 30.

As soon as you start to work for a client and allow professional time to be
devoted to that client’s project, you are effectively extending credit. You

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would not loan money from the practice’s bank account to someone without
ﬁrst checking them out to see if they are able and likely to repay you.
The same principle should apply in this situation, which is in fact exactly the
same.

Once it has been established that the client is creditworthy, the credit control
IM
process begins with the negotiation of the contract. Most payment problems
stem from a misunderstanding between the architect and the client. These
misunderstandings may arise from uncertainty in one or all of these areas:
. the exact scope of the work to be done
. the precise terms of the contract
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. the amount and timing of the fees to be paid

. the method to be used for the calculation of fees.

Most clients would only deliberately withhold the payment of an invoice as a last
resort. This is a dramatic gesture and signals the fact that earlier warning signs
have been ignored. This tends to occur at a fairly late stage in the deterioration
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of the relationship with a client, when emotions may be running high. Yet, at the
heart of the problem will be a difference in expectation that has not been
addressed either in the original agreement or in subsequent meetings or commu-
nications.

One of the many advantages of using the RIBA Standard Agreements is that these
fundamental terms of payment are already written in. The client may not have
read them very closely at the outset, but this provides no defence later if a
dispute arises.
It is a good idea to keep all of the paperwork that relates to fees together in its
own separate ﬁle. This will ensure that it is straightforward to follow the progress

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of the project and makes it easier to raise invoices, which will often follow a set
format. It will also make it easy to deal with any fee-related questions as they
arise.

Late payment
It is good practice to include a note on each of your invoices to clients reminding
them of the agreed payment terms. For example:

Invoices are due upon presentation and payable within 30 days of the
invoice date. We reserve the right to charge interest as provided for in

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our agreement, or interest and compensation at the statutory rate on
amounts that are not received on time.

This makes reference to the legal right to charge interest and to claim compen-
sation for the extra administration involved. These provisions are contained in
the Late Payment of Commercial Debts (Interest) Act 1998, as amended and
IM
supplemented by the Late Payment of Commercial Debts Regulations 2002.
The Act allows for a punitive rate of interest of 8 per cent over a reference
base rate to be charged, as well as compensation of up to £100 for unpaid
debts of over £10,000. Base rates to be used in the calculation are set for six-
monthly periods from 1 January to 30 June, and 1 July to 31 December, and
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are known as ‘reference rates’. The correct rate to be used at any particular
time can be found by visiting www.payontime.co.uk, which also includes a
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helpful interest calculator.

Example: Interest on a late payment

Let us assume that the current reference rate is 6 per cent, making the total
chargeable rate 14 per cent (6 per cent þ the punitive 8 per cent), and the
outstanding debt is for £10,000 and it is 30 days overdue.
Then the calculation is as follows:
£10,000 14% ¼ £1,400

£1,400 divided by 365 ¼ £3.84 (the daily rate)

£3.84 30 days ¼ £115.20 (the interest owed to date)

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In addition, £100 can be added as compensation for the additional administration

involved in the collection of the amount due. The potential cost of the combina-
tion of these two elements – £215.20 on a £10,000 invoice – is a strong incentive
for the client to ensure that payment is made on time.

The original agreement may have stipulated the terms and conditions under
which interest can be charged for late payment. Where an alternative agreement
exists, this replaces the provisions of the Act as described above.

Regardless of the approach adopted, there is no reason for the architect to

ﬁnance the client’s business by accepting late payment without some form of

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compensation.

Aged debtor report

The routine collection process begins with the production of an aged debtor
report as shown in Figure 10.1.
IM
F I G U R E 1 0 . 1 : Aged debtor report – who owes money to the practice and how long it
has been outstanding
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Current 30–60 60–90 90–120 120þ Total

month days days days days

Client A
Project 1 29,375
Project 2 5,875
Project 3 11,750 17,625
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Client B
Project 4 64,625
Project 5 23,500 1,175 1,175
Client C
Project 6 8,225
Project 7 7,050
Client D
Project 8 47,000
Project 9 41,125
Total 35,250 101,050 5,875 63,450 50,525 256,150
Percentage of total 14 39 2 25 20

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Contrary to the opinion of some of my creative colleagues, this is not about the
amounts owed to us by wizened old men with long white beards, it is actually
about how long each particular invoice has been outstanding. This is the credit
controller’s favourite report. It shows who owes money to the practice and,
crucially, the length of time for which it has been outstanding. Most practices
will set targets in percentage terms; for example, to ensure that 75 per cent of
the total amount owed is received within 30 days.

All good accounting software packages will include the aged debtor report as
one of their standard reports.

EN
This is where standardised systems of credit control will come into their own.
Outstanding invoices should be chased soon after they have passed their
expected payment date. At this stage a paper statement or email may well
sufﬁce. If a further week or two elapses, this should be followed up with a
phone call. It could be that the statement or e-mail has failed to reach the
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correct person and this is the quickest way to get to the source of the problem.

As with any aspect of client management, it is important to build relationships

and establish rapport. Delays in payment are often of a mechanical nature,
especially in large organisations. By building a working relationship with the
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person dealing with the payment in the client’s organisation, we can begin to
understand their administrative systems and work with them accordingly.
Many people have a system of paying suppliers on a monthly payment ‘run’.
By knowing when this takes place during the month, as it is not always at the
end, and by rendering our invoice at the right time we can ensure that we
receive our money a month earlier than we otherwise might.
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The architect’s invoices may need to be approved by a number of different people,

both within and outside the client organisation, and this introduces a number of
opportunities for the invoice to get ‘stuck’. It is at this stage that we can call on
the help of our contact in the payments department to chase the invoice
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through. It is surprising how many invoices can get lost in this process, and it
may be easier to fax or e-mail copies rather than wait for the originals to be
tracked down. Although the duplication introduces the possibility of the accidental
payment of the same invoice twice, this rarely seems to occur in practice.

There is often a spirit of camaraderie between those who work in the accounts
departments of different organisations. Many of them perform the dual role of

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chasing customers for payment while at the same time being chased themselves
for payment by their own suppliers. This shared experience means that there is
some sympathy for their opposite number who is chasing payment, and an
understanding that it is a job that has to be done. Wise credit controllers will
work with this mutual understanding to help ensure that the fees of their own
practices are paid smoothly and in good time.

The idea is to build up a gradual audit trail. By the time an invoice has become
seriously overdue, say three months, there should be a ﬁle showing that there
have been regular reminders and requests for payment delivered in a number

EN
of different ways throughout this time. Should the matter eventually need to
be resolved through one of the more formal processes described below, then
this ﬁle will act as invaluable evidence to show that all reasonable steps have
already been taken to encourage the client to pay.
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The ‘drop-through’ and ‘multiplier’ effects

IM
As a part of the end of the ﬁnancial year accounting process, we have to take a
view about how likely we are to collect the amounts that we have shown as
outstanding on our debtor list. Those that we are unsure about, we treat as
potential bad debts and reserve against them accordingly. This has the same
EC

effect as incurring an actual bad debt. The full amount that is written off is
deducted as if it were an expense, and in that sense ‘drops through’ straight to
the bottom line and reduces the profit accordingly. It may seem that an unpaid
invoice of £10,000 is relatively insignificant to a practice with a £1 million turnover,
as it represents only 1 per cent of the overall income. Yet, if this practice averages a
10 per cent profit before tax (i.e. £100,000), then this bad debt adjustment of
SP

£10,000 now causes a 10 per cent reduction in pre-tax proﬁt.

To look at this another way, a £10,000 bad debt is equivalent to the profit that is
earned on £100,000 of turnover. This situation is known as ‘the multiplier effect’.
So, replacing the profit that we have lost by failing to collect this debt will mean
that the practice will need to generate another £100,000 of work in order to put
itself back into the same financial position. When viewed in this context we can
see how important it is to pursue all of the amounts that are due, no matter how
small. If we have done the work, surely it is only fair that we receive payment for
it. By failing to collect all that is due, we may be reducing our profits by 20 per
cent or more.

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Resolving fee problems

When it becomes clear that the issue of an unpaid fee is not going to be resolved
by discussion or negotiation between the parties, there are a number of other,
more formal ways, to solve the problem.

Mediation
Mediation is an alternative to adjudication, arbitration and litigation. It is an
informal process that does not impose a resolution to a dispute and only

EN
becomes binding with the consent of all of the parties. Mediation allows the
parties the freedom to explore ways of settling the dispute with the assistance
of an impartial and independent person (the Mediator). It is essentially a
process in which the Mediator assists in negotiations between the parties to
arrive at a settlement. IM
The overall intention of Mediation is to reach an agreed solution. If that proves to
be impossible then the Mediator will attempt to narrow the issues and, if
requested to do so by the parties, will make a recommendation as to how the
dispute might be settled. The recommendation is in no way binding unless the
parties wish it to be so.
EC

The proceedings are conducted on a privileged and ‘without prejudice’ basis.

Nothing disclosed during the Mediation process can be used as evidence in
any subsequent proceedings whether adjudication, arbitration or litigation. Nor
can the Mediator be appointed as adjudicator or arbitrator or called as a
witness in any subsequent proceedings.
SP

The RIBA Mediation Service is administered by the Dispute Resolution Ofﬁce at

the RIBA (contact telephone: 020 7580 5533; www.architecture.com).

Arbitration

These proceedings are governed by the provisions of the Arbitration Act 1996
and the resulting awards are legally enforceable. If the parties involved wish to
have recourse to this method of resolving disputes, they need to ensure that
the provision is written into their original agreement. In the Standard Forms of
Agreement the articles require the parties to select either arbitration or litigation
as the ﬁnal method of dispute resolution.

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Adjudication
The Housing Grants, Construction and Regeneration Act of 1996 (HGCRA) gives a
statutory right to the architect to have disputes resolved by adjudication. The
only exception to this being where one of the parties is the residential occupier
of the relevant property.

Adjudication has the beneﬁt of being relatively quick and inexpensive. Without
mutual agreement, the issues to be considered and the timescales for making
a decision are prescribed. The decision is binding and the courts will normally
enforce an adjudicator’s decision promptly if needed. However, either party

EN
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may raise the issue again in arbitration or litigation, or even in a related adjudica-
tion – for example, if the client responds with a counterclaim of negligence.

The RIBA’s Dispute Resolution Ofﬁce provides advice on arbitration and adjudica-
tion and offers the appointment of arbitrators and the nomination of adjudicators.
IM
Litigation
Disputes can, of course, also be settled by using the formal legal process and
taking the matter to the courts.

Credit control is often perceived as an unpleasant task, yet it is vital to the ﬁnancial
EC

health of the practice. Some organisations who have their own cash-ﬂow problems
adopt a policy of only paying when they have been chased. If you do not ask, you
simply will not get!
SP

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SUMMARY

. Good organisation is the key to effective credit control. The process needs
to be performed in a regular and consistent way. It can become a war of
attrition, and victory will eventually come to the quietly determined.
. New clients should be credit checked before any work begins, not only to
see if they pay but also how rapidly and regularly they pay. If collection is
slow and difﬁcult, the cost may seriously erode the proﬁtability of a
project.
.

EN
Most payment problems stem from a misunderstanding between architect
and client about what was supposed to be delivered. The more precise the
terms of any agreement can be, the fewer payment disputes will arise.
. There is a statutory right to interest in the event of late payment and
most agreements will include some provision for a charge to be made.
It is only fair for interest to be charged when we are ﬁnancing the client’s
IM
business. Most clients detest the idea of paying interest and will tend to
pay the outstanding amount promptly when the subject is broached.
. Non-payment can often be the result of an invoice simply becoming
‘stuck’ in the client’s payment system. The credit controller’s job is
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often like that of a plumber, unblocking the payment channel so that

funds can ﬂow.

. Bad debts have a dramatic effect on proﬁts as they ‘drop through’ to the
bottom line. Although the unpaid invoice may only represent 1 per cent
of the practice’s turnover, its non-payment may reduce the proﬁts by
10 per cent or more.
. There are a number of formal procedures that can be used when all else
SP

fails, ranging from mediation to full-scale litigation.

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EC
SP

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EN
. What do you want from the practice?
. Closing the practice
. Trade sale
. Passing the practice on to the next generation
. Taxation
IM
It may seem strange, but the best time to consider what you want to happen
when you decide to leave practice is at the very beginning, when you are just
setting up. We saw in Section 2 that the way that you choose to operate and
EC
the choice of business form, i.e. self-employment, limited company See also
or LLP, have far-reaching consequences. One of the most important Section 2
Starting in
of these consequences lies in determining the method that can be practice,
page 9
used when it comes to making an orderly exit.
In truth, few are that far-sighted, and the last thing on most architects’ minds
when they start out will be how they are going to leave. Indeed, most only
SP

give any thought to this subject at all when the actual fact of retirement or
moving on is only a few years away.
Yet this, too, is an area where great beneﬁts can be derived from careful advanced
planning. Given a number of years, we can mould the practice into the ideal shape
for the chosen exit route. We can groom successors from within the business or take
the time to identify the need to bring someone in from the outside. Understandably,
most practices prefer to promote and plan for succession from within.
However, if it seems that the survival of the practice necessitates the recruitment
of someone new at a very senior level, this will require careful consultation and
communication. No one would like to see the practice that they have worked

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hard to build up over many years plunged into chaos as a result of their
departure.

Careful planning will also allow the exit to be made at a time of your own
choosing, ideally when the business is doing well and market conditions are
benign. The exit strategy should certainly be a feature of the ﬁve-year planning
exercise, so that the practice can be steered gradually in the chosen direction.

What do you want from the practice?

In Section 5 we discussed the need to have a clear vision for the practice and to

EN
deﬁne what it has to offer that makes it different from all of the others. I have
never yet met an architect whose primary motivation was to make a lot of
money. Most are simply passionate about the sort of architecture that they
would like to do and the impact that their work has on other people. As a part
of this ethos, they believe that their architectural vision and its inherent values
IM
are worth preserving and protecting and passing on to the next generation.
However, most would also like to realise the ﬁnancial reward that they deserve
for building up the practice. Over the course of the years, value
See also
Section 5 will have been added and it seems only fair that this value is in
Long- and some way passed back to those who created it. In its simplest
short-term
EC

planning, form, this is expressed in the overall value of the balance sheet of
page 35
the practice.

There are, of course, ways to realise this value which do not involve the continu-
ance of the practice.

Closing the practice

You could simply decide to select a date from which to stop practising. The
outstanding amounts due on invoices from clients are collected and the
suppliers’ bills and other liabilities are paid. The ﬁxed physical assets, such as
property, furniture and computer equipment, can be sold. When everything
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has been dealt with, including any tax liabilities, the money remaining in the busi-
ness can be paid out to the owner or partners.

Trade sale
A trade sale occurs when the business is sold to an outside party. This can be a
good way to extract the value from the business, but it does require the practice

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to be in a form that would be attractive to a potential buyer. The value of the

business may attach closely to a few individuals and their loyal client following.
A buyer would be very concerned to know how feasible it would be to maintain
the level of fees that have been achieved in recent years when those key indivi-
duals are gone.
A prospective buyer is likely to employ their own accountants to undertake a ‘due
diligence’ exercise. This is not only intended to check the figures that have been
reported in the published financial accounts, but also to take a view on the relia-
bility of the forecasts that have been made regarding future sales and profits.

EN
The following are the sorts of factors that would make a practice an attractive
proposition to a potential buyer:
. increasing profitability on a year-on-year basis
. evidence of a high quality of service, ideally with formal accreditation
. a history of innovative design
.
.
IM
loyal clients who have given repeat business
a high-quality, committed design team
. well-maintained premises and assets
. good financial compliance record, i.e. the timely filing of accounts and tax
returns.
EC

Passing the practice on to the next generation

The most common method is to ﬁnd a way to ‘sell’ the practice on to the next
generation of management. This is where the choice of business form
becomes an important issue.
SP

Partnership or LLP

In a partnership or LLP this is often a straightforward process and is usually docu-

mented in the terms of the partnership agreement that was signed at the outset.
The traditional model is for a new partner to ‘buy in’ to the practice by
subscribing a set amount of money as a capital contribution that remains in
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the business until they depart. For a well-established practice the major banks
offer partnership loan schemes, which are underwritten by the practice to
ﬁnance this commitment. While they remain a partner, they receive their
agreed share of the proﬁts made each year. In this way, the value that they
have contributed to the practice is paid out more or less as it arises. There is

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no need to discuss this further on departure. When they leave, their original
capital sum is returned, together with any balance remaining on their current
account (the amount of any as yet undrawn proﬁts). An incoming replacement
partner then subscribes a set amount of capital and the overall funding level
of the practice is maintained.
This model operates on a broad ‘swings and roundabouts’ basis. No account is
taken of the consequences of unanticipated events that may have affected the
partner, but which took place outside the period of partnership. For example,
the ﬁrm may receive a refund from a supplier who discovers that an accidental

EN
double payment had been received in an earlier year. Strictly, this should be
divided between those who were the partners at that time, but this would be
too complicated to administer. Instead, we rely on the working assumption
that these sorts of events tend to balance themselves out over a period of
time. IM
Limited company

As noted in Section 2, the limited company format is more formal and structured.
The ownership of the company rests with its shareholders. These may well also be
the key directors in the practice, but there is an important distinction between
EC

these two roles. Anomalies can sometimes arise where a senior director, who
is an important member of the management team, has a relatively small
shareholding. When it comes to the exit process, it is the proportion
See also
Limited of the business that is owned as represented by the shares which
company, matters, not the importance of the individual to the management
page 11
of the practice.
SP

It is best practice to have a shareholders agreement in place that is similar to the

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partnership agreement described above, which documents how shares are to

change hands. Advice from a solicitor who specialises in this subject is essential,
as this can be a complex and difﬁcult area. The process is somewhat similar to the
writing of a will. Although the primary intention may be easily stated – for
example, on retirement the shares will be sold for an agreed value to the other
directors – there is also a need to consider other possible scenarios:
. What happens if a shareholder/director dies unexpectedly?
. What happens if a shareholder/director becomes too unwell to work?
. What happens if a shareholder/director leaves to join a competitor?

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Even if none of the above applies and the situation is a straightforward one of
selling shares on to the next generation, there is the vexed issue of determining
the price at which this transaction should happen. There are many ways to value
a business and this matter constitutes a whole subject area in its own right on
which many books have been written. There is no single standard method as
so much depends on the circumstances of the individual business. Accountants
and solicitors earn substantial fees from advising clients without a shareholders
agreement in place on the way to arrive at a fair value for a share. This can
become particularly difﬁcult as different parties have different opinions on
what their shares are worth. The shareholders agreement is designed to deal

EN
with all of these factors, including a method of share valuation. In an ongoing
business a multiple of recent post-tax proﬁts is often used, but there are many
ways that this calculation can be performed. The key is to reach an agreed
method, to document it and to insist that new shareholders sign up to its terms.

There are also still a number of government schemes in existence which are
IM
designed to allow people to acquire shares (and therefore ownership) in the
companies that they work for in a tax-efﬁcient way. It is worth exploring this
subject with an experienced, qualiﬁed accountant.

The above discussion illustrates the practical differences between the LLP and the
EC

limited company. The LLP structure is often simpler and more ﬂexible and, for this
purpose, may be better suited to the majority of architectural practices, many of
which consist of ten people or fewer.
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Taxation
SP

Whichever method is used, it is important to take advice to ensure that its execu-
tion is conducted in a tax-efﬁcient way. The realisation of value from the sale of a
business will be subject to capital gains tax (CGT). Currently, business asset taper
relief (which reduces the amount of tax that is payable the longer that an asset
has been owned before being sold or disposed of) cuts the CGT liability to an
effective rate of 10 per cent for a 40 per cent taxpayer on the sale of business
assets held for two years or more. Substantial holdings in investments could
disqualify you from this relief. From this perspective you should avoid investing
spare cash in property or shares, or consider setting up a separate legal entity to
hold the investments. However, the Pre-Budget Statement in the autumn of 2007
announced changes to CGT, in particular the removal of asset taper relief, with

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effect from 6 April 2008. At the time of writing, the implications of the 2008
changes are unclear. Once again, it is wise to take advice from a specialist in
this area as it is subject to frequent legislative change.

Leaving practice is likely to be an emotional time, especially for an architect who

has devoted most of their working life to building up a practice. This challenging
period of transition can be made easier if the mechanics of the exit process have
been thought out well in advance.

EN
IMSUMMARY

. The best time to plan an exit strategy is when you set up or join the
practice in the ﬁrst place, although this will be the last thing on your
mind at the time.
EC

. Most architects will be concerned that all of the work and effort which
they have put into developing their practice is continued. However,
they would also like to receive some ﬁnancial reward for their hard
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work too.
. The practice can be sold as a whole to another ﬁrm or third party. More
commonly, a way is found to sell the business on to the next generation
SP

within the practice. The choice of business form, i.e. LLP or limited
company, will affect the mechanics of this process.
. It is important to take tax advice at an early stage of the process. It should
be possible for the proceeds to be taxed under the more favourable
capital gains tax rules, which, with the assistance of business asset
taper relief, can reduce the effective tax rate to 10 per cent.
. Leaving practice is likely to be an emotional event. It can be made a little
easier if the exit mechanics have been worked out well in advance. It
would be a great shame if the ﬁnal act in a long and creative career
were to be a dispute over money with your former colleagues.

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EN
In this Section: IM
. Failure to use Standard Agreements
. Failing to invoice for work on a regular basis
. Failure to collect amounts that are due
. Not asking for additional fees when the brief is changed
. Not asking for additional fees when extra work is added
EC

. Failure to monitor project costs

. Low hit rate on competitive tenders
. Poor estimation and negotiation of fee levels
. Failure to manage the design team
. Conclusions
SP

The consistent message running throughout this guide is how vitally important
it is to continuously manage the working capital, which is the lifeblood of the
practice. Construction projects are long term by nature and some can run for
many years. Such projects are so complex and involve so many different
people and organisations that it is inevitable that the majority are delayed. As
a result, the architect’s fees are delayed too.

Some of the most common contributing factors to the failure of architectural

practices are detailed below.

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Failure to use Standard Agreements

The great advantage of using the Standard RIBA Agreements of Appointment is
that they automatically take care of the major areas of risk. They have been devel-
oped as a result of the practical experiences and consequent feedback of many
architects over a number of years. Clients will sometimes have their own form of
contract for architectural services that they will insist on using. The reason that
the client wishes to use their own contract is, of course, because they have had
it drafted in a way they consider to be favourable to themselves. It would be
wise to consider the terms of the contract carefully, taking particular note of

EN
where it differs from the RIBA’s Standard Agreement. The fees to engage the
services of a good contract lawyer to review the client’s or the practice’s
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bespoke contract will be money well spent, and could prevent a major problem
from developing later. The contract should also be forwarded to your professional
indemnity insurer for their review and comments.
IM
Failing to invoice for work on a regular basis

The construction industry is used to the concept of payment becoming due on

the completion of a particular stage or phase of a project. This is a reasonable
approach, as the speed with which a piece of work is completed lies largely in
EC

the hands of the contractor. Most contractors are also large businesses with
the ﬁnancial resources to cope with payment delays. Applying the same
principles to the design team is harsh. Their fees are now largely out of their
own control and they tend to be much smaller businesses with much more
limited ﬁnancial resources.

Consequently, it makes sense to build into the initial agreement a provision for
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the regular invoicing of fees, preferably on a monthly basis. As the previous

sections have shown, our major costs accrue on a monthly basis, so it makes
sense to try to encourage our income to come in at a similar rate. By agreeing
to a stage payment fee schedule, we are introducing the risk of a six- or nine-
month delay in receiving payment for our work. There is a considerable cost
involved in ﬁnancing this sort of payment lag.

Failure to collect amounts that are due

The mechanics of credit control were detailed in Section 10. However, it is worth
repeating the basic message, which is to ensure that the money that you are

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owed is collected. Failure to collect can take a number of forms. First, we need to
check whether all the invoices raised and recorded by the accounts function were
actually sent on to the client. It is surprisingly common to ﬁnd See also
invoices lurking in a pile of ‘when I get around to it’ paperwork on Section 10
Credit control,
a project architect’s desk, perhaps waiting for a covering letter to page 71
be written.
Second, we need a system that lets us know when an invoice has passed its
due-for-payment date. We need a person who has been assigned the responsibility
for tracking and chasing these outstanding bills, and letting the relevant architect

EN
know if a problem is encountered that will need their help to resolve.

Finally, we need the tenacity to pursue the debt until it is fully See also The
collected. We saw earlier how the ‘multiplier effect’ applies to bad ‘drop-through’
and
debts so that even relatively small amounts can have a signiﬁcant ‘multiplier’
effects,
impact on proﬁtability. IM page 76

It may be tempting to write off the final £3,000 that remains outstanding on
a £50,000 invoice, but this will mean that the practice has to generate a further
£30,000 of fees to create sufficient profit just to replace the amount uncollected.
EC

Not asking for additional fees when the brief is changed

We have noted that, in general, architects are not motivated primarily by financial
reward. Indeed, it seems that architects can be the most generous of profes-
sionals, as they often seem to find themselves working for no fee at all.
Section 4 detailed a way to track the financial performance of an See also
individual project. We often see that our actual cost line is above Section 4
SP

Project
our planned cost line, which means that we are spending too reporting,
page 25
much time on the project.
This may be the result of inefﬁcient working methods or faulty resource
allocation. More often, however, it is the result of the team trying to respond
to a client’s request for something extra or different. We are all correctly
advised to be client-led and concerned to keep our client happy by answering
their questions. However, we also need remain sufﬁciently alert to notice when
we are being asked for work that falls outside the scope of our contract. This is
potentially good news for the practice, if the client is prepared to pay for this
extra work to be done. If the client does not wish to pay, we should not be

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carrying it out for free. This does require an element of judgement and has to be
conducted within the overall context of the client management process. It is
important to maintain good working relations and show that we can be ﬂexible,
but we also cannot afford to give away ‘the shop’ too often.

Not asking for additional fees when extra work is added

This is a similar situation to the change of scope scenario described above. Yet
this can be a more subtle situation that is harder to spot. When the brief
changes, everyone on the team needs to be involved and the ultimate building

EN
or project will differ from the original plan.

In this scenario the basic design is not changed, but the client requests that some
aspect of the design be revisited and alternative options explored. We are inter-
ested in pursuing this design option too, so we gladly embark on this piece of
work without much thought for the time and cost implications involved.
IM
Again, we must learn to notice when work falls outside the agreed scope and
agree an additional fee accordingly.

Failure to monitor project costs

We are more likely to be ﬁnancially successful if we monitor the performance of

individual projects and the work stages within those projects. Inter-firm compar-
isons reveal that there is a correlation between those firms that make the most
profits and those that monitor project costs most closely. We all know that
some projects will not be as profitable as others. We may have chosen to
accept a reduced fee in order to work with a new client or in a new area.
SP

However, there is a danger that we will allow ourselves to have a ‘good

reason’ for every project to not make the required level of proﬁt and, hence,
end up with an unproﬁtable practice overall.
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Low hit rate on competitive tenders

For most architects the winning of a project is the result of being successful in
See also a competitive tendering process. We have noted in Section 7 that
Section 7 we have to deal with the tendency of clients to commission archi-
Resource
forecasting, tects to do more of the type of work they have already been
page 53
doing in recent years.

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We would all like to design something new or in a different sector. It is

possible to fall into the trap of bidding for everything that you feel the practice
could do or would like to do. Sadly, the result of this will be disappointment
and rejection, and a lot of wasted time and money. Clients will tend to choose
an architect with a proven track record or a recognised name. Very few clients
are in a position to risk the very large amounts of money at stake in a
construction project by appointing an untried architect.

The successful approach is to apply for work where you can offer some recent
experience or a unique advantage and ﬁrmly believe that it is a project that

EN
you should win. Ideally, you should feel that the project ‘has your name
written on it’. This will help to focus the marketing effort and improve the
overall success rate.

Public sector clients in particular are demanding an ever-increasing amount

of documentation to be prepared as a part of the bid process. These bids are
IM
time consuming and expensive to prepare, and you need to ensure that the
limited time available is spent well. It can be easy to fall into the trap of
being ‘very busy’ preparing bids and submissions. But if these are not
well-targeted efforts, then the majority of the energy involved is being
wasted.
EC

Poor estimation and negotiation of fee levels

We obviously need to ensure that our fees are adequate both to cover the
cost of the job and to contribute to the overhead costs of the practice as a
SP

whole. This can only be done by taking the time to think through what will be
involved in delivering a project and, in particular, the level of resources that
will be needed. We need to perform this ‘bottom-up’ analysis in order to know
what our costs will be. From this point we can calculate what our ideal fee
would be – in other words what level of contribution we are looking for. Then
we can take a view as to what the client is likely to be prepared to pay. We
need to be prepared to decide not to pursue a project if the fee is inadequate.
There may be slack times when we choose to do a piece of work at cost, just
to generate some funds to continue to pay the salaries. This can only ever be a
short-term solution and will lead to severe ﬁnancial difﬁculties quite quickly if
applied on a regular basis.
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Failure to manage the design team

Clients are increasingly looking for a ‘one-stop shop’ in the appointment of a
design team. As the architect can be the natural leader of the design team, it
follows that we ﬁnd ourselves in this position more often than we used to in
the past. There is often little or no reward for performing this additional co-
ordination service. Indeed, it comes with its own considerable risks. Although,
in practice, many ﬁrms are comfortable with a ‘pay when paid’ approach, it
should be appreciated that this is unlikely to be the contractual position.
Standard Agreements allow for the sub-consultant’s payment terms to be

EN
longer than those of the architect, so that their fees can be collected ﬁrst, but
this does not change the underlying position. Where the architect has
contracted with the QS or engineer, it is the architect who is ultimately
responsible for the payment of their fees.

It is very important to stay on top of the process and to determine that funds are
IM
ﬂowing regularly from the client to ensure that all the members of the design
team can be paid at the appropriate time.

Conclusions
EC

We have seen throughout this guide that the practice of architecture involves
dealing with the problems that arise from projects that are long-term, complex
and involve many different people and groups, each of whom has their own
agenda. In that sense, it is a profession that operates in a high-risk arena. Yet
the traditional relationship between risk and reward somehow seems not to
apply. Architects do not rank highly in the league table of professional pay scales.
SP

I have often asked myself, and my colleagues and students, Why not? This is an
interesting question to explore, and one that always provokes comment and
debate. I have not met an architect or student yet who does not hold strong
views on this subject. My own feeling is that, as a profession, we need to under-
stand more fully the level of risk that we are asked to deal with on a daily basis. In
general, we manage this very successfully and, with this in mind, we should build
our conﬁdence and belief in ourselves as a profession.
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I would like to see us thinking more in terms of the added value of the work that
is done. We should look for opportunities to work in true partnership with the
client, rather than being just another item of expense that the client will seek

Copyright RIBA Publishing

to minimise. As information systems become increasingly automated and knowl-

edge becomes more widely available, the professional advisor needs to reassess
what it is that they can bring to the table. The client is looking for help to ensure
that their project is realised on time and on budget. They want their advisors to
align themselves with their concerns and agenda. We need to retain our profes-
sional independence, but we also need to respond more readily to our client’s
entrepreneurial, environmental or social aspirations.

We should stand back sometimes and try to appreciate that the work that we do
affects people’s daily lives in a profound way. I ﬁrmly believe that we should value

EN
the contribution that we make, both in ﬁnancial and in social terms, and be
bolder in asking to be rewarded accordingly.

IM
EC
SP

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Copyright RIBA Publishing

SUMMARY

. It is of vital importance to manage the working capital of the practice on a

continuous basis. This is an everyday task and needs to become part of
the consciousness of being in practice.
. Architectural practices can fail for a variety of reasons. One of the most
common mistakes is a failure to use the Standard Agreements, which
have evolved and been developed by the RIBA over many years. They
seek to help the architect in all of those areas where experience has

EN
shown that problems tend to arise within the contractual relationship.
. Most other problems arise from a failure to get paid regularly for the work
that has been done. This can result from a failure to ask for additional fees
when the brief is changed or extended, or a simple failure to collect
monies that are due.
. Architecture tends to be less well paid than many other professions. This
IM
is hard to understand when you reﬂect on the level of risk that is involved
in construction projects and the long-term effects that the architect’s
work has on people’s daily lives.
. As a profession we need to understand the true value of the work that we
are doing, and align ourselves more with the interests and priorities of
EC

our clients. In this way we would be better placed to ask for an appropri-
ate level of ﬁnancial reward that reﬂects the true value of our work.
SP

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Copyright RIBA Publishing

EN
RIBA Good Practice Guide Series, RIBA Publishing
Keeping Out of Trouble, Owen Luder, 3rd edition (2006)
Negotiating the Planning Maze, John Collins and Philip Moren (2006)
Employment, Brian Gegg and David Sharp (2006)
Starting a Practice, Simon Foxell (2006)
Fees, Roland Philips (2008)
IM
Other publications
Getting Paid, Nicholas J. Carnell and Stephen Yakeley, RIBA Publishing (2003)
EC

Useful websites
Architectural practice
RIBA www.architecture.com
www.ribabookshops.com
SP

Architects Registration Board www.arb.org.uk

Architects’ Journal www.ajplus.co.uk
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Building Magazine www.building.co.uk

Building Design www.bdonline.co.uk

Getting paid – credit control

General websites www.payontime.co.uk
www.bankofengland.co.uk
www.paymentscorer.com
County Court Service www.moneyclaim.gov.uk

Copyright RIBA Publishing

Tax
HM Revenue and Customs www.hmrc.gov.uk
This is the single authority for all UK tax matters, including VAT.

Company structure and naming

Companies House www.companieshouse.gov.uk

Nominet www.nic.uk

EN
General business advice

Business Link www.businesslink.gov.uk

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EC
SP

Copyright RIBA Publishing

accounts, 15–23 closing the practice, 82

EN
book-keeping, 15–17 combined fee forecast, 51–2
filing, 11 Companies House, 11–12
key performance indicators, 20–3 competitive tenders, 90–1
monthly profit reporting, 17–20 cost performance, 29–32, 67–9
additional fees, 89–90 costs (see also overheads; resources)
annual accounts, 22 cash outflows, 61–3
annual budget, 37–43 monitoring, 29–32, 68–9, 90
IM

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annual plans, 37–9 project planning, 26–9
annual targets, 36, 38–9 credit control, 71–8, 88–9
assets, 4
‘debtor days’, 61
balance sheet, 22 debtors, 74–6 (see also late payments)
bank loans, 13 direct staff costs, 29
EC

benchmarks, 20–1, 67, 69 dispute resolution, 77–8

book-keeping, 15–17
estimating fees, 26–9, 91
budget holders, 39–40
exit strategy, 81–6
budgets
expenditure, 19–20, 61–3 (see also costs)
capital expenditure, 40–2
planning, 37–8 fees
SP

quarterly reviews, 40–1 estimation and negotiation, 26–9, 91

sole practitioner or small practice, 43 forecasting, 45–52, 61, 65–6
business closure, 82 payments, 61, 72–7, 88–9 (see also
business sales, 82–3 credit control)
finance, raising, 12–13
capital, working, 4–6, 12–13 financial records see accounts
capital expenditure, 40–2, 62 financial targets, 20–3, 36
capital gains tax (CGT), 85 forecasting
captive fees forecast, 45–8 cash-flow, 59–64
cash flow fees, 45–52, 65–6
analysis, 21–2 project resources, 53–8
forecasting, 59–64
change of brief, 89–90 income, 19, 61 (see also fees)

Copyright RIBA Publishing

income tax, 62 monitoring, 29–32, 90

indirect staff costs, 29 planning, 68–9
invoicing, 75, 88
records see accounts
key performance indicators (KPIs), 20–3, reports
36 aged debtors, 74–6
cash-ﬂow forecasts, 59–60
late payments, 72–7, 89 monthly proﬁt, 17–20
liabilities, 4–5 project performance, 29–32
limited companies, 11–12, 84–5 resource allocation, 53–5
limited liability partnership (LLP), 10–11, resources (see also staff)

EN
83–4 forecasting, 53–8
limiting factor, 38–9 monitoring, 29–32
liquidity, 5, 21, 22 (see also cash ﬂow) project planning, 26–9, 53–6
loans, 13, 22–3
long-term plans, 35–7 self-employment, 9
selling the practice, 82–3
monitoring shareholders, 12, 84
costs, 29–31, 90
performance, 20–3, 36
monthly reporting, 17–20
IM short-term plans, 37–43
small practices, 43, 51–2, 63
software, 16, 41–2
sole traders, 9–10, 43
overdraft cover, 22–3 staff
overheads, 20, 66–7 costs, 19, 26–9, 62, 67–8 (see also
EC

resources)
partnerships, 9–10, 83–4
management, 92
payments, 61, 72–7, 88–9
Standard Agreements, 88
performance charts, 29–31
strategic objectives, 36
performance targets, 36
personal liability, 10 tax, 9, 62
planning, 35–44 capital gains, 85–6
SP

long-term, 35–7 partnerships, 11

project resources, 25–9 VAT, 61
short-term, 37–43 time-recording, 26–7
professional indemnity premiums, 62 trade sale, 82–3
profit and loss (P&L) account, 18–20 turnover analysis, 5, 21, 66–9
profit margins, 66–9, 76
profitability, 5, 20–1, 32 unpaid fees see late payments
project fees see fees
project performance charts, 30–1 VAT, 61
project resources working capital, 4–6, 12–13
estimation and negotiation, 25–9, writing off debts, 76
91
forecasting, 53–8 zero-base budgeting, 37–8

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Copyright RIBA Publishing

(OW CAN YOU KEEP UP WITH THE RELENTLESS COSTS OF RUNNING A PRACTICE
n THE MONTHLY PAYROLL THE RENT INCOME TAX 6!4 AND SO ON n WHEN
YOUR FEE INCOME IS SO UNPREDICTABLE (OW DO YOU KNOW IF YOULL HAVE

EN
ENOUGH CASH TO OPERATE IN SIX OR TWELVE MONTHS TIME !RE YOU LIKELY
TO MAKE ANY PROlT !ND HOW CAN YOU TAKE CARE OF THE lNANCES WHEN
YOUVE GOT A BUILDING TO DESIGN
!IMED AT SENIOR ARCHITECTS AND THOSE SETTING UP IN PRACTICE THIS
BOOK ANSWERS THESE AND MANY OTHER QUESTIONS WITH STRAIGHTFORWARD
ADVICE AND PRACTICAL SOLUTIONS 7RITTEN IN A FRIENDLY SYMPATHETIC
IM
STYLE IT WILL EQUIP YOU TO PLAN FOR BUSINESS SUCCESS #HAPTERS ON
PROJECT REPORTING LONG AND SHORT TERM PLANNING CREDIT CONTROL AND
FEE RESOURCE AND CASH mOW FORECASTING EXPLAIN THE FULL RANGE OF
TRIED AND TESTED TECHNIQUES 4HE CONCLUDING CHAPTER EXAMINES THE
REASONS WHY ARCHITECTS COMMONLY GO OUT OF BUSINESS SERVING AS A
EC

CAUTIONARY CHECKLIST OF WHAT TO LOOK OUT FOR

"RIAN 0INDER !YRES IS A CHARTERED MANAGEMENT ACCOUNTANT WHO
HAS HELD SENIOR lNANCE ROLES WITH MANY BLUE CHIP ORGANISATIONS
EVENTUALLY WORKING FOR 92- ARCHITECTS AND IN MOVING TO
HIS CURRENT ROLE AS &INANCE $IRECTOR AT ARCHITECTS AND PLANNERS
3HEPHEARD %PSTEIN (UNTER (E LECTURES REGULARLY TO 0ART
SP

STUDENTS ON &INANCE IN !RCHITECTURAL 0RACTICE AT THE 5NIVERSITIES OF

0ORTSMOUTH AND #AMBRIDGE AND THE 3OUTH "ANK IN ,ONDON

4HIS GUIDE MEETS THE 2)"! #0$ REQUIREMENTS FOR THE STUDY
OF 0RACTICE -ANAGEMENT WITHIN THE PRESCRIBED CURRICULUM

RIBAPUBLISHINGCOM

*4#/

1MW?J (LQRGRSRC MD !PGRGQF PAFGRCARQ

--```,,,``````,,,``,,,`````,-`-`,,`,,`,`,,`---

Copyright RIBA Publishing

Provided by Accuris Licensee=Dublin Institute of Technology/5946591001, User=Roe, David
No reproduction or networking permitted without license from Accuris Not for Resale, 09/18/2023 10:50:59 MDT

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