Finance

Finance management within an architect firm:

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Cashflow forecast and profit and loss forecast.

 

If the practice is small and intends to stay small, and the previous year’s net profit was in line with the target set, it should not take longer than a few hours to produce a new cash flow and profit and loss forecast. 

 

Forecasts are essential to the success of your business, failure to forecast accurately and. On it or target could lead to cash flow problems, liquidation of your company, and bankruptcy if you are a sole trader. 

 

As the year progresses, there have to be income checks to make sure, the income is not falling out of targets, if the income is not enough, then some admin and overhead costs should be reduced, this is because, if the income is not enough, things like dividends or pension contributions could not end up as planned. 

 

 

Monthly cash flow forecast.

 

The purpose of the cash flow is to make sure that there will always be money in the bank throughout the year to do the payments when they are due.

 

There are two things.

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• Company year: will start on the date you decide for your company

• Financial year: is the same for everyone and starts on 6 April every year. 

 

 

There should be an overdraft facility in place with the company bank in case of the need for Thoth-term- cashflow. 

 

It is important to have a reserve of capital so one or two late payments or some unexpected expenditure will not force you to rely on the overdraft facility. 

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Raising money, making a profit, and the company bank account. 

 

 

Raising money 

 

You will need to have a business plan and a cash flow forecast to work out how much money you need to borrow, how long you need it for, whom you can approach and what security of can offer. 

 

Do not underestimate how difficult it will be to raise capital, and when you ask for a load make sure it is for the right amount as it may not be possible to ask for more money later. 

 

There are a few different ways to raise money depending on whether you are doing this alone or with others.   

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• Load from a company director (s)   

• The loan from a family member or friend   

• Bank overdraft for short-term borrowing   

• A bank loan for a longer-term borrowing   

• Selling shares in the business   

• Taking a partner (seek legal advice before entering into a partnership)   

• Second mortgage on your house.

 

The company bank account.

 

There is no reason why you should use the same back for your business account as for your personal account.

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Before setting up a business account, we should look into what every bank offers and see if it is worthy to open an account in a local branch that will have a manager whom you can talk to in case of advice.

 

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Accountant services 

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The services provided by your accountant can include the following:   

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• Preparation of your full annual accounts   

• Preparation of your abbreviated accounts for companies house (limited companies only)   

• Corporation tact calculation and advice on deadline for payment   

• Preparation and return of P11D (listing your benefits/expenses in the year) to HMRC.   

• General advice during the year, including advice on employment legislation, how to run your company in a tax-efficient way with regard to payment by salary or dividends, and pension contribution.   

• (Optional) preparation and online submission of the company director’s personal tax return.

 

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Fees

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The way you charge for your services will depend on the size and type of work.

The fee can be a combination of the following methods of charging.

• Time charges 

• Percentage fees 

• Lump-sum fees

 

Percentage fees

 

For domestic work, a percentage fee based on the construction cost is the traditional way of charging for architectural services.

 

The percentage is based on the initial budget for construction, but at the end of the project the percentage is based on the final account figure (this should be explained to the client).

 

If there is any increase in the cost, we should always inform the client about it, as well as get their consent for the budgets.

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whenever we agree to a tariff, we should always ensure that the clients know that they will have to pay us for any extra or abortive work.

 

It is very common in domestic works, for clients to add or remove work at any stage, which is why they should be informed that they will get charged for any extra or voided work before any work has commenced.

 

Lump-sum fee

 

if your client asks you to agree on a lump sum fee, explain that the free will be based on a fixed scope of work. Explain that any work not included in the original brief will be charged for separately on an hourly basis. This explanation is often enough to persuade a domestic client that a percentage fee is probably a better option, as most of these clients add work to the contract at every stage.

 

Time charge

 

On very small projects (£40,000 and less) it. May be appropriate to charge on a time basis rather than a percentage fee. If we as architects think that there might be a chance of additional work, we should inform the client. E.g. if we think that 8 site visits will be needed instead of 6, we will have to estimate the amount in the contract.

 

 

Working for free

 

You should never agree to provide professional advice for free, as you will always be liable for the professional advice given.

If you charge properly you are e more likely to have your time and your work appreciated.

 

Many good architects work hard and design great buildings, but go out of business because of poor financial management.