While talking about the service industry, the primary objective that comes to each one’s mind is how to manage the finances. The architecture industry has been exponentially growing each day. There are thousands of students that are graduating every year, and simultaneously, architecture firms and studios are being established significantly. There comes a lot more responsibility when you have to manage your firm. The glory of finances is such that if you do it wisely by keeping things under control, the result will be more profitable. As architecture students, we don’t get much education on business or how to manage the firm. This might lead to a downfall towards mis-managing the finances.
As we are now living in a post-pandemic stage, the AEC industry is facing an exceptional demand for its services. At present, even slow-paced projects and slow-paying clients are appreciated, which was not the case before the pandemic. Architects are indefinitely being paid much less, which has become an issue for small as well as large firms. The working capital of the AEC industry has been an issue that people are not able to comprehend yet. What strategies does one need to comply with to gain financial profitability? How can one diversify the efforts required to build a firm and nurture it to the point of a stable flow of income? What are the tools required to manage the finances with a proper direction? As a business owner, what is the crucial point to think about from a development and strategic perspective? Mark Zweig, a leading expert in business and management in the architecture and engineering industry, explains it through the Zweig letter in one of his articles written for the AEC community.
The perfect solution might not exist yet, nevertheless, with good designs comes great solutions. The primary step is to learn how to manage your finances effectively. Create a business plan that will integrate your vision, goals, your mission statement, and the actions necessary to reach your goals. This road map will kickstart your journey regardless of furthering your goal. Selecting the right type of business is essential in building the foundation of your firm. The important part in managing finances commences when revenue generation, profit plans, design and talent plans, and overhead expense budget come into play. Even if you are planning to gain momentum with investors, you have to prioritize and set realistic goals and keep updating these goals at specific intervals. The business module consists of several variations. Most architects have a design-bid-build or design-build module. As you choose your business model based on your goals and vision, the execution of the said plan will work inevitably.
The order of financial management is such that once you decide in stage one, it influences the decisions of the forthcoming stages. All of the components of financial management are closely intertwined with one another. According to the architect’s handbook for professional practice, you can acquire one of the two potential paths according to where you stand. Firstly, determine the staff and resources that will be required to start with the expected workload. Secondly, start with the available staff by determining how much workload can be supported. Both of these paths contain a sequence of events that would lead to the development of the financial module. The first path consists of the firm’s revenues, staff, overhead expenses, and a profit plan. The second path goes up from calculating the staff expenses, overhead expenses, setting a target profile, and developing revenue goals. In simple terms, the revenue projected is the firm’s ability to earn money in a specific time. These projections can be monthly, quarterly, or annual accounting terms. The revenue is an essential factor for potential investors as it predicts the future of the business.
The principal aspect of revenue projections is using the software as it makes financial management easier. For significant growth based on revenue projections, the talent plan will bridge the gaps between the firm’s resources and needs. As you proceed with the methodology, define your business goals, research the overall job market, identify the needs of the plan, conduct a gap analysis, and finally, create the talent plan. The job market gives us an idea of the employment rates thereby giving an idea of labor costs and staff required. To bridge the gap, analyzing what you have with what you need is essential. In any case, keeping an overhead expense budget can be fruitful in managing the finances. Lastly, profit planning comes into play when the firm earns more than the operating budget. This is where the bonuses and rewards are hidden. The profit plan helps you calculate the extra capital after the necessary investments have been made.
Simply put, with all the risks and calculations thus made, financial management stands as a huge plus point when it comes to running a successful business. Balancing the equations of design, architecture, and finances goes a long way in keeping the firm afloat. Determining how to price your services is a skill that is acquired through the process of financial management. All of the above factors contribute immensely to creating a balance between architecture and finances.
References:
- Monograph [online]
Available at: https://monograph.com/
- Archdaily [online]
Available at: https://www.archdaily.com/
