4 tips financial basics for your new firm

Hanging out your shingle with high-minded design goals won’t mean much if you can’t stay in business. Even if math isn’t your strong suit, these simple suggestions can help you keep your irm inancially aloat.

TIP 1:
A basic calculation that any firm needs to make is how much money a project will bring in compared to how much it will cost to do the work. According to Michael Webber of Downers Grove, Ill.– based consulting firm A/E Finance, there’s a simple and time-tested rule: bill out each employee at three times what it costs to pay them and the project will make money. Webber says that upwards of 70 percent of the operating revenue of a typical architecture firm goes towards the costs of employing people.

image credit : financialpost

TIP 2:
Review your projects monthly to ensure they’re bringing in enough money to keep the doors open. “We set an expectation for a project and we manage to that”, says Jenifer Navard, principal and director of finance at the New Orleans–based firm Eskew+Dumez+Ripple. “I balance to make sure we have enough of a mix of projects—some where we will make a more generous profit, some where we aren’t going to make as generous a profit—so that we balance out to an acceptable profit and can keep our business running.”

TIP 3:
If you don’t know the basics of project management, budgeting, or labor concerns, Webber warns, you should probably find someone who does. Navard suggests that it might make more economic sense to hire a financial manager, at least in the long run. “If you’re spending eight hours a week on the business of sending out invoices, doing collections, preparing deposits, or worrying about contracts,” she says, “think about that. … You could spend those eight hours doing things that bring value to your firm.”

TIP 4:
Financial information doesn’t make for the most exciting reading material, which is why Navard presents her firm’s monthly income statements with graphics. “The first three pages are pictures,” she says, “and then behind that is the data.” Navard uses a simple blue, green, and red system to indicate the financial health of projects. When project managers see red, they know to make adjustments. “You don’t have to get into the nitty-gritty numbers to manage your business well,” she says.