Five foundations of a profitable practice
Financial planning is an essential part of a healthy practice, but often it does not receive the critical attention it deserves.
The challenge of delivering projects, tendering for work and attracting clients all make demands on a practice’s time and resources. For small practices in particular, keeping an eye on the bottom line can be a struggle.
Jørgen Korsgaard will be presenting ‘How To Run a Profitable Practice’ at the Liveable City conference in London on 20 June. As the Founder and CEO of AutoPilot, project management software dedicated to architecture, he has picked up numerous insights into the key areas that practices should focus on in order to stay financially resilient.
The fundamentals of profitability are not complex. First and foremost, Korsgaard states, are project finances and resource allocation. It is impossible for a practice to be on a sure footing without accurate information about the financial past and predicted future of projects.
At the same time, resource allocation must be monitored, by which Korsgaard is referring to a practice’s greatest resource: its people.
"Running a profitable practice means being absolutely on top of both project finances and resource allocation," he affirms. "Project finance requires looking back at the past while anticipating the future. Resource allocation refers to planning the future work of all staff."
These might seem obvious points to make, but it is the quality of the information behind these considerations that really makes a difference. In order to provide this data, Korsgaard’s second fundamental recommendation is timely and accurate record-keeping.
"For the practice to have a proper understanding of its past projects, it needs an accurate registration of hours and costs," he counsels. "This is best done through daily submission of timesheets."
Talk of daily timesheets filled out by all staff might sound like overkill for a small, busy practice. But it is precisely this kind of business hygiene that can save time later by ensuring costs do not overrun and that staff cannot end up trying to work beyond their capacity.
It is a business habit that can provide key data for Korsgaard’s third pillar of profitability. "Do timely project planning," he urges. "Planning is key to providing early warnings. That is what makes a real difference to the bottom line."
He considers close monitoring of the "stage economy" to be crucial to profitability. At the start of a project the fee needs to be plotted and subdivided across future stages.
"To come to client meetings well prepared, you have to be on top of the project: 'What have we spent up to today and what do we have to spend to fulfil the contract with the client?' This gives you bargaining power, whatever size practice you are."’
An understanding of how the workflow is mapped to expenditure is essential in providing any later room for intervention if there are problems.
"The quality of a project leader lies in their ability to intervene and make adjustments," states Korsgaard. "On a regular basis, project leaders will need to revise their plans for completion of their projects."
Fourth among Korsgaard’s five essentials is timely billing. Invoicing should be done the very moment the practice is entitled to do so. That is simple business professionalism, yet many practices will delay due to factors such as lack of staff capacity to be on top of paperwork, or even simple reticence.
Attitude towards invoices and billing overlap with the suggestions in Korsgaard’s fifth tip. All of these efforts, he suggests, can be boosted by making project leaders into business leaders.
"If you are a project leader, you are the one with the most up-to-date info on a project, the one communicating internally with a project team and externally with the client. Being business aware should be part of that role."
He concedes that this may often require training, but he has seen the value it can add to a practice. Such initiatives need to be encouraged and led by management.
"If you train yourself to be business-minded, you get the freedom to make great design," insists Korsgaard. "Some will say that finance is the bookkeeper’s area, but it is what gives you the capacity to make great architecture."
Thanks to Jørgen Korsgaard, Founder and CEO, AutoPilot
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Posted on 13 June 2019.