How to thrive in an economic downturn
Nobody can predict exactly what impact Brexit will make on practices’ workload this year. However, practices can still take steps to prepare for this uncertain future.
It would be wise to consider what your practice could do were it to experience a decline in instructions over the coming months. How can practices become leaner and fitter?
Mark Percival is Managing Director at Manchester-based practice Architecture:M.
He suggests that it is a good time to look at who your clients are. "Never depend on just one big client," he advises. "Try to ensure that the practice has three key markets, and ideally have a balance between public sector and private clients."
Percival emphasises the importance of being honest with staff. "Keep them informed. Ensure they know how the business is doing and foster an 'in it together' spirit. If you reach a point when there is not enough money coming in, consider asking everyone to take a reduction in wages rather than making redundancies."
Reviewing your everyday overheads is essential in ensuring your business can to adapt to circumstances quickly. "Ensure office running costs can be cut fast," he counsels. "Check your leases and licenses on computers, software, photocopiers to identify what could be eliminated if it were to come to it. Understand what you own: your equipment may be old but if it works it will take you through a recession."
Office space is another aspect he singles out. "Always be ready to trim costs, either by sharing your existing space or downsizing. Check the lease and, if you need to, enquire about the possibility of moving to a smaller office with the same landlord."
However, cost cutting should not extend to slashing your fees. "Never be tempted to buy work in. Many projects will outlast a recession, so fees must be realistic not just for lean times but for when the office is busy."
It was large practices that expressed the most nervousness concerning Brexit in recent RIBA Future Trends surveys. Simon Bayliss is Managing Partner at HTA. He recalls the strategies that HTA adopted during the recession of 2008.
"We focused hard on clearing all debtors, even agreeing discounts for quick payment," he remembers. "Although many still look took their time, by and large we secured all monies owing and kept cashflow positive."
"I think we only had one client default. We renegotiated all supplier contracts as hard as possible, including things like archiving, and we hugely reduced unnecessary spending."
HTA’s strategy was to focus efforts on the clients that they knew would continue to invest. Regular sharing of information within the practice was vital to this.
"We started a Monday lunchtime management meeting aimed at bringing together all of the connections from various parts of the business," Bayliss reveals, "to ensure we made the best of all potential leads – a meeting that has continued ever since."
Barbara Kaucky, Founding Director of erect architecture and Chair of the RIBA Small Practice Group, also advocates a combination of financial monitoring and staff involvement, so that everyone has a clear picture of practice profitability.
The last downturn was a catalyst for her practice, erect architecture, to make the financial side of the business more transparent for staff. The team became directly involved in fee proposals and programming.
A spreadsheet was introduced for staff to input all the time spent on projects, allowing the business to immediately assess the financial performance of each project. This highlights the need to agree additional fees for changes to the brief and programme overruns. Progress invoices are sent at the end of the month, even for small sums, to keep cash flow going.
The need for this kind of financial monitoring prompted Nottingham-based Marchini Curran Associates to develop their own software, which handles time sheets, cash flow, fee projections, invoicing and debtors lists while monitoring staff productivity and project profitability.
Director Nick Marchini says the package, developed over three years and about to become cloud-based, gives everyone a handle on the day-to-day health of the business.
It seems to have instilled confidence, because Marchini reports that the practice is now actively diversifying, setting up new satellite companies offering planning, engineering and interior design services.
Thanks to Mark Percival, Managing Director, Architecture:M; Simon Bayliss, Managing Partner, HTA Design; Barbara Kaucky, Director and Co-founder, erect architecture; Nick Marchini, Director, Marchini Curran Associates.
Text by Neal Morris. This is a Professional Feature edited by the RIBA Practice team. Send us your feedback and ideas
RIBA Core Curriculum Topic: Business, clients and services.
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Posted on 14 March 2019.