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Is your practice in need of a business health check?

Diagnose your practice’s weak spots and draw up a business plan.

13 June 2022

Architects understand design. It is, after all, their vocation. But an architect’s business management skills might not be at the same level. Running a viable, profitable business is about more than delivering great projects.

Business coach Sue Austin specialises in small and medium size architects’ practices. Her typical client might be a business that has been trading for three to five years, perhaps relatively successfully, but which lacks efficient management systems.

“The usual question I am asked is 'what do we need to fix first?'” Austin reveals.

She will begin the process with a business health check to assess the overall situation.

Financial management: the fundamentals

There are many problems that might afflict a practice’s business health. The most common, in her experience, is financial management.

“There is often insufficient scrutiny of money,” she admonishes. “The review of a project’s financial performance, for example, takes place at the end of a project, with little attention given to managing profitability during the project. Practices often do not know what their break even point is.”

Without knowing your break even point, you cannot know if a project is on track. If you do not know this, then you cannot forecast your cash flow for the next month, or maintain an ongoing Profit & Loss (P&L) statement.

Fee proposals

Making a profit is inextricably linked to the fee proposal. Many practices tend to undercharge in their early years. This may be because they are still working out what they can charge for, Austin finds; as this part of running a business is new to them.

But it may simply be due to a lack of confidence, or a temperamental reticence, in their dealings with clients. When unexpected tasks invariably enter the process, they find themselves working for free.

“Architects are often incredibly well focused with their clients when it comes to design, but not so on defining the scope and deliverables of their work,” Austin warns. “Any lack of clarity within a fee proposal leaves the architect in a difficult position when additional fees are needed to cover unspecified work.”

“If a fee proposal states an allowance for one round of tender negotiations, for instance, then the client introduces more contractors to talk to, there’s a means to explain there’s extra time and subsequent fees to be charged for."

Austin has developed a profitability model for her architect clients that operates on resource-costing principles similar to the RIBA Fee Calculator. True cost rates (taking into account overheads and productivity factors) are worked out for the team members booking time on projects.

This is an effective accounting approach for services-based companies, but Austin finds that the majority of small practices she encounters have not worked out their proper cost rates.

Whether it is basic financial management, or long term business planning, no practice can be on a healthy footing unless it has formal systems and recognised goals in place.

Draw up a business plan with a "why, what and how"

Many practices still do not take the time to develop a business plan. But it is nothing to be scared of. It does not require a punitive amount of time and effort to draw up, and can be very light touch in many cases, Austin suggests. At the very least, a barebones business plan could address the immediate future: after all, one single key commission can put a small practice on an entirely different tack.

A business plan should clearly articulate the "why, what and how" of the practice. Why does the practice exist? What are its goals? How will it achieve them? Austin recommends using these questions to develop a short term action plan. This can generate early momentum towards goals.

Getting an objective view from outside the practice – a trusted sounding board - can be helpful in assessing your answers to these questions. Small practice plans should try to ensure that personal ambitions – of directors and staff - are taken into account and aligned within the overall goals for the business.

Managing your people and yourself

People management tends to be another neglected area in younger practices. Start-ups and young practices will often be very caring about their teams, but not so experienced at motivating them to deliver results, according to Austin.

A practice might baulk at the structured approaches to people management that many large businesses adopt. But these are tried and tested methods that can be extremely productive for management, mid-level, and junior staff.

As a business coach, Austin observes operations within practices first hand and will work out a critique of how teams are being managed. She often suggests a more formalised approach borrowed from larger corporates, where performance is measured, roles and responsibilities are clearly defined with plans in place for personal development.

This is equally applicable to those at director level. Without good leadership, a business will be held back, Austin states. A leader needs to understand how to nurture their team, developing it to be the best that it can be.

Studio Bark found that working with a business coach gained them noticeable efficiencies in their team engagement and project administration.

“We have much more productive team communications now,” reveals Sarah Broadstock, one of Studio Bark’s architects. “As a team, we are all interested in regular, shared, self-reflection on performance and workload. This might not suit all practices but is working very well for our small team.”

Broadstock explains that the processes of defining the practice’s values and communicating their goals - both as individuals and as a team – has given the practice a new focus.

“We now have a collectively written a business plan that we are proud to put our names to, and we are excited about making it happen.”

The RIBA Fee Calculator is an online tool that helps practices create resource-based fee calculations, ensuring your decisions make business sense. The tool is currently exclusively available to Chartered Practices as a membership benefit.

Thanks to Sue Austin, Founder, Sue Austin Consulting; and Sarah Broadstock, Studio Bark.

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.

As part of the flexible RIBA CPD programme, professional features count as microlearning. See further information on the updated RIBA CPD core curriculum and on fulfilling your CPD requirements as a RIBA Chartered Member.

First published: 26 August 2021

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