Building sound business finances
Why is accounting for an architectural firm different to any other business? All businesses deal with common financial matters such as managing cash flow and keeping an eye on the bottom line. But every industry has unique constraints. In the case of architecture this is a combination of the fact that most architectural firms are SMEs; they are dealing with projects that can take years to complete—cutting across more than one financial year; and they can be responsible for handling large sums of client money.
Project size
Not all architectural assignments are large construction projects of course, they are also involved in smaller, quicker jobs. And in some cases their responsibility ends when the client approves the design and the work is handed over to a project manager. In these cases, the work flow and finance is very straight forward and similar to many other professional services.
In other situations, the architect may be responsible not just for the initial designs but also for the project management right through to the completion of the works and handover. In this case they may well be involved in the project for two years or more. Payments are not usually made on a regular basis, but at different points determined by the progress of the job.
It is highly unlikely that any architect, no matter how small the practice, will be involved in only one project at a time. Dealing with multiple projects that overlap, with sporadic payments that can be spread across years requires a different approach to accounting.
Project accounting
With project accounting, each job is treated as though it is a separate business, with its own set of accounts. This enables architects to control costs per project and manage their time and other resources effectively.
This allows tighter control of the budget, and provides information to take remedial action if needed before costs spiral out of control.
Managing the project can be equated to managing a small business, and the architect as the director. Project accounting gives them all the tools they need to stay on top of the finances.
Financial management
Even a small firm can be responsible for large projects involving substantial amounts of money. Any business needs to build and safeguard its reputation in order to maintain a steady flow of clients. For an architectural business that relies on high quality designs that match or exceed the client’s brief, but also requires excellent money skills.
Many architects are attracted to the profession as it allows them to express their creativity. Financial management may not come easily to them. And project accounting may seem like an additional layer of hard work. It’s a judgement call as to whether a particular job would benefit from being managed in this way, but large projects are definitely good candidates.
Technology helps to make life a lot easier, with choices of different accounting software packages. The added advantage is that reports can be created in real time, allowing instant monitoring of the state of play on any individual project, or the practice accounts as a whole.
Working with an accountant
It is really important for architectural firms to be sure they are using good systems and processes that are suitable for the business. Companies are not static, they develop over time. They may grow in size, move into a niche market, or go through other changes.
A professional with experience of accounting for architectural firms will be a valuable resource in advising on the best way to manage the practice finance. In the same way that an architect can do much more than just produce design drawings, so an accountant can do far more than just create end of year reports. It’s well worth drawing on their professional expertise to make sure the practice is working optimally.
