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BUSINESS OF ARCHITECTURE (OXYMORON?)

Sunday, June 27th, 2010

I admit it! We architects are notoriously bad business people. For instance, we are at the bottom of salary surveys comparing other professionals such as doctors, lawyers, and yes, even engineers. For some reason, we are not good at collecting and, when we collect, not particularly good at pricing our services. I know this problem continues based on many online discussions I take part in and local roundtables with other architects. I have been principal of my own design firm for 22 years and still have “business issues”.

Part of the problem is that architects get into this profession for the love of the work and not initially for the money. We love designing buildings and spaces and drawing by hand or by computer and having clients ogle our work and tell us what wonderful solutions we have devised and how we will make their life better. Really feeds the ego.

However, those same enthusiastic and devoted clients suddenly stop worshipping once they see our fee proposal, or if we are working by the hour, our first invoice. Then we get “It can’t possibly take that much time to do such simple work”, “I could do that”, “I could get the same work from an unlicensed draftsman”, “You can’t be serious”, “I’ll have to think about it”, or “Maybe I’ll get some other proposals to compare”. But you want that project and so you drop your fee or agree to some arrangement that in the end results in you losing money but, after all, you get your building built and they get to reap their investment at your expense. Satisfying?

I have been to many design firm business management seminars where they talk about the “value of your services” and how you should sell yourself, but for most of us, these lessons don’t last long and we fall right back into the same rutt. I will keep going to those seminars to remind myself what I should be doing. At the very least there are a few simple business lessons I have learned and try to apply and I hope they will be of some value to other design professionals. Here are my top four business reminders…

1. DO THE MATH

You don’t have to be math wiz, which many architects are not, to figure out what you need to charge for your services. There are so many types of fees such as stipulated or lump sum, hourly rates, percentage of construction cost, per square foot of building, per sheet of drawing, and the dart throw. Regardless of how you want to present your fee, you need to know what that represents and whether it is adequate to keep you and your business alive. Here is what I do and see if something like this works for you.

At this time I have five employees and a 1,500 square foot office on Main Street, of course. I have to know what all my costs are for operating the business so I add up the annual total for rent, electricity, heat, all insurances, licenses, magazine subscriptions, professional association memberships, employee benefits (including vacation time),paper (architects use a lot), printer ink (same), other office supplies, software and upgrades, computers and upgrades, telephones, internet service, website hosting, gas and anything else that is a predictable business expense. If I don’t have an exact amount for an item from a previous year to use then I estimate. I also include half of my time and all of my secretary’s time as non-billable and, therefore, part of this overall overhead expense. The total annual expenses are then divided by the total number of billable hours for me and my employees to arrive at a cost per hour above payroll. At present that amount is about $25 per hour.

So now I know that for every hour of work in the office, besides payroll, I must charge at least $25 per hour to break even or cover expenses. Now we get to the issue of profit. Some projects you might estimate high, some low, and some just right, but you need cushion for more lows, investment in growing your business, bonuses for jobs well done and money for rainy days, weeks or months. I have used 30% profit over expenses as a fair amount to cover this.

So my equation for arriving at the hourly charges for my office personnel is:

Hourly rate = [ hourly pay + $25 ] x 1.3

Now all I have to do is make sure I budget my project time accurately and all will be well.

The other trick is to have enough projects to fill up the hours so that the overhead gets paid and some profit is made. But that is another subject, marketing, and will have to wait for another article.

2. PUT IT IN WRITING

You may start out on a very friendly relationship with a prospective client and everything looks perfect for the future. When you get that giddy feeling do a reality check. Misunderstandings and disappointments of either party go with the territory and happen much more frequently if you do not put it in writing.

Whether you use standard industry contract documents or write you own, make sure you provide your client with a proposal or agreement that clearly outlines your understanding of the project and its objectives, what services you will provide to achieve the desired result, how much those services will cost, how long it will take you, when you want to be paid, what you will or won’t do if you don’t get paid, and what other services are not included and cost more if it turns out they are needed.

As the project goes along be sure to document by letter, memo or emails any decisions that are made, changes that occur, or events that affect the out come of the project. If anything happens that will have some affect on the terms of your agreement, put it in writing and have it agreed to by your client as soon as possible. Hesitation will cost you.

3. GET PAID

This may seem pretty obvious so why bring it up? Because so many of us wait or put off sending invoices until it is too late to get paid in full. Have we already passed milestones in the project? Have we already given the client final drawings with which to get permits or build? Have we waited until we no longer have any leverage left with which to get paid when we need the money?

It is important to include in our proposals or agreements a list of incremental payments that the client should expect to pay at the time that certain milestones in their project are achieved. I have told my clients “You need me to do many things such as design, meet deadlines, help you sort through options, help you get permits, contractors, and complete the project. I only need two things from you- decisions and checks.” It really is that simple and helps them see that for all the demands the client may put on me it is very reasonable for them to simply pay me at the agreed upon times.

I make sure I get paid a modest retainer before I start work, which shows the client’s good faith, and I require successive payments when I complete certain phases or important tasks. Invoices are due and payable upon receipt, not 30 days and not 15 days. As an architect the most important leverage I possess is that all invoicing must be paid in full before I will hand the client signed and sealed drawings for a building permit. If during construction I am needed to sign off on draws from the lender or to contractors, my final bill must be paid before I hand over my last signature. These conditions are not surprises to the client because they were down in writing in advance in our agreement.

4. CHECK YOURSELF

Even if you are a sole proprietor working by yourself it is in your best interests to keep good records on how much time you spend on each project. When that project is complete and before you put the files away, review what you originally budgeted and what you actually spent. If you made money, well, you should have. If you did not, immediately figure out why and make sure you adjust your future budgets or determine how to accomplish the job more efficiently in the same time.

Even though I love to tinker with drawings, research new products and techniques, run around trying to please clients, and take photos of jobs, I have to discipline myself to buckle down once in a while to take care of business. After all my family must come first and I do the work I love first and foremost to take care of them. I am blessed that I can do work that I love. What I do is called architecture and it is the art of shaping spaces but, underneath that, it must be a business, too.

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This article was originally posted at Biznik.com here:
http://biznik.com/members/milton-greg-grew/articles/business-of-arc…

LOSS OF HONESTY – EVEN WITH ARCHITECTS

Wednesday, June 10th, 2009

Recently it was discovered that some candidates for the national Architectural Registration Examination had improperly shared information on the content of exams and basically cheated on the test. This is the exam that qualifies an architect to be licensed to practice in the states. The announcement regarding the action taken by the national board is found here:

http://www.ncarb.org/newsclips/2009/apr09_5.html

Now one might say this is an isolated event and we should not draw broad conclusions. But hearing about this got me thinking about the continuing erosion of honesty and ethics in our profession, all professions and society in general. Notice an interesting observation made in AWAKE! magazine:

Older persons can remember a time when, in many places, people did not lock their doors. They did not think of stealing from others or of cheating them. If they borrowed money, they felt honor-bound to repay it. And their word was ‘as good as gold.’ True, there was dishonesty, but it was not all-pervasive. Today, however, stealing, lying, and cheating are commonplace throughout the world. And many dishonest acts originate with so-called respectable people who live and work in nice neighborhoods, dress well, may have a religion, and consider themselves good citizens. Indeed, dishonesty has become notorious among officials of government and business. (Nov. 15, 1986)

The Apostle Paul wrote:  “We trust we have an honest conscience, as we wish to conduct ourselves honestly in all things”.  (Hebrews 13:18)

It seems everywhere one turns today we must navigate through a dishonest world. Owners that don’t want to tell the truth on permit applications about the construction cost. Clients who want to pay cash or use other means to bury money so they don’t have to pay taxes on it. Clients who offer us cash if we keep accounts off the books thinking we would likewise not report the income for taxes. Owners and contractors who don’t want to take out permits for the construction. Employment candidates who inflate their credentials. I could go on and on.

Architecture is a noble profession but it does not appear that it is any more noble than others when it comes to ethics. How many architects have read the AIA Code of Ethics or the rules of ethics written into their state’s practice regulations? What meaningful education on ethics, honesty and honorable practice is really given to architecture students? I just make a random check of the listing of courses for a prominent university’s school of architecture. Not one class on ethics in practice or honesty in life. That says plenty.

Why has honesty and ethics in society and our profession become so unimportant? We create environments to promote the well being of humans, to lift their spirits, and bring them comfort combined with guarding their health, safety and welfare. How could we cheat on anything having to do with our profession?

WHAT IT’S ALL ABOUT

Thursday, June 4th, 2009

What is being an architect all about? That question could illicit a myriad of responses but an appointment of mine today brought it home to a very simple answer.

This afternoon I had an appointment with a prospective client at his home in a suburb of New Haven. They have lived for five years in a nondescript ranch built in 1963 with 1,400 square feet in a lovely quiet neighborhood of similar homes. Nothing very exciting or sexy you might think and you would be right.

Here’s the good part. They need more room. The bedrooms are small for their family and they share one bath. They simply want to get a larger master bedroom and master bath along with another bath for the kids and some additional living space. The constructed project probably won’t cost more than $200,000. What did they do? They didn’t call builders or remodeling contractors. They didn’t call an unlicensed residential designer. They call an architect!

Why did they call an architect? Because they felt they had the best shot of getting comprehensive advice from an architect. Which way to expand- up or out? What range of construction cost could they expect? What implications might there be with zoning regulations and their old septic system? Is their house structurally sound enough to carry a second floor? Could an appealing exterior design be devised?

Now this is not a project that I am going to get rich on. I don’t believe every project has to be a home run. If I can get to first or second base on every time at bat do I win the game? You bet I do! I usually do much larger projects, but frankly my profit margin on the small ones is often better.  Very often when I meet with prospects like this one they tell me they called other architects before me and the architects would hang up when they find out the size or budget of the project. Too bad for them. Good for me!

But it doesn’t help dispell the notion that architects are elitest snobs who can only be bothered designing for the rich and famous or when they can rack up a big fee on a big budget. Why are more architects not happy with the notion of ordinary mid-middle class folks calling on them for help? More architecture is seen in ordinary middle class working neighborhoods and some of that is bad architecture simply because architects hung up the phone on the homeowners and so they called contractors who hashed something together or remuddled.

This is what it’s all about. Not masterpieces or monuments. Simply good design for ordinary folks who appreciate it and know it will enhance their family life. There’s a lot that being an architect means but this is actually as good as it gets. What do you think?

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