Thursday, September 10, 2020
Architects, by their nature, are creative people, and if the mere mention of accounting sends you running for the hills, you're not the only one! Running your business is one thing, but effectively managing your finances is another issue entirely.
Working as an architect means that keeping on top of your accounting is not as straightforward as some other businesses. Not only are you delivering a service, rather than a product, but it is also common to work on several projects at the same time. Some projects may be priced by the hour, while others by project and managing cash flow is no easy task.
Proper financial planning is essential for architects to avoid the "feast and famine" cycle that can occur when you have irregular work. You may have plenty of money left over some months, but struggle to pay your bills at other times when business is slow.
Do you want to stay on top of your accounts?
Here we provide ten finance tips for architectural practices.
Keep track of the funds coming in and going out of your business. Be aware of when projects are due for completion and when you expect payment. Not only is this vital for managing your work, but it will avoid the risk of being left high and dry without any amounts due for several weeks.
Unless you're lucky enough to have clients who pay your invoices instantly, there will probably be a delay of anywhere from days to several weeks before you receive payment. As soon as you receive payment for an invoice, it should be marked as paid; however, this is easy to overlook. Once you start letting your receivables list get out of date like this, it's easy to lose track of payments, resulting in much more time spent later on reconciling your payments received with the invoices you sent out.
Having a sound invoice system in place can also help. You may want to consider splitting your bill into several invoices and billed throughout the project, rather than sending a final bill at the end.
This will help to spread your cash income and cover expenses during the project and reduces the risk of a client failing or delaying payment.
It's not a good idea to have unpaid invoices sitting around for months. Not only can it cause problems for you due to delayed income and possible overpayment of taxes, but the longer an invoice goes without payment, the greater the likelihood that it may never get paid.
You can't always force clients to pay up as quickly as you'd like, but you can reduce the possibility of late payment or even non-payment by making sure your terms are clear on every invoice.
Include a reasonable length of time for making the payment - thirty days is typical and provide clear payment instructions.
When onboarding a new client, make sure you're both agreed on payment terms before commencing their project. You may also want to consider a penalty for late payment.
Receipts and other bits of paper are easily lost, as filing is not a very exciting task, and it's easy to keep putting it off. It's essential to keep all your paperwork organised to avoid mistakes in calculating your profits and expenditure, which may lead to problems at tax time.
It's equally easy to forget to make a note of what you're paying for when you're making payments on your credit card. It could mean that when you look at your statement, you'll probably have no idea what certain charges were. Whenever possible, ask for a receipt for every business purchase or at least make a note somewhere for your records.
Keep an envelope or box specifically for storing your receipts. Set aside time every week to go through them all and enter the transactions into your finance software. File away the originals in case they are needed later for tax purposes.
Software products like Receipt Bank allow you to scan your receipts directly from your smartphone and upload them to the cloud while you're on the go, saving you loads of time later.
When you are calculating your outgoings, it's important to account for every single expense made in your business. You can only make sensible decisions about pricing and setting wages when you know your full daily, weekly and monthly costs.
It's easy to overlook small payments, especially when using cash, but these small expenditures can add up over the course of the month. Using a tool like Receipt Bank will help you. Thorough record keeping is a must because if you don't record your expenses, you'll be overestimating your income and overpaying taxes.
If you let your business go by from month to month without any budget planning, you run the risk of heading for financial disaster. Sensible architects take regular stock of backorders and forecasts to estimate the final project revenue. This is often critical information for making financial decisions for hiring new staff or making investments.
It's crucial to have a broader view and budget for your business over the coming year rather than just budgeting for individual projects. It's not always possible to predict how much work you'll have in the future, by staying up to date with industry news and economic forecasting, you'll be able to make an educated guess at how the architectural industry may fare in the coming months and plan accordingly.
Company liabilities like GST and employee-related taxes is one area that you certainly don't want to get wrong. Many architects think they can save money by doing this themselves, but this can easily be a false economy. If you make a mistake in your tax paperwork and underpay your taxes, it could result in punitive fines at a later date. You may also not claim all the deductibles you are eligible for, which will lose you money that you're entitled to.
Professional Registered bookkeepers are trained and experienced in managing the payroll & GST taxes. They are there to support you & the business to ensure this is calculated correctly.
It's easy for owners and contractors to blame the architect when a project goes wrong. If a mistake goes to court, it can mean hefty fines for you and impact your businesses reputation. Make sure you are fully covered legally against errors made by contractors or the owner in your project contracts. It's also worth seeking legal advice to help you draw up a standard disclaimer that you can attach to your site reports and use in contracts.
The right tools and procedures can help reduce administration time and therefore reduce your payroll expenditure for administration staff.
Start by getting back to basics and making sure that you have efficient procedures in place for filing paperwork, invoicing and other paperwork.
The right software will help out here, using systems to streamline your invoicing, accounting and other administration will save you time and money.
You may never altogether avoid the pain of financial paperwork, however, leveraging a third-party integrated finance function who are experts in their field - just like you are an expert in yours, will save you a tremendous amount of time. A quality bookkeeping firm will spend some time every month walking you through your financial reports to ensure you're up to speed with the financial health of your business.
Cloud-based financial software such as Xero and MYOB are designed to help you keep track of your income and outgoings quicker and easier; your bookkeeper and accountant are using these tools as standard.
Monitor cash flow and receivables closely
Make your payment terms clear
Keep good records
Calculate your real costs
Plan for regular budgeting
Hire a professional for handling taxes
Pay attention to the terms and conditions in your contracts
Invest in business automation and efficiency
Make regular bookkeeping a habit
Financial planning and managing your paperwork is never an exciting activity but could mean the difference between just scraping by as an architect and being a financial success. You may well be surprised at how much more money you start making with proper planning and organisation.
Leveraging an integrated finance partner like Numeric Eight, with years of bookkeeping, finance and architectural industry experience will be an investment worth its weight in gold!
If this blog resonates with you and you think Numeric Eight can be of assistance, pick up the phone and call us today!
You can also sign up for a FREE finance health check here.