10 Finance and Accounting Tips for Architects
Architects by nature tend to be 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 managing your finances effectively 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 a number of projects at the same time. Some projects may be priced by the hour, while others may be priced per project and maintaining a steady cash flow is no easy task.
Proper financial planning is important 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.
Want to stay on top of your accounts? Read our following 10 great finance tips for architecture businesses:
1. Monitor Cash Flow and Receivables Closely
It’s important to keep track of the money that is coming in and going out of your business, as well as being aware of when projects are due for completion and when you can expect to be paid. Not only is this vital for managing your work but it will also avoid the risk of you being left high and dry without any payments 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 several 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 Once you start letting your receivables list get out of date like this, it’s easy to lose track of payments and this will result in much more time later on being spent reconciling your payments received with the invoices that you sent out.
Online accounting software (like http://freshbooks.com) with the ability to take payments online can automate the receivables process, saving you time and potentially money in the long run.
Having a good invoice system in place can also help. You may want to consider splitting your bill into several invoices that are billed throughout the project, rather than sending a final bill at the end. This helps to spread your cash income and cover expenses during the project. It also reduces the risk of a client not paying or delaying payment.
2. Make Your Payment Terms Clear
It’s not a good idea to have unpaid invoices sitting around for months. Not only can this cause problems for you due to delayed income and possible overpayment of taxes, but the longer an invoice goes without payment, the more likely the possibility that it will never be 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 spelled out in black and white on every invoice. Include a reasonable length of time for making the payment (30 days is standard but this can be anything you choose) and clear instructions for how to pay.
When taking on a new client, make sure that they agree to your payment terms before you agree to the project. You may also want to consider a penalty for late payment (some online accounting software like Freshbooks will do this for you by automatically adjusting the total of the invoice if it is not paid on time).
3. Keep Good Records
Receipts and other bits of paper can easily be lost and as filing is not a very exciting task, it’s easy to keep putting off. Don’t delay for too long though – it’s important to keep all your paperwork organized to avoid mistakes in calculating your profits and expenditure, which could 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 card. This means that when you look at your card statement, you’ll probably have no idea what certain payments are for. 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 some 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.
There is also software available now that allows you to scan your receipts directly from your smart phone and upload them to the cloud while you’re on the go, which will save you loads of time later.
4. Calculate Your Real Costs
When you are calculating your outgoings, it’s important to account for every single expense that is made for your business. You can only make sensible decisions about pricing and setting wages when you know your full daily, weekly and monthly costs.
If you work at home, there are even more deductions you are entitled to (either full or partial payment) that you may not have even considered. These may include:
- Rent payments
- Decoration and furniture
- Office supplies
- Travel expenses and transportation costs
- Food and drink at business lunches.
Home office deductions can be a bit of a grey area in tax law so it’s always best to consult a professional to check you’re within the law and that you are making full use of your allowable deductions.
It’s easy to overlook small payments, especially if they are made in cash, but these small expenditures can really add up over the course of the month. Keeping your receipts as mentioned above will help with this. Thorough record keeping is a must. if your expenses aren’t recorded, you’ll be overestimating your income and overpaying taxes.
5. Plan for Regular Budgeting
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 basing financial decisions on such as hiring new staff or making investments.
As well as budgeting for individual projects, it’s important to have a wider view and try to budget for your business over the coming year. It’s not always possible to predict how much work you will have in the future but 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 is likely to fare in the upcoming months and plan accordingly.
6. Hire a Professional for Handling Taxes
Tax Planning is one area that you certainly don’t want to get wrong. Many architects think they can save money by doing their own taxes 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 some very expensive fines at a later date. You may also not claim all the deductibles you are eligible for, which will lose you money that you are entitled to.
Professional bookkeepers are trained and experienced in money management and taxation and can help with your financial planning. they can also help you to take advantage of certain tax laws and allowances to get the most out of your money.
7. Pay Attention to the Terms and Conditions in Your Contracts
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 both big fines for you and a marked reputation for your business. Make sure you are fully covered legally against mistakes 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.
8. Invest in Business Automation and Efficiency
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 can really help out a lot here. Just as Archisnapper can greatly reduce the time you spend compiling site reports and punch lists, using systems to streamline your invoicing, accounting and other administration will save you time and money. If you are interested in this, check out this best practice case explaining which tools architect Ron Kwaske uses to automate his business.
9. Make Regular Bookkeeping a Habit
You may never completely avoid the pain of financial paperwork, but having a set time for doing it each week can prevent you from putting it off. Set aside a fixed time each week to get together all your receipts and paperwork and balance your accounts. Doing all your financial paperwork in one go is less painful and more efficient than doing bits here and there.
Spend at least one day a month checking over the accounts for the whole firm and have days set aside for paying invoices and bills. Even if you have outsourced these tasks to an accountant or personal assistant, you should always set aside some time to make sure you are fully up to speed with the financial health of your business.
10. Choose a Good Accounting Software Package
Financial software is designed to make keeping track of your income and outgoings quicker and easier. Nothing can replace the services of a good bookkeeper and accountant, but software can help and you’ll find that financial professionals use them as standard.
There are many different packages available and you may want to try a few before you find one that is the best fit for your practice. You may want to use a consultant to analyse your business and suggest the best solution, or try software that is designed specifically for architectural service businesses.
Organizing Your Finances Will Boost Your Profits
Financial planning and paperwork is never going to be an exciting job but it can really make 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 organization.
Whether you hire an extra staff member to help you out, or just take the time to learn how to properly organize your finances yourself, you’ll find any investment in this area is a worthy one.