Small Firms Ideas Exchange

I recently received in the mail from a charge-card company a little flyer about money management in the current economic conditions.  Usually I read these “paper-spam” and put them in the recycle bin. This one I’ve held out and we are using as a tool for review.  I’m borrowing and paraphrasing the helpful suggestions that directly relate to architecture or the practice of and running a firm. The information is so good (and so dense) I’ve decided to split it into three blog entries. Read on, make your suggestion, and come back!

Appearances Do Matter

• Know your business credit report. If you're a sole practitioner, be careful. Make sure your company details are accurate at all the major reporting agencies, especially those that focus on business reporting.  Most of all, confirm accuracy of your payment history.
• Pay on time.  I can’t stress this enough!  Even if you need to make a “minimum payment” only, follow up ASAP with the full payment when you can.  I think two payments in the same month look good on the credit reports.
• Manage your debt wisely. In my office, if we don’t cash we don’t purchase unless there is a direct and quantifiable productivity boost for having the item.  A few years ago, I applied for a business line of credit; it is still sitting there.  On an annual basis, I need to update our info, chat with my banker, etc.  It has been one of the top five marketing moves I ever made to get exposure for our firm.  (Always have your 3-minute infomercial on your mind – be willing to share it and ask questions of potential clients or lead sources!)

Next week:  Details Count

—Lisa Stacholy, AIA

Details count.

A while ago (over 4 years to be more exact), I gave an intern a hand-written shopping list and sent her off to Office Desperate to pick up a few things (I didn’t specify quantities, just the stuff we needed).  As of Halloween 2008, we just finished using the binder clips she purchased. Did I mention I didn’t specify quantities? She was a bargain hunter: “It was a Buy One Get One at Half Off Sale. Look at these great binder clips I got.”

Since that experience we spent a little time and typed up the usual “shopping list” of what the office needs to function (including quantities to have on hand and when to order more).  That little list has done a great job (and saved more than the time it took to prepare it) just in being able to compare the cost of ink/toner cartridges alone! 

So, with that story, let's review how you do things on the “expense” side of your office.  Be prepared to answer 3 main questions:  Is it necessary? Is it negotiable? Is it efficient?

• Is it necessary? It may be a good time to reevaluate your fixed costs (and contract lengths, i.e., Internet services, office phone lines, cell phone service, etc.).  You’ll be surprised when you find that you've had a “standard maintenance agreement” and never used. Consider terminating it.
• Is it negotiable? Talk to your long-term vendors for better rates (now, in the short term).  We’ve found that technology (printing services, FTP services, etc.) are becoming more aggressive in maintaining their customer base (hint: that’s us architects).
• Is it efficient?  Review your old business habits (you do have some, don’t you?) Review your accounting and invoicing procedures?  Can you do it any easier or faster? Is that software really worth the expense? Do you really use all the bells and whistles that the accounting software offers? Can you purchase a lesser subscription and get only the parts you use?

Does any of this resonate? Any more suggestions or tips? Next week: Exposure Reduction.

--Lisa Stacholy, AIA

This is the third entry in a three-part series on “big picture money management for architects.” 

Exposure Reduction
What kinds of exposure do architects live with? Contractual, liability, and financial.  Let’s just talk about financial here. Our team of engineers is good and reliable. We also agree that we’re “pay when paid” in our all work. So far it’s been good. We agree that we’re in this together.  The time when we share our exposure is when payment from the client is slow; we try to avoid that.

• We’ve taken a look at invoicing and streamlined it as much as possible. A clear, accurate invoice that is tied to the contract and is easily understood is more likely to get paid faster.
• At the beginning of a project, we’ll ask for the client’s criteria for submitted invoices: what’s required?  job number?  contract number?  cost center?  hard copy?  electronic copy?  We follow those “rules.”
• We get retainers upfront on all new clients; we stay on top of invoicing deadlines and stick to them. We try to set up all contracts as “cash transactions,” that is, when the particular drawings are complete, we get payment. We try not to extend any credit – ever. At least in Georgia, by allowing payments after the drawings are complete, you’ve extended credit by not specifically saying “payable upon completion of the work” (I know it’s goofy… that’s for another day).
• Sometimes, we’ll consider offering a 2% discount for payment net 10 if we need to extend credit (note: we really don’t like extending credit at all – ever).
• After invoices are sent we’ll follow up with an e-mail or phone call: “Did you receive it?  Has it been entered for payment? Thank you!” This has head off “misdirected, lost 30 days” more times than I can count!  Besides that, it’s another chance to chat with your client.
• Realize that ultimately “systematic and speedy” collections are perhaps the cornerstone of managing the financial risk exposure. When things don’t go right, take a look at a few articles by the SPP for more hints: http://aia.org/spf_nwsltr_0404 specifically “hire a black hat”

Ok, by now you should have a firm(er) handle on what you’re doing and what you need to be doing better.  Anything you can share?

—Lisa Stacholy, AIA