Contract - June 2014 - 34

PHOTO COURTESY RICHARD POLLACK

COLUMNIST

Financial Management for Firms: Accounting, Billing, and Budgeting

by Richard N. Pollack, FAIA, FIIDA

An old adage about our profession is: "What does a designer or
The result is an increase in revenue and, hopefully, profit. Designers are
architect do when they inherit one million dollars?" Answer: "They keep often reticent to ask clients for additional services, but that should not
practicing until it's all gone." The truth is that it is quite possible to make be the case. Think about how often a contractor will submit change
a good living in the profession, and that requires a firm to be run with
orders. Also, attorneys often bill in six-minute increments and try to
robust financial management techniques and controls. As management charge for all the time they spend, and the most senior attorneys bill
guru Peter Drucker says, "If you can't measure it, you can't manage it."
the most time and money. In order to do the design work we love,
The first step is to purchase an appropriate accounting and
I believe that we must receive the revenue to properly compensate
project management system-a product for straightforward
staff, and account for all the time spent on projects.
accounting, such as QuickBooks, as well as project management
Another key component of strong financial management is
software that can record staff hours and track staff time spent against
establishing a smart budget for the following fiscal year, with the
fee projections. The most effective program is one that serves both
starting point being expenses related to the firm's strategic plan. Using
accounting and project management functions, and just a few
this approach makes the budget a stronger component of the tactics
examples for architecture and design professionals are: Deltek,
used to achieve the firm's strategies. The detailed budgeting process
Ajera by Axium, and Clearview by InFocus. With business software's
also focuses leadership more tightly around the strategies.
movement to the cloud, the product you choose should have full
An effective approach to validating the budgeted expenses is
online capabilities, including the ability to back up data online. I am
to review expense categories from the previous three years, coupled
not a software expert, and I suggest that you conduct your own
with updated firm strategies. For example, strategy might include
research on the best program for your firm.
developing a new project type, such as healthcare. In order to penetrate
On the matter of recording time in the project management
such a market, there is a need to create new collateral, attend
system: Your staff should be able to input their own hours from
healthcare design conferences, and hire staff with more experience
wherever they are, but timesheets still need to be reviewed by project
in healthcare design. The annual budget would show all the anticipated
managers or principals prior to finalizing and invoicing. Even with the
expenses associated with diving into the new market, and would also
process completed online, my suggestion is to make the most of your
enable the firm to track success in getting there.
face-to-face meetings. Have all timesheets submitted and reviewed
Budgeting revenue accurately can be a challenge, but the
prior to a consistent weekly morning staff meeting at which those
starting point is, again, to review the previous three years' income,
responsible for reviewing hours can raise any questions, and
overlaid with external economic realities. I always attended economic
make edits or corrections.
forecasts presented by municipal government, dedicated real estate
Principals at some firms do not complete timesheets-you know associations, and the regional real estate community with the intention
who you are. If that is the case, the firm is definitively not getting the
of getting information on market factors affecting interior architecture.
highest potential revenue and profit for both hourly not-to-exceed and
If a firm's leadership does not fully utilize the systems and
fixed-fee projects. In addition, almost every design firm has staff not
procedures that I outline in this month's column and budget
recording at least some of the time spent on projects, especially
effectively, they cannot measure performance, and therefore,
overtime, and the result is that the initial project fee is no longer
cannot prosperously manage the firm.
accurate and staff are typically not getting paid for those extra hours.
Ensuring that all staff time at all levels is captured enables a firm to
Richard N. Pollack, FAIA, FIIDA, writes a regular column for
accurately measure which project types, internal teams, and clients
Contract on business practices in design and professional
are the most profitable.
development. Pollack is the CEO of San Francisco-based Pollack
Every company needs a certain level of pressure to exceed
Consulting, which supports firm growth and success through
business expectations and goals. By recording all time spent, the staff
improved business development, winning presentation techniques,
managing projects are pushed to identify any potential scope creep
recruitment of top talent, business coaching, and ownership
to the client, and to follow up with requests for additional services.
transition implementation.
34

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JUNE 2014

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Contract - June 2014

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