Did you know that more than 50% of businesses fail because of improper cash flow management?
Cash flow is immensely important to the success of your architectural firm. Having a good cash flow in your company ensures:
- You have the cash you need, whenever you want it.
- You are liquid enough to pay your debts and your expenses.
- You don’t need to take business loans.
- You can take up as many new projects as you want and add value to your client’s new build.
- You can run your business even if you’re running on losses.
But many architecture firms find it very difficult to manage their cash flows. But the truth is, improving your company’s cash flow isn’t a very challenging task. With a bit of planning and creativity, you can improve cash flow in your architectural firm.
Top 5 ways to increase cash flow in your architectural company
The key to improving cash flow is to manage your incomes and expenses. While you can’t definitely say how much business you may get in the year, projecting an estimated figure can help you evaluate how much you may earn. Additionally, it’s necessary that you track all the expenses you may have in the coming year. This is easier to do, since many expenses repeat annually. You just need to keep track of your previous year’s bills and work from there.
Once you’re aware of the incomes and expenses you can expect for the year, you’ll be able to know how much cash you need to have on-hand, how many projects you need to take up to increase your cash flow and how best you should allocate the cash you currently have, to each project.
Another way to increase cash flow is to reduce your operating expenses. One way to do this is to automate your architectural firm. When you reduce the number of manual activities, you can hire fewer staff and reduce work hours – which otherwise increase your day-to-day expenses.
When getting equipment like laptops, fax machines, telephones etc. for your company, rent them instead of purchasing them. This way, you don’t have to bear the depreciation of your equipment. Additionally, identify whether any investment or spending is a valid expense or a wasteful one and spend the right way.
When paying your third-party contractors, pay electronically. You will be able to buy some time and pay on-the-day-of, instead of holding up your money by paying through cheque or cash.
Every architectural firm has two sets of tasks – the billable tasks and the non-billable tasks. If you’re interested in improving your firm’s cash flows, you need to focus more on your billable tasks – after all, these are what you’re paid for.
Being efficient in your project management helps.
You and your team need to identify what your time-bound objectives and project milestones are. Plan the phases correctly and set a deadline by which each phase must be completed. Allocate resources in such a way that you’ll be able to quickly finish your non-billable tasks and focus on the billable tasks.
Technology can be a great tool in project planning and implementation. You can easily plan and allocate resources, track resource utilization, process time sheets and manage project completion.
Your cash flow will improve only when cash comes into your company’s coffers. One way to get more cash in your architectural firm, is to encourage your clients to pay early. Most architectural projects are paid on a phase-wise basis. You can inspire your client to make advance payments by offering discounts and incentives. For example, 10% off on fees if the payment is done within 15 days.
Simultaneously, hold back on your payments for a few weeks. If you have to pay your third-party contractor, delay their payments. This way you’ll have additional cash flow on-hand which you can reallocate to your project. However, if your third-party contractor offers an early payment discount, then it’s better to pay early and benefit from the savings.
Sometimes, clients and third-party service providers make allegations of errors, omissions and mistakes in your service, they could have unrealistic expectations. They may claim poor quality work, misrepresentation by the architect and/or negligence during service. These kinds of claims will not only ruin the goodwill which you have spent years building, but it can lead to lawsuits that can drain you thousands of dollars.
Professional liability insurance for Architects can protect your architectural firm from these claims and potential legal costs.
Check this website to learn more about the liability insurance for architects.
Implementing the above steps can help you increase the cash flow at your architectural firm. When you have a strong cash flow, you will be able to focus on your business without any financial worries.