Architect practices: re-drawing five barriers to profit

As the built environment booms, so too should small to medium-sized architect practices. But there are five common barriers that get in the way.

I have been working in the built environment for just over six months now. I don’t claim to be an architecture expert, in fact, I’m still learning about this industry. But I do come from a background where knowing your numbers, how to staff correctly and budget properly is key to business growth and survival.

Jane Duncan is the new President of the Royal Institute of British Architects (RIBA), the UK body for architecture and the architectural profession. She recently gave a talk and raised concerns with the industry. She said that the biggest issue facing architects in the UK is the “lack of confident business skills” – for experienced architects as well as new-to-the-industry talent.

The economy has taken a turn for the better and the construction industry is booming. Just look around London and you’ll see development thriving. This activity is great. It means practices will become busy and generate revenue. But, does revenue create profit?

After speaking with practice managers and managing partners, I see five common barriers to profit, which stem from how practices are (sometimes) run:

• Knowing profitable projects – I went to a meeting a few months ago and asked how business was doing. “We’re busy, but I’m not sure if we’re making any money,” was the reply. To “feel” your way to profit is a common mistake in practices. This is not a sustainable way to run a business and knowing the status of ongoing projects is essential information.
• The right resources – I’ve observed some practices resource with a “finger in the air” mentality. Without resourcing the right people – with right resource rates to the right jobs – the business loses money. This area needs managing efficiently.
• Tardy time entry – “Getting workers to submit time entries on time is impossible,” say most of the managers I meet. The impact this has on a business, particularly a small business, is huge. No timesheets = no invoices. Every practice manager needs a system in place to encourage people to submit their timesheets on time.
• Disparate excel spreadsheets – Unlinked spreadsheets can cause major headaches for finance directors. A recent survey showed that 72% of finance directors saw spreadsheet risk as a major threat to their business. This survey was carried out in large finance companies; but the same risk applies to architects. Disparate data leads to human error. The problem worsens when untrained people have access to spreadsheets. Changing a number here or there has huge ramifications on the reporting of an entire project.
• Staff appraisals – When you employ staff, at some point pay raises and bonuses will be discussed. Without the right tools and reports, it’s very difficult to put a value on an employee. Very few practices have the capability to review the right statistics accurately. Reports such as productivity, fee-earning, performance and time analysis are not consistently available. Without them, employers struggle to reward their staff.

With a concerted focus on overcoming these common barriers, you will find that as well as the improvement of the general management of your practice, your profitability will boom.

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