Filter by Selection - A Faster Way to Review Time and Expenses - BQE Software
The Financial Struggles of Bambi-Faced Architects
The Financial Struggles of Bambi-Faced Architects - BQE Software
Today I met with the principal of a small, young architecture firm. In order to protect the guilty, let’s call him Jack. Not a single employee in his company was over the age of 30. As Jack shared his frustrations about running the firm, it became immediately clear to me that, once again, our educational system has failed us.
I’ve touched on this problem in articles I’ve written in the past, but it keeps cropping up the more I meet with firm owners. At this point in my career, I’ve spoken with principals in nearly 2,000 different architecture firms and there’s a common undertone that we can’t escape: Schools are churning out architects with a total lack of business sense.
The effects of this vary from firm to firm. But the undisputed truth is that most architects either don’t care about business matters or knowingly ignore what they know to be essential. The architectural educational process barely even mentions that architects are in a business that provides professional services, just like lawyers, accountants, and so on. Since “business” isn’t part of the recipe being used to prepare young architects, they don’t consider it essential to being a well-rounded architect. It falls somewhere down on the priority list of things to know, below specification writing (another topic—but don’t get me started).
Perhaps this lack of business acumen is one of the reasons why it’s commonly known that architects don’t hit their stride until their 50s. It takes them 30 years to figure out how to make the business side of their practice work.
As we touched on the billing practices in Jack’s firm, I asked how frequently they processed their invoices. Typically, I’d expect to hear they invoice monthly, upon which I would begin to talk about the extraordinary benefits of invoicing semi-monthly. However, his physical disposition completely changed immediately at hearing my question—he took on the remarkable likeness of Bambi having learned of his mother’s murder.
Instantly, I prepared to hear something embarrassing. Little did I realize that what he was going to say was, like Bambi’s news, tragic.
“When we see our checking account is low and we need money, we send out invoices.”
What I heard is “Bambi, your mother can’t be with you anymore.” I just wanted to cry.
This is a true story. So, I’ll let that sink in for a moment.
Jack considers his to be a high-design, boutique architecture firm. In his words, “Money isn’t what we’re about.”
In his mind, clients hire his firm because they provide premier design services “better than anyone else” in their city.
The fact that he is “running” a business that employs 5 other architects who are dependent on his ability to meet payroll is less important to him than providing his client with a spectacular design that will win awards and the accolades of his colleagues.
By virtue of the fact that we were even talking—not to mention his Bambi posturing— he knew that he was doing something wrong. He knew that this was not the way to run a firm. He knew that he was being irresponsible.
So many architects are talented designers. And yes, many aren’t (perhaps the topic of a future blog article). Regardless of their design talents, the minute they strike out on their own they need to develop additional skills. Certainly, by the time they hire their first employee they need to recognize their responsibility as an employer. There are other people who now are relying on their ability to run a business that’s sustainable (or “resilient,” as is the buzzword-du-jour).
Let’s get back to Jack. “Our projects are all fixed fees so when we need money, we just send our clients invoices with what we think they should pay.”
I braced myself for a stunning answer to my followup question: “How do you figure out how much they should be invoiced?” I asked.
“We figure out how much money we need to pay our bills, and work backwards from there.” He shamelessly responded.
I was curious about what kind of clients he had that weren’t questioning his arbitrary invoices. In my 20-plus years in practice, rarely did I encounter a client who just opened my invoice and paid whatever we asked without it referring back to our agreement, our fee schedule, or whatever rules we had established. Frankly, I was jealous that this was working for him.
Of course, the truth came out soon enough. It wasn’t working for him. Jack’s client’s weren’t naive. He just didn’t have the systems in place to quantify and substantiate his invoices. He had to fake the data in order to create realistic-looking invoices. It was really just fiction.
This method isn’t really uncommon. Many firms just ask their project managers or project architects to tell them how complete a project is. These lost souls look up at the ceiling or thumb through a set of redlines or the checkset and just throw out a number:
“We’re 75% done.”
Without having any timecard information, they don’t even know if they are making or losing money on their projects. All Jack knows is that he either has money in his checking account or doesn’t. Having money means he’s good. Having no money means it’s time to send out an invoice.
Firms that do hourly invoicing have to be a bit more disciplined, as their invoices must have backup information: Mary worked 22 hours at $165 and Tom worked 14 hours at $135, etc. But if they don’t have a real system in their office to make it easy for their staff to track time, Mary and Tom usually have to be reminded three times in order to haphazardly submit their Excel timesheets. Furthermore, those sheets might not even be accurate—we’ve all seen people scramble on a Friday afternoon to try and figure out how they spent their time that Monday.
Jack was talking to me because he recognized his firm lacked a system, and he was finally coming around to the realization that they can’t continue to operate this way. His own life had become miserable since he was now working late nights to try and figure out what was going on. He hasn’t actually had much time to work on a design, and being an architect was really losing its allure.
Good news: I’m now Jack’s best friend!