Cashflow

This is the 7th instalment in a series of 10 articles where we attempt to categorise chronologically and thematically the list of things you will need to start your architecture practice, and furnish it with the glimpses of insight we’ve accrued during the first three years of our architecture practice, Mihaly Slocombe.

7. Cashflow

When: Soon
Importance: Moderate to high
Cost: Cashflow does not cost, it earns
Difficulty: Moderate

To put it bluntly, you are not going to make much money during the first few years in your new architecture practice. Dare we say that you may not make much money during any years of your architecture practice. In fact, if making money is your goal, we recommend you stop reading this blog right now and become a project manager: according to My Career, you will earn on average $55,000 more per year than you will as an architect. Architecture is a great source of passion and happiness but it is not a great source of income.

If you’re still reading, we take it you’re still interested in starting your own architecture practice so you’ll need to know about cashflow. Evidence shows that only 50% of small businesses survive five years and only a third survive ten. A big part of this is to do with cashflow, that is, the money coming into your bank account so that you can spend it on the endless things that keep your business afloat.

This list will include some or all of: salaries, rent, utilities, insurances, registration, memberships, library, professional development, equipment, petrol, stationary, consumables and many more. Most items are spaced out fairly evenly across the year, but some, like insurances and registration, arrive in the form of annual payments and require forward planning to accommodate the extra financial load.

Invoices to your clients should be regular, monthly is ideal. Invoices spaced out according to project milestones will make your cashflow more erratic than it needs to be, as well as demand large, concentrated payments. You will do well to avoid sending out invoices for project phases whose output your clients have not yet seen, but otherwise don’t be afraid to charge for the work that you’ve done. Much easier for your clients to swallow (and consequently much more likely to get paid) than a $15,000 invoice every six months are $2,500 invoices every month.

Our invoices are due within 14 days of receipt and on average are paid within 11 days. In the event of invoices that are not paid on time, be diligent about sending out reminders: hopefully your clients have simply misplaced / forgotten the first invoice and will remedy the situation immediately.

If you find, as we do, that despite your best efforts your project invoicing is haphazard, or even if you don’t have quite enough work to keep you busy, we recommend you seek complimentary salaried work. The emphasis here is on complimentary: if you can avoid it, don’t get a job working at McDonalds. You can seek part time contract work with other architecture practices, you can teach, you can write. We have been teaching construction and design subjects at the University of Melbourne for the past 3 years. In addition to helping our cashflow considerably, during semester making up about 30% of our income, teaching provides a welcome outlet from, and re-energises us for, the regular work of our practice.