Business Management RIBA Part 3 Course Dubai and Hong Kong 2014

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1 RIBA Part 3 Course Dubai and Hong Kong 2014

2 WHO AM I? Susan Ware Dip Arch RIBA Director of Professional Studies, The Bartlett, UCL Founding Director CPA Ltd, Non Exec Director CONSARC Worked in Central Government, Local Government Private Practice Overseas VSO and Education.

3 Acknowledgments Grateful to information referred to in this presentation to practitioner colleagues teaching at the Bartlett on the Part 3 Programme Chris Askew - Chris Askew Architects Liz Pickard - Consarc Ltd

4 Business plans Managing money cash flow Finance and tax Office systems Handbook policy \ QA Managing risk

5 Business Planning - Business Plans RIBA survey 40 % of practices have a business plan, only 17% have a plan for more than 12 months. Most banks have packs for small businesses and it is a good idea to attempt to complete a business plan This will help you produce a budget and plan your cash flow and identify peaks and troughs of income and expenditure etc. You will also need to focus on the aims and objectives of your business and set a mission statement, which clearly identifies what you have to offer Lots of really good information on the internet, look at major banks for packs and software for standard documents

6 Business Plan - 3 stages 1 Business review analysis of market/ competition appraisal of existing business. Staff/resources, clients, project types, where does the work come from? etc. 2 Strategy The future - What will the business look like in 1, 3, 5 years, what sector (s) kind of projects/clients, cash flow/profitability/investment predictions, what staff resources etc. 3 Action Plan how to grow, how to reach clients, get work, etc. lots of advice on line e.g.

7 Stage 1 Practice Review Who are we? What are our skills? What kind of projects do we do? Who are our clients? Repeat clients? Where do they come from? UK international etc. What sectors are we in? Understand the competition Stage 1 Practice Review Are we efficient? Analysis of projects of Key Performance Indicators (KPIs), e.g. success rate getting planning permission, coming in on budget, success rates etc. Claims/ disputes history Are we profitable? (analysis of project time sheets/cash flow etc) Analysis of accounts history

8 Stage 1 Current practice overview and current structure Current Business Strategy statement of who you are now Map against Benchmarking data RIBA Collander surveys Key personal/ staffing/skills/specialisms Current Marketing Plan Fee income/ expenditure history and predictions Resources /IT equipment/ skills/ investment plan Premises, own or rent Legal requirements, PI insurance, NI employment etc. Financial information/ personal asset management Existing Succession /growth plan Analysis of existing SWOT for the business Review current risks

9 Stage 2 the Future What will the business be like in 1, 3, 5 years? What culture/ ethos? How many staff, what kind of staff, what new skills?e.g. BIM what sort of projects? Grow existing or develop into new? What size/ sector/ value Move into smaller/ larger projects, design based or D and B delivery etc. Stage 2 the Future Efficiency, improve KPIs Raise profitability targets raise profitability by yy % per annum? Or increase turnover by xx% per annum? Cash flow/expenditure/ investment Identify risks Own /rent premises, Staffing/ succession plans Develop action plan and marketing plan

10 Stage 2 Who/ where you want to be..? Statement of who you want to be vision/mission statement What you do, USP What makes you special? How you can make a difference to, your clients/ to projects/to the environment etc.

11 Mission Statement XXXXX Architects is a practice that designs high quality modern architecture. We put a strong emphasis on the inventive use of building materials, the qualities of light and the relationship between the building and its surroundings. We consider these issues to be more important than working in a particular style and hope that each project will be an original interpretation of the client, site, brief and budget. This practice does not specialise in particular building types. We consider our specialism to be high quality architecture and enjoy having a broad range of projects in the office; from town master plans, to schools, health centres, community buildings, group housing, private residential houses, exhibitions, furniture and bandstands.

12 Stage 3 Getting there Action Plans Develop strategies for long term e.g. 3 years and plans for 1 or 2 years. Architectural objectives Identify staff requirements/new skills/training costs/ risks, Develop financial plans and l investment strategy Premises and technology plan set targets, identify tasks e.g. marketing/ building client relations/sectors allocate responsibilities to individuals Review monitor performance/outcomes

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14 Financial Management Successful businesses carefully monitor income ( normally fees), expenditure ( overheads) and profitability/efficiency (not the same as profit) Rate of Income and expenditure = cash flow Produce budgets ( forecasts), map expenditure against budget Monitor weekly invoicing rate and outgoings Debt management chase outstanding fee invoices Watch expenditure make savings Save for investment rainy day, new equipment/ software etc.

15 Clients are the source of fees Pricing -big problem - fee cutting Billing/ fee invoicing and forecasting schedules Resourcing - people management Profitability - Job management- timesheets and recording Profit and Loss statements- per project, per practice Cash-flow statements and Liquidity Credit Control - chasing fees - getting fees paid Tax and VAT Balance sheets, Audits & Accountants Regular practice monitoring (Board) meetings

16 Financial Management Income = Fees, sometimes called turnover Expenditure/overheads = costs, Profit /surplus/loss is the difference between expenditure and income Traditional calculation based on 33% income, 33% expenditure and 33 % profit. Totally inaccurate. RIBA Bench marking surveys indicate average profit in region of 15% - 20% depending on sector, during the recession many practices barely breaking even.

17 Financial Management Income Fees and interest Expenditure and overheads Salaries + on costs, NI, pension contributions, approx = salary plus 22% and contractural staff benefits Running costs/overheads e.g. rent rates, utilities, computer costs, marketing advertising,, training, service charges, accountants, legal fees etc. subscriptions, entertainment, repairs and maintainance, transport, printing and stationary, phones and internet, hospitality bank charges etc. Surplus/profit Tax, investment, dividends, war chest, pension investment etc.

18 Running Costs Rent/mortgage Rates, service charges, and utilities, elec, water, phone, gas, Storage/ archive, stationary and printing Computer expenses, lease, software, hardware Marketing and promotion Refreshment, hospitality entertainment Equipment Legal fees CPD and training Professional subscriptions Running Costs Accountant and audit fees Staff expenses and travel QA Books and magazines, e- subscriptions Conference expenses Competition entry fees Donations to charities Credit card costs, bank charges Sub consultants and contract staff Sundries and disbursements Insurance. PI and other VAT

19 Financial monitoring mechanisms 1 Budget/forecast annual prediction of estimated /target income mapped against anticipated outgoings normally on monthly basis 2 Cash flow, actual mapping of income against expenditure monitored against budget predictions 3 Time sheets analysis of efficiency and profitability (or loss) of each project, mapped against fee proposal resource plan 4 Profit and loss account, review of actual income verse expenditure showing surplus or loss 5 Annual accounts for publication Companies House

20 Cash Flow Costs are due at different times during the year and an annual budget is prepared to predict when these out goings are paid. These costs are mapped against the predicted income also on a month by month basis so that in theory- the practice stays in the black. This is a budget forecast plan. As the months go by the actual costs and income are inserted in the plan and differences between the budgeted costs and expenditure and the actuals are identified and appropriate actions taken. This is the practice cash flow report. However, this is difficult to manage and some months expenditure may be in excess of income other months may be in Credit. Some practices operate a working overdraft to pick up the peaks and troughs of income and expenditure whilst staying in credit by the end of the year Managing cash flow is the key to running a successful business.

21 RIBA Part 3 Course course Hong Dubai Kong and Hong July Kong

22 Profit & Loss Budget Income (generally fees billed in architecture) against Expenditure (bills received by the practice and salaries) =Either Profit or Loss Should be analysed on a monthly basis- known as Management Accounts and can fluctuate- one month great profit, one month loss but over the course of 12 months should be constantly managed to achieve a profit Jan Feb Billed 150, ,000 Charged 110, ,000 Profit/Loss 40, Over Period Profit = 30,000

23 Job costing - in order to price work for a fee proposal It is essential to keep track of job costing, i.e. the cost to the practice of doing the work excluding any profit. Normally through time sheets. Records of the amount of time taken on each job by each member of staff plus a proportion allocated of the overhead expenses. Number of different ways of doing this Productive fee earning staff hours plus proportion of expenditure/ Overheads to give a net hourly rate. Profit margin then added on according to circumstances

24 Surplus (profit) what to do with it? Pay Corporation Tax if applicable Invest in the business, buy equipment, speculative work, competitions marketing initiatives, publish books/monographs Pay Directors/shareholders share dividends, pay staff dividends/bonus, Pay off bank loans, Add to pensions Residuary fund in case of bankruptcy redundancies Save for rainy day

25 Financial matters Susan Ware Raising money Banks ( difficult). Personal borrowing (you are liable). Selling shares (loss of control, valuation issues) Setting share prices Tax constantly changing keep up to date Personal tax 20% basic rate, 40% 0ver 37.4k 50% over 150K Dividends 10% up to 37.4 K 32.5% up to 150K Corporation tax 23% Vat threshold 77k National Insurance approx. 14% of employee income ( complex changes)

26 Keeping going - recession proofing Weekly check on invoices to go out Weekly check on bills to be paid (cheques and direct debits) Weekly check on debits - outstanding fees Weekly chase outstanding fees - take legal action if necessary Weekly map against projected cash flow - take action if necessary Weekly check resource plans - monitor each job Weekly check level of overdraft Plan for known expenses, salaries, NI, VAT

27 Keeping going - Constant Financial Review Regular meetings, in hard times weekly and monthly Cash flow, predicted/actual, income/expenditure Business plan/market analysis/risk assessment Staff management, profitability, resource planning/time sheets and records/analysis of time spent on projects (historic records for future fee bids) tracking expenses, chargeable and normal office overheads Bad debts. Slow payers

28 Systems QA and policies

29 RIBA Chartered Practice Criteria for QA Small practices (up to 10 staff), are required to use the RIBA project quality plan for small practices (PQPSP) for all projects Medium practices ( 11 to 50) are required to used the full RIBA Quality management Toolkit ( incorporating the PQPSP) or equivalent for all projects and office procedures Large practices (51+) are to have externally certified BS EN ISO quality management system in use.

30 Quality Assurance - Quality management systems BS EN ISO new version due out in Efficient working practices, simple language, audited process by externally certified organisations. Investors in People boosting leadership skills and management effectiveness

31 Office Handbook/Manual Policies Systems and Protocols Legal duties How things are done Office management/administrative Project/design delivery

32 Policies - Legal/ contractual matters, (legal duty to keep records) Health and safety Bullying and Harassment Equal opportunities policy Disabled access policy Maternity and paternity policy Pensions/ share distribution policy Complaint/ grievances policy Employment policies holidays, sickness etc. Disciplinary policy/procedures, Staff induction/ appraisal/cpd/training

33 Systems Protocols - How things are done Administrative day to day running Communications protocols, Internet/intranet, s, post Dealing with mail and telephone, file notes, security Paper management, stationary Time sheets, expenses, hospitality Holidays, sickness site visits, Protective clothing, equipment, Premise/security CPD monitoring and training, Facilities and procurement, ordering from suppliers Computer and IT, cloud management, facilities QA BS EN ISO

34 Systems - Handbook Protocols Communications systems/ protocols/ IT/ BIM Electronic- , intranet, social media/ web management, tweets, blogs, Linked -in etc. Paper - Letters, fax, drawings Voice- Telephone, records, file notes Face to face - meetings, records, file notes Health and Safety protocols protective clothing, out of office procedures, accident reporting

35 Project management/delivery How things are done Drawing conventions, Job codes and filing, Electronic data management, s, circulation Keeping records, paper/ electronic/ Cloud management Drawing issue protocols. BIM management Correspondence/circulation protocols

36 Risk Assessment

37 Risk Management - Be prepared! Predicting and Assessing risks to the practice, as well as job management and job related activities (CDM) etc. Assessing risks such as loss of key staff member, loss of key client, floods, fire to premises, loss of computer equipment/data etc. Risk is defined, given a grade, impact, cost implication, an individual is named as taking on responsibility for managing/ mitigating risk. Risks are regularly reviewed. Lots of stuff on the web about the process and template examples.

38 Risk Management Strategy Identify types of risk, grade risk, mitigation, identify person to manage risk, review annually Risks e.g. Financial, cash flow, loss of fees Systems fail computers etc. Property Fire/ theft/ flood Key Staff illness/ accidents Changes in interest rates Loss of key clients Claims against practice Etc. etc.

39 Risk Management - Register

40 Systems - Handbook Protocols CPD and Staff training/ staff development/competence RIBA CPD programme, maintenance of individual plans Courses, lectures, in-house training by suppliers/ trainers, visits, technical publications, MOOCS, etc. New skills, BIM, new software etc. Staff Health and Safety training site visits, first aid etc. Staff Appraisals procedure/ frequency/conduct

41 Handbook Complaints Policy Office procedure for prompt dealing with complaints hand book By Clients Negotiation/Conciliation/ mediation first step Arbitration. Adjudication, Civil Court Can go to ARB and RIBA Disciplinary action, warning/ fine/struck off By staff In house procedures and employment

42 Handbook - Complaints Policy By Clients - Office procedure for prompt dealing with complaints Identify person to manage the complaint Prompt response, keep records of phone calls etc. Negotiation/Conciliation/ mediation first step Arbitration. Adjudication, Civil Court Can go to ARB and RIBA Disciplinary action, warning/ fine/struck off

43 Difficult situations - Grievances and complaints By staff - in house procedures and stated in employment contracts resolve internally or worst case, Employment Tribunals The employment contract and office handbook should clearly state the procedures for making a grievance or complaint. There should be an independent person in the practice to address the complaint difficult in small practice. Redundancies, terminating employment. Extremely complex procedures and expert advice will probably be required.

44 Setting up Doing the work Keeping Going 1. Constant review - Self knowledge 2. Flexible approach - Open mind 3. New skills/new markets 4. Quick reactions

45 Doing the work Keeping Going 1. Constant review - Self knowledge 2. Flexible approach - Open mind 3. New skills/new markets 4. Quick reactions

46 Keep up to date - Hot news - chase leads Building Design regular articles on practice management AJ Practice weekly sections RIBA Journal Super-practice Broad sheet newspapers business sections- up to date reports on tax changes etc. which affect small businesses, management techniques, employment law etc.

47 Websites RIBA Practice sites (UK and International) RIBA Regional/Branch sites RIBA CPD site ARB Web site DCLA ( previously ODPM) and DTI sites CABE Small Business web sites

48 Useful books include: Architect s Handbook of Practice Management - Stanley Cox and Alaine Hamiltion Architect s Job Book - Stanley Cox and Alaine Hamiltion Architect s Legal Handbook Copyright explained Ceri Delamore The Architect in Practice David Chappell Standard letters in Architectural Practice David Chappell Architect s guide to running a job - Ronald Green In Practice - Paul Hyatt

49 An Excellent series from RIBA Publications A Guide to Starting a Practice Keeping Out of Trouble Marketing on a Shoestring Painless Financial Management and Job Costing Working with Consultants Sound Practice

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