Starting a New Firm: Practical Advice for the Adventurous
Start-up capital is crucial for any new firm and is required to fulfill two basic needs: initial expenses the cost of funding operations until sufficient cash flow to sustain operations has been established.
One of the first questions most architects ask when contemplating a start-up is how much money will be needed. No two start-ups are exactly alike, but most find it necessary to have enough cash to cover three to six months of operating costs, plus the amount needed to cover organizational expenses.One way to calculate this is to make up a budget, with an experienced very much the way that attorney can provide you would cost out a exactly the right informaschematic design for action that will save hours new building.
Organizational needless concern.expenses to be considered are acquisition of office space and leasehold improvements, furniture, computer equipment and software, printed materials, marketing materials such as announcements and brochures, and office supplies. Operational expenses will be incurred for such things as salaries, benefits, rent and related occupancy costs, insurance, taxes,travel, copies, telephone, shipping, and so on. It may be a good idea to include a worst-case contingency fund for use in case cash flow doesn’t materialize as soon as the partners hope it will.
And when will the cash start to flow? Some architects start their practices with a commission in hand, or at least the promise of one, which will enable them to begin work almost immediately after they open their doors. But services performed today will not produce cash until a client is invoiced and the receivable is collected, which can be weeks or even months later. The collection period norm is 90 days, although small start-up firms often get their bills paid much sooner.
If the firm starts without a commission in hand, it will need much more cash to keep going while the firm markets its services, secures commissions, performs services, sends invoices, and, finally, begins receiving enough payments to make its cash flow positive.
Sources for initial capital include personal savings; loans backed by equity in personal real estate; loans from friends and relatives; personal credit cards; Small Business Administration loans: and commercial bank loans.
Entrepreneurs should not be surprised when they discover that banks are reluctant to loan money to them. Banks want to be lenders, not investors. They don’t want to be the primary stakeholder—and risk-taker—in your firm, and they prefer that architects provide at least half their start-up capital from their personal assets.
Every firm needs a banker, and sooner or later most need a lawyer, an accountant, and a tax adviser, as well. Some even employ business consultants. Even those who choose to go it alone as sole proprietors shouldn’t feel that they are alone— there are many sources of assistance for you.
When considering providers for legal, accounting, banking, or business-consulting services, look for someone who listens well, understands the unique problems of your profession, and has the requisite experience and knowledge to keep their learning curve to a minimum. If you have a specific problem, you should weigh carefully whether the solutions they propose appear to be effective and proportionate to the issues at hand, and whether proposed costs are appropriate for the circumstances.
Architects consult attorneys to assist with partnership agreements, owner-architect agreements, and possibly liability and labor matters. It is essential that you establish relationship with knowledgeable attorney you like and trust.Frequently, a 5-minute telephone conversation with an experienced attorney can provide exactly the right information that will save hours of misdirected effort or needless concern.
It is not uncommon for architects to begin practice without the help of an accountant. If a firm stays very small, or operates as a sole proprietorship, it may never need accounting assistance. However, if a firm begins hiring more than a few employees, or the firm’s legal organization is changed to a partnership, subchapter S-corporation, a professional corporation, or limited liability company, then more extensive record keeping and complicated tax returns are inevitable. These demand the services of an accountant.A good accountant can help the newly minted practitioner by setting up a payroll and by giving advice on how to set up a system of accounts that will facilitate both record keeping and financial management.
Since there is no practical way to operate a firm without a bank account, it is imperative to develop a good relationship with a banker. Bankers are important members of the community, especially small communities. In addition to their understanding of money and real estate markets, they generally serve a wide variety of individuals, companies, institutions, and government agencies. Consequently, they develop a useful understanding of these entities—knowledge that can be of service to their architect-clients. Many architects have done work that was referred to them by their bankers.
Since most architects learn to run their business on the fly, it may be helpful at some point for them to seek the advice of a management consultant. The best consultants have assimilated what they know from working with a wide variety of clients in different situations. They understand the underlying issues related to operating a business in a particular profession and can quickly apply their knowledge to new problems. They often provide perspective and impartial feedback that can be most useful when principals are grappling with crucial decisions such as whether to grow or move the firm in a new direction.
Ethics: start out right
Architects and other design professionals are expected to practice ethically, of course, and it almost goes without saying that one should establish one’s firm on the highest of ethical principles.The AIA’s Code of Ethics and Professional Conduct is a good place to look for guidance, even if you are not a member.
Generally speaking, the ethical questions most likely to be encountered by persons starting a firm relate to their conduct toward their former employers.
All architects start out as interns who are employed by others. Those who start their own practices almost inevitably form the relationships and make the contacts that will enable them to go out on their own later while they are working for someone else. When opportunities to practice in your name come along, you may even try to a find way to serve private clients while remaining employed. If you take on outside work, you must use your own identity to get it and your own time and resources to do it. Don’t ever imply that you represent your employer to get work for yourself. Always continue to work conscientiously for your employer.
Always ask permission before removing documents. Your employer is ethically obliged to provide copies of documents for projects on which you worked, but you should expect to pay for these copies yourself.
If, in the process of marketing your new firm, you are showing work you did for a former employer, take credit only for the work that you actually did. Be sure to cite your employer on every project on which you participated as an employee.
While you are proscribed from interfering with your former employers’ contracts, you are free to inform their clients that you are beginning your own practice. However, if you signed a noncompete agreement with your former employer, other conditions may apply.
You can offer fellow workers employment unless you have signed a noncompete clause that prevents it. In this case, it is best to inform others of your intention to start a practice, then let them decide to join you if they so wish.
You may be surprised to find that former employers are often willing to provide advice and support, including references and, in some cases, referrals. Start your firm in an honorable way, and never burn bridges—you may want to cross them again.