Table Of ContentBRIAN PINDER- AYRES
Financial Management British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the
© RIBA Enterprises Ltd 2016 British Library.
Published by RIBA Publishing, part of RIBA Enterprises Publisher: Steven Cross
Ltd, The Old Post Office, St Nicholas Street, Newcastle Commissioning Editor: Sharla Plant
upon Tyne, NE1 1RH Production: Richard Blackburn
ISBN 978 1 85946 602 5 Designed & typeset by Kalina Norton/Studio Kalinka
Illustrations by Peter Harpley
Stock code 84985 Printed and bound by CPI Antony Rowe in
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The right of Brian Pinder-Ayres to be identified as the
Author of this Work has been asserted in accordance with While every effort has been made to check the accuracy
the Copyright, Designs and Patents Act 1988 sections and quality of the information given in this publication,
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C ONTENTS
FOrEwOrd VI
SErIES EdITOrS’ FOrEwOrd VII
AbOuT ThE SErIES EdITOrS VIII
AbOuT ThE AuThOr VIII
ACkNOwlEdgEmENTS Ix
INTrOduCTION xI
1. SETTINg up IN prACTICE 1
ChOOSINg ThE rIghT FOrm OF buSINESS FOr yOu 1
SOlE TrAdEr ANd pArTNErShIp 1
lImITEd lIAbIlITy pArTNErShIp 2
lImITEd COmpANy 3
ThE FuNdAmENTAlS OF FINANCIAl mANAgEmENT 5
CONTrOl OF wOrkINg CApITAl 5
mulTIlEVEl mANAgEmENT 7
rAISINg FINANCE 8
SummAry 9
2. ThE FIrm FOuNdATIONS 11
bASIC bOOk-kEEpINg 11
mONThly prOFIT rEpOrTINg 13
kEy pErFOrmANCE INdICATOrS 16
lIquIdITy kpIS 17
SummAry 20
3. plANNINg ThE FINANCIAl hEAlTh OF ThE prACTICE 21
dEVElOpINg A STrATEgIC plAN 21
ThE ANNuAl budgET 22
ZErO-bASEd budgETS 23
IdENTIFyINg ThE kEy lImITINg FACTOr 23
ThE budgET-SETTINg prOCESS 24
CONTrOllINg ThE budgET 24
CApITAl ExpENdITurE budgETS 26
budgETS FOr ThE SOlE prACTITIONEr Or SmAll prACTICE 28
SummAry 28
4. prOjECT rEpOrTINg ANd CONTrOl 31
ThE CAlCulATION OF COST 32
SummAry 38
III
5. FEE prOpOSAlS – SETTINg A rEAlISTIC FEE 39
TrAdITIONAl ApprOAChES TO SETTINg FEES 41
pErCENTAgE FEES 41
lump Sum FEES 41
TImE ChArgES 42
‘pErCENTAgE CEIlINg’ FEES 42
uNIT prICE FEES ANd FEES FOr rEpETITION 42
lICENCE FEES 42
ExpENSES 43
FEE AdjuSTmENTS ANd ChANgES 43
rEVISION TO brIEF Or ClIENT’S INSTruCTIONS 44
ACCElErATION 44
OmISSION OF wOrk IN ThE OrIgINAl brIEF Or COST OF CONSTruCTION 44
ClIENT VArIATIONS durINg ThE CONSTruCTION pErIOd 45
rESEArCh INTO AddITIONAl FACIlITIES 45
SummAry 45
6. FOrECASTINg FuTurE FEES 47
FuTurE pOSSIblE FEES 50
A COmbINEd FEE FOrECAST 52
ThE rESOurCES FOrECAST 53
SummAry 56
7. CASh FlOw mANAgEmENT 57
CASh INFlOwS 60
ACCOuNTINg FOr VAT 62
CASh OuTFlOwS 63
ACCOuNTINg FOr TAxATION 63
SummAry 64
8. CrEdIT CONTrOl 65
lATE pAymENT 67
ThE AgEd dEbTOr rEpOrT 68
ThE ‘drOp-ThrOugh’ ANd ThE ‘mulTIplIEr EFFECT’ OF bAd dEbT 70
rESOlVINg prOblEmS wITh FEES 71
mEdIATION 71
AdjudICATION 72
ArbITrATION 72
lITIgATION 72
SummAry 72
IV
9. brINgINg IT All TOgEThEr – rEpOrTINg AT prACTICE lEVEl 75
TurNOVEr ANAlySIS 76
bENChmArkINg 78
SummAry 79
10. lEAVINg ThE prACTICE – ExIT STrATEgIES 81
whAT ArE yOu lOOkINg FOr whEN yOu lEAVE? 82
ClOSINg ThE prACTICE 82
TrAdE SAlE 83
pASSINg ThE prACTICE ON TO ThE NExT gENErATION 83
SummAry 85
11. CONCluSION 87
whAT CAN pOSSIbly gO wrONg? 87
FAIlurE TO uSE STANdArd AgrEEmENTS 87
FAIlINg TO INVOICE FOr wOrk ON A rEgulAr bASIS 88
FAIlINg TO COllECT ThE AmOuNTS ThAT ArE duE 88
NOT ASkINg FOr AddITIONAl FEES whEN ThE brIEF IS ChANgEd 89
NOT ASkINg FOr AddITIONAl FEES whEN ExTrA wOrk IS AddEd 89
FAIlINg TO mONITOr prOjECT COSTS ANd CONTrIbuTION 90
lOw hIT rATE ON COmpETITIVE TENdErS 90
pOOr ESTImATION ANd FEE NEgOTIATION 91
FAIlurE TO mANAgE ThE dESIgN TEAm 91
hOw hAS ThE FINANCIAl lANdSCApE ChANgEd IN ArChITECTurE SINCE 2008? 91
AddINg VAluE 93
glOSSAry: dEFINITIONS 94
AppENdIx: uSEFul wEbSITES 95
INdEx 96
V
FOrEwOrd
Running an architecture business He says: ‘All of the architects I have
effectively is not just a matter of ever met have been far more concerned
pursuing ‘profit’ or ‘staying afloat’- about the quality of the finished building
there is an ethical issue at stake too. and its design integrity than about
Honouring your promises to staff, the making of money’ (page 8). His
consultants and other suppliers and observation that ‘The vast majority
paying them on time is a mark of your of businesses that go under simply run
integrity. Expecting your clients to pay out of cash’ (page 9), leads inevitably to
you promptly while your staff have to the maxim: ‘Cashflow is the lifeblood of
wait for their money, or work long the practice’ (page 60). If you need to
hours for nothing, is evidence of remember one thing about this subject,
double standards. it’s probably that.
In this lucid and practical book about Financial management of architectural
a difficult subject, Brian Pinder-Ayres practice is not simple. It is complex,
draws on his diverse experience of and we underestimate it at our peril. It
medium-sized practices and the tax should be imaginative and creative, but
affairs of many smaller firms, and offers rigorous – just like architecture.
a range of proven, effective tools for
keeping track of cash, looking ahead Steven Pidwill,
and minimising risk. Shepheard Epstein Hunter
VI
SErIES EdITOrS’ FOrEwOrd
By virtue of you picking up this book practitioner that you aspire to be, whilst
on Financial Management, you are honing your entrepreneurial eye.
either curious about the prospect of This book will equip you with the
setting up in practice or are in practice, knowledge and confidence to free you
but want to have a better understanding from worrying how to pay your bills
of the numbers and a cost effective so that you can focus your energies
oracle on your shelf. Dealing with on what you do best and then use the
the finances along with business results of that productive time to attract
development are perhaps the two areas more work thus ensuring financial
of start-up that Architects fear the stability – a virtuous circle!
most. This is most likely because many
of us have not been taught this in our Written in clear language Financial
architectural education. Management is an essential user
guide that covers all the stages in the
Financial Management has been written typical life cycle of a practice, from
with a view to making this crucial aspect deciding which form of business to
of running and sustaining your business adopt through annual budgeting and fee
as integral to your creative practice as setting to succession planning. Within
is design. its pages are the tools to deal with the
concepts, language and a good steer
Architects tend to be nervous of fully on how to manage both your accounts
embracing the discipline of financial and accountant relationships. The
management in case it somehow or humorous illustrations throughout are
other detracts from what they see as the complemented by worked examples and
main thrust of their practice. definitions thereby making the detailed
information accessible without resort to
However, far from turning you into an financial jargon.
accountant, good financial management
frees you up to be the creative Del Hossain and Anne Markey
VII
AbOuT ThE SErIES EdITOrS
Anne Markey is a director of Phelan and Shanghai. By background he is
Architects, a practice she founded an Architect having practiced with
in 2009 with her husband Brendan some of London’s leading design
Phelan. She also heads up the Projects firms including Foster and Partners
Office within the Sir John Cass Faculty and ORMS. In 2012 he was Awarded
of Art, Architecture and Design at ‘London’s Business Mentor of the
London Metropolitan University, and Year’ for developing companies with
has over twenty years experience as a social agenda and progressive
an architect. Anne is a member of the ambitions. Del is also a qualified
RIBA and sits on the RIBA CPD Sub- Organisational Development and
Committee. She is a board member of Wellbeing Psychologist and works
Catalyst Housing, one of the leading closely with leadership teams and
housing associations within London Directors in the Creative Industries
and the South East, where her role is on their People Strategies and team
that of Design Champion. motivation. He is also a speaker at
numerous universities and a former
Del Hossain is the MD of the Adrem Chairman of the Bartlett Alumni. Del is
Group a leading International the Joint Editor of the RIBA’s Business
Architecture and Design Careers Books Series.
Agency based in London, Dubai
AbOuT ThE AuThOr
Brian Pinder-Ayres qualified as a Brian joined YRM Architects just after
chartered management accountant their successful management buyout
(ACMA) in 1984 while working as a in 1997, and established the finance
finance and tax analyst with Mobil function for the new business. In 2001,
North Sea Ltd. He has held the most he took up the role of Finance Director
senior management roles in finance at architects and planners Shepheard
with Polaroid, Braxton Associates Epstein Hunter plc. He has lectured
(the strategy consulting arm of major on finance and architectural practice
accountancy practice Deloitte) and to students studying for the RIBA
a firm of niche-market City solicitors Part 3 examination at Portsmouth
Walton & Morse LLP. For five years he University, Cambridge University and
worked as a management consultant London South Bank University and
with chartered accountants Moores is a regular contributor to the very
Rowland during which time he successful annual Part 3 programme
specialised in advising professional at the University of Westminster. He
firms on a wide variety of financial also lectures in financial management
management issues. for the RIBA.
VIII
ACkNOwlEdgEmENTS
Over the years, one of my strongest and which I am now putting forward in
and lasting impressions when working this book – originally came from them. I
with architects is their openness and have also taken a lot from the feedback
generosity. I have always appreciated of the Part 3 students who have
their willingness to take the time to attended my lectures over the years.
share their knowledge and experience Their questions and comments have
of practice with me, often in the form of helped me to focus on the areas of
amusing or terrifying anecdotes. practice that are obviously uppermost
in their minds and identify the issues
I am particularly indebted to my fellow that seem to trouble them the most.
directors and colleagues at Shepheard
Epstein Hunter and to the former As ever I need to thank my wife Liz for
directors of YRM Architects for their her unfailing patience, encouragement
help, advice and support. I am well and support throughout this project.
aware that much of what I have learnt –
Ix
