3 fundamental tips

We begin financial management advice for architects with a warning: Finances are the most complex part of running a business!

If you already run your own business, you probably know what we’re talking about. It is not uncommon to encounter people who cannot assess how much they receive, how much they spend, or who do not understand how to assess the financial health of their organization. If you are interested in starting a business in the field of architecture, we suggest you keep this in mind, along with strategies for managing your finances with confidence.

After starting with the article on administrative management tips, in this second part we will discuss common financial situations that can be overcome. These points are generally not treated with the importance desired by entrepreneurs.

Tip 01: If you are not your business, why would the invoices be the same?

Present in 10 out of 10 conferences on the financial management of architects, the separation of the accounts of Individuals (PF) and Legal Entities (PJ) no longer looks like just any trick. This task, which should be an entrepreneur’s first task, ends up becoming the most neglected process among a long list of other financial obligations.

Oh Differential treatment between what belongs to the owner and what belongs to the company is one of the 6 principles of accounting, called Entity principle. What belongs to the individual must be treated differently from what belongs to the company. This is valid throughout its operating history (and even after bankruptcy, from a legal point of view). If we do not respect this condition, it will be impossible to separate what belongs to one and what belongs to the other, generating confusion and inaccuracy in organizational data. This data constitutes the main raw material for subsequent financial analyses.

Therefore, constant confusion between accounts will make the simple task of measuring profit or loss extremely difficult, and often unrealistic. Additionally, using business receipts to pay for personal expenses increases errors in the organization’s cash register. This fact can have an impact on the payment of operating expenses – those related to the business – and taxes. Note that financial errors in the operation increase the possibility of indebtedness on the part of the organization, further aggravating already difficult situations.

Tip 02: Know how much your work is worth

Answer quickly: what is your pricing type?

1. The bigger the customer, the higher the price
2. The more you don’t like the task, the higher the price
3. I say a value (usually out loud) and evaluate the reaction
4. All above

If you answered any of the alternatives above, please note that none of them offer a healthy alternative when it comes to pricing. If you selected Alternative 4, don’t worry, it is possible to reverse this situation.

Incorrect pricing leads to problems on all sides in a customer-supplier negotiation. If the price of the product/service is below the optimal line, expenses will not be covered and losses assessed. If the price is higher than reality, a gap between expectations and reality will open up, which could scare off the potential customer. To resolve this problem you must understand the price of the work that will be carried out, assimilate it with other data and thus form your ideal price.

The difficulty in pricing is real and affects many entrepreneurs across the country. Most individuals can talk about the tangible factor that will be included in the price, such as raw materials, transportation – shipping, for example – or part of the process that is outsourced. But of course the most discussed factor is the intangible aspects of the price. To understand these factors, we can use travel costs as an example. Gasoline, or expenses related to transporting people, are entirely observable from the provider’s point of view, but what about the time spent getting to your destination? In the same sense, another very representative type of expenditure is spent on retouchingwhich may involve several hours dedicated to the project, but which could be used in another way.

In addition to the previous examples, there are other important aspects for the entrepreneur, such as those linked to the market, notably the positioning of the brand and the expectation of value for the service. These factors are considered multiplier factors because they increase the amount to be charged due to the assumed intrinsic quality to which the products and/or services sold by a given organization are subject.

But don’t worry, such a price increase could lead to a drop in demand, considering the purchasing capacity of the potential customer. Additionally, it could inflate the market, creating a barrier between your business, your direct competitors and your potential customers. Therefore, calmly evaluate the price increase based on intrinsic factors, and Always keep your current financial situation in mind.

In short, for a competitive price to exist, it is necessary balance tangible and intangible factors. It is important to have a competitive budget, understand how much is actually spent for the service to be fully executed, in addition to consulting the market – including competitors – to understand how much is being charged for services similar to yours.

Tip 03: Understand your receipt times and your payment times

Cash inflows and outflows are two major headaches for entrepreneurs in general. Node Brazil, 39% of entrepreneurs start a business without understanding the working capital needed to operate it. The remaining 42% do not calculate the level of sales needed to cover costs and generate the desired profit.

If the receipt time does not correspond to the payment time, eventually, the company’s cash flow will be negative. This makes it impossible to pay other expenses, investments and meet basic obligations.

To ensure that they are always aligned, it is common to deadlines are usedsuch as a common fixed date for receiving payments from multiple customers and a fixed date for paying suppliers. Use a simple exampleimagine that you will receive the agreed value of a project in 3 monthly payments of R$800.00; totaling R$2,400.00. However, you must pay a supplier in the amount of R$1,000.00 in cash, immediately after the negotiation closes. By doing the previous calculation, it is possible to see that your cash flow will be negative at R$200.00 for a while.

At first glance, this appears to be a simple narrative. But, when we imagine such an account multiplied by a large number of customers and suppliers, the situation becomes more complex. Additionally, if it becomes necessary to take out a loan to pay for living expenses, interest will start to be part of the equation and significant debt could be on the way. It is essential to pay attention to the cash flow management of your business, something that requires time and a lot of concentration!

Financial Management for Architects

We hope these tips will be useful for better financial management in your organization. Whether you are an architect and urban planner, designer or manager of an architectural office, remember these 3 points at different times in your entrepreneurial journey. They can help you achieve great results!