What are the Advantages / Disadvantages of a Partnership (similar to sole trader) business structure?
Advantages:
- relatively easy to start up and low cost
- additional capital available from partner
- few government regulations and legal requirements
- shared risk
- non-disclosure of profits or financial information to public
Disadvantages:
- unlimited liability
- each partner equally and jointly responsible for other partners mistakes & debts
- Management problems (who is the boss?)
- need to have written partnership agreement
- lack of continuity (business ends if partner dies, is made bankrupt etc)
What are the Advantages / Disadvantages of a Company business structure?
Advantages:
- Limited liability
- Separate legal entity
- Shares transferable
- Tax benefits afforded to companies
- Unlimited life
Disadvantages:
- More complex business structure to start and run
- Higher set up and running costs than other structures
- Highly regulated by government
- Difficult and expensive to dissolve a company
- requires you to understand and comply with all obligations under the Corporations Act 2001
How would you start your own practice?
- Ensure I am registered
- Gather information from professionals and peers to understand the risk of the decision
- Consider what type of business structure would be most appropriate
- Prepare a business plan to formalise particulars of the business. Vision statement, mission, target market, cash flow forecast, strategy
- Register business name and get ABN
- Obtain necessary insurances PII PLI WCI etc
- Business Premises?
- Employ Staff?
- Library
- Office Manual
- Computers and Software Licenses
How will you bring business into the practice?
- Advice friends & family that you have started a practice
- Marketing/advertising
- Networking/ attend industry functions
- Social clubs/groups you a members of
- exposure through competitions
How do you obtain finance for your own firm?
- Through your own capital savings
- Business loan from financial institution/
What professionals do you need to speak to get the right advice?
- Your financial planner/bank – obviously going to be some initial costs involved with start-up
- Solicitor
- Accountant
- Insurance broker
- Business advice in regards to developing a business plan
What would you have in your Library / where to get advice?
- Australian Standards
- a range of contracts, recent service / consultant agreements and builders quotes,
- Advisory Notes , Insurance policies , Local Planning Authority Schemes , BCA ,
- Current Town Plan
- Acumen
Advice:
- AIA membership & Acumen notes
- Advice from colleagues & mentors
- Professional consultant advice
- Accountant
- Solicitor
- Insurance broker (& risk advisor)
What types of insurances do architects need?
- General business insurances : fire / burglary /electronic equipment / motor vehicles
- Worker’s compensation
- Professional indemnity insurance
- Public liability insurance
- Director’s insurance
Architect’s professional risk services is an insurance broker able to give specialized advice to architects
How to establish your fees?
- Quote fees which will enable a proper professional service to be provided and, cover all costs and make a reasonable profit
- Make sure level of fees quoted is consistent with the prevailing market
Key information required to accurately establish fees are:
- Use accurate historical records of the cost to the practice to provide services for various types of project
- Have clear understanding of the scope of service required for the project
- Use realistic hourly rates for the staff to be used for the project
- Include appropriate margin for profit
- Have appreciation of the market conditions
How do you invoice?
- Monthly, irrespective of amount
- This ensures that cash flow is maintained and if the client raises a dispute you aren’t in a position of risk where you might lose a back log of fees.
- Written in CA agreement
What do you do about late payment?
- Email, notify client.
- illustrating that their payment was due including reference to the invoice and the payment date and perhaps reattached the invoice
- Remind client of their obligation to pay invoices on time as per the CAA
- License can be revoked until invoice is paid as per the CAA
What methods / types of fee structures exist?
- Percentage fee: based on: ‘cost of works tendered’ / ‘cost of works executed’ / ‘cost of works estimated’
- Lump sum fee : based on a percentage of estimated cost or on an assessment of the work involved
- Time charges – calculated on office overhead and profit assessment.
- Hourly rates - generally a multiplier of the money you want to earn (profit) plus coverage for overheads.
- Combined fee – percentage or lump sum fee to cover the architect’s services and all consultants’ fees payable by the architect
What is the salary multiplier?
Expense (including salary) + profit / salary = mulitplier
(this is around 2 to 3)
How do you calculate a % fee?
- Completely review the project
- Nominate what drawings are required and resourcing to complete works
- Once time is calculated, apply hourly rates to establish rough cost with profit
- Work out percentage from there from clients cost of works
What is in an Office Manual ?
A way to implement appropriate administration systems in an architectural practice to provide the basis for an efficient and profitable practice.
- Procedures and protocols
- Sets out templates and document usage
- Reinforces lines of reporting and responsibilities
- Sets out expectations of quality, deliverables and outputs
- May describe specific processes for particular project or client types
What is professional indemnity insurance
- Professional indemnity insurance, also referred to as PI insurance, is a type of business insurance that covers you for costs if you make a mistake in a piece of work for a client that causes them financial or reputational loss.
- PII is a “Claims Made” insurance. This means the insured is required to report or notify the insurer of any claim or known circumstance which may lead to a claim, within the current period of insurance. It is the current insurer that will respond to a claim made against the insured, & not the insurer on risk at time of original incident.
- Retroactive date should be unlimted or a date far enough back to cover all work done. Retroactive date should be checked when changing insurers.
what is public liability insurance ?
Insurance against a practice’s liabilities for injury or damage to a third party, arising out of the practice’s ownership or occupation of premises and their use, activities on the premises and conduct away from them while undertaking the practice’s business.
What is worker’s compensation ?
Workers’ compensation provides financial support if a person is injured at work or becomes sick due to work.
What is risk management ?
- assessing, mitigating (to an acceptable level) and monitoring of risks
- risk is transferred to the owner, contractor, specialist consultants and suppliers/manufacturer
Risk can be managed by:
- communication with clients, consultants, contractors and authorities
- ensuring the client understands everything
- supervising inexperienced staff and periodically review office procedures
- confirm things in writting
- prevent suprises for client. eg warn them in advance of project cost coming in high etc.
- if anyone in the process acts unethical or below board take measures to remove them or yourself from the situation
Differences between employee and contractor ?
Employee
- Relationship is continuous
- Individual only works for one principal/company
- Individual does not profit from their efficiencies
Contractor
- written agreement specifying time for completion, costs and liability
- location of the performance of the services is specified
- provision for floor space, power, etc is specified
- scheduling the work is the contractor’s responsibilty
- no entitlement to leave
- contractor can accept other work
- principal is not vicariously liable for the contractor
What to consider when engaing contract staff ?
- Tax - who pays tax ? contractor should handle their own tax
- Negligence - Principle is still liable for the work of the contract staff
- Insurance - Check with PI insurer. Principle may not be covered for their own iability arising from the contract staff’s negligence
- Workers compensation
- Copyright
