Panel

Merlin Fulcher (chair), competitions editor, Architects’ Journal
Hetal Patel, head of finance, ADP Architecture
Eric Hampel, finance director, GT3 Architects
Ben Round, group finance director, Corstorphine & Wright
Bret Tushaus, vice-president of product management, Deltek

For many architects, finance remains a subject that sits at some distance from the design work itself. Yet the financial health of a practice determines whether it can pay staff, sustain projects through periods of uncertainty and invest in the people, research and technology needed for future growth.

Opening the webinar, chair Merlin Fulcher described the discussion as an opportunity to explore ‘how good practice finance and project budgeting can build a sustainable, resilient business’.

The questions ranged from the fundamentals of profit and loss, balance sheets and cash flow to the practicalities of setting fees, managing scope, forecasting income and deciding when a practice can afford to hire. Topics ranged from project budgeting and timesheets to forecasting, client due diligence and joined-up systems.

Across the discussion, the panellists argued that financial confidence is less about becoming an accountant than about creating clear, repeatable habits. Practices need to understand their costs, keep project information current and ensure that financial responsibility is shared by the people making day-to-day decisions.

The foundations of confidence

Ben Round, group finance director at Corstorphine & Wright, began by describing a financially confident practice model as ‘robust, reliable, flexible, and most importantly, simple’. He identified three elements that need to underpin it: strong fundamentals, engagement across the business and a close understanding of clients.

Simple, repeatable systems are particularly important, Round said, because financial processes should not depend on one individual. ‘Systems and processes that are quite easy to follow’ can be picked up by other people when personnel change, he explained. Complexity, by contrast, can make it difficult for a practice to understand what its own figures are saying.

The purpose of financial information is not merely to record what has happened. It should help the business decide what to do next. ‘The data itself needs to provide insight to the business,’ Round said. Practices should be able to see ‘what it needs to do more of’ and ‘what it needs to do less of’, using that information to determine where action is required.

That starts with understanding the cost base and the break-even point. ‘Every single business, and this is at a project level as well, what is your break-even number as a business?’ Round asked. Without a clear answer, a practice cannot know how much income it needs to generate before it begins to make a profit.

He also urged practices to build flexibility into their forecasts. Rather than relying on one static projection, they should test what happens if costs rise, income falls or an expected project does not proceed. ‘What would that do to the forecast?’ he asked, describing the kind of question that sensitivity analysis should help answer.

The final part of Round’s framework was cash. ‘Cash, cash, cash,’ he said, emphasising the need to understand the impact of different scenarios on the money available to the business, rather than focusing only on profit or revenue.

The basic questions

Hetal Patel, head of finance at ADP Architecture, set out the key financial information that architects should understand regardless of their role or training. Architecture, she explained, is a service business – generating income through fixed-fee contracts, hourly billing, percentages of construction fees or retainers.

Practices need to understand where their money is coming from, as well as the direct costs and overheads associated with delivering work, Patel explained – pointing to the profit and loss account, the balance sheet and the cash flow statement as three distinct but connected views of the business.

In her presentation, Patel described how the profit and loss account shows whether the practice has made or lost money during a particular period. The balance sheet indicates the health of the company, while the cash flow statement tracks the money coming in and going out. ‘More importantly, can we pay our bills? Can we pay our salaries?’ Patel asked.

Cash flow becomes especially important when projects take a long time to complete or when clients are slow to pay. Patel described architects as an important link between the client and the finance team, particularly when a personal relationship with the client can help resolve an overdue payment. ‘Architects, you do play a big role in our credit control, believe it or not,’ she said.

She also stressed the importance of tracking project hours. ‘Every hour counts, every hour actually makes us money,’ Patel said. Comparing the hours budgeted with the hours actually spent can reveal whether a project remains profitable or is quietly consuming more resource than planned.

Her practical test was a set of five questions that every architect should be able to answer: ‘What fee are we earning? How many hours we budgeted for? How many hours we spent? What profit do we expect to make? And when will we get paid?’

The answers will not necessarily be the same for every project. Asked what constitutes a good profit margin, Patel said: ‘It actually changes per project.’ Different stages, scopes and procurement arrangements will all affect the outcome.

She also encouraged architects to engage more closely with finance. ‘Finance is there to help you,’ Patel said. Where practices fall short, she suggested, the cause is often ‘lack of knowledge and lack of communication’. Finance teams need to understand architecture, while architects need enough financial awareness to communicate clearly about what is happening on projects.

Small changes, earlier action

Eric Hampel, finance director at GT3 Architects, argued that improving project budgeting does not require an elaborate system. ‘A big misconception about project budgeting is that it’s complex, it requires complexity,’ he said. In his experience, the most significant improvements at GT3 had come from relatively small changes applied consistently.

One of those changes was a monthly project review. The practice looks at whether the burn rate is running ahead of fees and then discusses the position with the project lead. The conversation is often more useful than a detailed report because the project team can explain what is driving the numbers. Hampel described how a temporary imbalance may reflect work completed for a milestone that will be invoiced the following month, rather than a fundamental problem.

Hampel also highlighted the importance of recalibrating project budgets after a commission has been won. Bids may be based on optimistic assumptions, particularly in a market where fees are under pressure. ‘If you’re starting with unrealistic budgets and unrealistic assumptions, then you’re behind the curve from day one,’ he warned.

Timesheet discipline is another essential part of the process. Staff costs are usually a practice’s largest expense, meaning that incomplete, late or inaccurate timesheets make project budgets unreliable. Every project lead should be able to see the secured fee, the time already used, the time remaining and the remaining budget.

This visibility also enables practices to learn from completed work. GT3 has examined where cost overruns occur and used that information to improve later fee proposals. ‘It was often stage 5 that caught us out,’ Hampel said, with scope creep and fee overruns appearing particularly frequently during that phase.

Scope management was therefore central to his advice. There is always a temptation to do one more thing for a client, he acknowledged, but unrecorded additions can have a serious effect on profitability. GT3 has empowered project leaders to identify and communicate scope creep, either by declining the extra work or by explaining that it will require an additional fee.

For smaller practices that have begun work without a formal fee agreement, Hampel suggested using a time-and-materials arrangement where the scope is still ill-defined. The important thing is to understand the practice’s overheads and ensure that the charge-out rate covers them.

Cash flow, he added, requires close attention to both amounts and dates. Practices need to know when major client payments are expected, when payroll and VAT are due and where pressure points may arise. ‘Cash is king, and it really is, it really is the truth,’ Hampel said.

Forecasting for growth

Bret Tushaus, vice-president of product management at Deltek, described good forecasting as ‘rolling, not annual’. A forecast should update as projects progress and pipeline assumptions change, rather than being prepared once and filed away.

He identified three dimensions that practices should consider together: committed backlog, weighted pipeline and resource capacity. Forecasting income alone is not sufficient argued Tushaus, adding that practices must also understand whether they have the people available to deliver the work and what effect a change in workload could have on utilisation.

Tushaus recommended a scenario-based approach that considers the best case, the likely case and the downside case. This allows practices to think through the effects of uncertainty before it arrives. Cash should also be forecast alongside revenue and profit, since cash constraints can limit the choices available to a business.

Technology can make forecasting faster and more intuitive, Tushaus said, but it cannot compensate for unreliable information. ‘AI can amplify bad data,’ he warned. The quality of any forecast therefore depends on the discipline beneath it: accurate timesheets, current project information and consistent definitions across the practice.

He also described work in progress (WIP) as an important signal of practice health. ‘WIP going down is a bad sign,’ Tushaus said, while strong WIP can indicate that work is moving through the organisation at the expected rate.

For a small practice considering its next stage of growth, the panel advised caution. Round recommended certainty of income before recruitment: ‘Get the project secure first, and then seek to recruit.’ Hampel added that growth should be linked to a clear strategic purpose, whether that means new talent, new business or investment in systems. Turnover alone is not enough: a practice can grow revenue while weakening margins, damaging cash flow or reducing utilisation.

One source of truth

The final discussion considered the risks created when information is spread across multiple systems. Tushaus described a typical arrangement in which timesheets sit in one place, project budgets in spreadsheets, accounting in another system, the pipeline in a CRM and resource planning somewhere else – or nowhere at all.

In that situation, reports become manual re-keying exercises and can be out of date by the time they are reviewed. ‘Decisions could be made on old or wrong data,’ Tushaus said. Fragmented systems also create additional administrative work, reduce utilisation and leave practices arguing over whose numbers are correct.

The panellists argued that clearer information changes the nature of management conversations. Instead of debating the accuracy of competing figures, teams can discuss what action to take, how to course-correct and where to build on progress. Round described the benefits as faster, more reliable decision-making and a reduction in the risk of making the wrong call.

The same principle applies to AI. Connected, clean data creates a stronger basis for future automation, while messy data risks producing ‘confident nonsense faster’, Tushaus said.

During the audience Q&A, Patel recommended credit checks, peer conversations and due diligence when onboarding new clients. ‘Always trust your instincts as well,’ she added. Hampel suggested requesting payments up front or agreeing shorter payment terms where appropriate, and ensuring that terms and conditions make clear what happens if invoices are not paid.

Asked about research and development, Tushaus said the proportion reinvested varies by practice, but that 3 to 7 or 8 per cent was common in the organisations he encountered. Round stressed that the definition of R&D differs between practices and may include internal systems, skills, techniques or work undertaken on projects.

The discussion ended with a call for architecture practices to make finance part of everyday decision-making. There was no suggestion that design should be displaced by commercial thinking. Rather, the panellists presented financial understanding as one of the conditions that allows good design, staff development and responsible growth to continue. As Round put it: ‘Finances are a consequence of a well-run business.’