Do ARCHITECTS need money?

Yes, nowadays architects very much desire money and understands it to prove themselves?

But how much money do they need to start up their own practice?

           What are the ways they can acquire that capital?

How can they keep up with the relentless cost of the monthly payrolls, the rent, income tax, service Tax and so on when their income (fee) is prone to so much unpredictable delay?

           How do they know if they will have enough cash to operate for a year's time?

Are they really likely to make any profit?

           And how can they focus on financial management when they also have to deliver building designs on time?

ACQUIRING CAPITAL

Establishing a practice and finding required capital is not a difficult task at all. It requires clarity of the amount of fund needed; confidence to pay back under any circumstances (put the policy on paper before borrowings) and lots of common sense.  I believe you are loaded with all these virtues otherwise you would not have opted to begin your own practice.

Before you chart your source to acquire the capital, you shall consider your predictable expenses.

• Monthly Payroll
• Utilities (phones, electric, Internet /communications, etc.)
• Rent or EMI  if  the premises  are purchased
• Marketing and sales-related costs (allot enough to position in the    market)
• Office Supplies
• Maintenance of office, equipments, etc.
• Insurance
• Licenses
• Taxes
• In your total prediction of expenses, add 15% for unforeseen requirements.

Now let us see who can provide you finance.

But remember an important principle of borrowing “Spend money only for the purpose for which it is borrowed. That is not your income it is a liability.”

Some of your choices for funding your company include:

• Personal savings
• Borrowing from friends and family
• Getting a loan from a bank
• Getting a partner and using his or her personal funds
• Going to the venture-capital company
• Other investors

And many others that we'll talk about as we go

Using personal fund is one of the safest options. If you have savings to last for at least a year, you need not borrow money. But you need to prepare a detailed cash flow plan which will give you enough time to concentrate in your core area. However, keep following in mind:

1.     Review your status every month

2.     Cut back unnecessary expenses

3.     Invest unused capital to get a good return to care for monthly requirements

Borrowing from friends and family:

It is a very easy choice due to its zero or low interest cost. But be aware, you may end up with damaged relationships in the long run if not handled the sentiments efficiently.

This method of borrowing is common for start up business owners. For healthy relationship, make your proposal like you are borrowing from financial institutions; show them your business plan, the return of their investment, payback time and method; and let them decide whether they would like to support you or not. This way, you are providing them a way to gracefully say no to your request without damaging your relationship.

“Make every bargain clear and plain, that none may afterward complain.”

Getting a business loan from the bank

Banks and financial institutions are sceptical to lend money to start up entrepreneurs. They are in the business of secured finance. Thus, they aren't interested in your promising practice, but their major interest is in repayment of the loan. Therefore, your business plan should be very precise and should assure them the repayment in the form of collateral, such as building, vehicle, insurance policy, jewellery, stock, real estate or any other tangible assets. Usually bank loan interest rates are lower than commercial financial institutions. Instead of term loan (payback capital in EMI) opt for overdraft facilities where you need to pay interest on the amount used for a particular period. There are various finance schemes for professionals and special programs for women architects available. Check with your bankers.

Venture capitalist

Venture capitalists are commonly known as VCs. If you have a researched based high tech or innovative project and you are in need of large funding, VCs can help you. VC firms typically won't invest less than $250,000. I hope one day architects will talk about that kind of money. VCs will be more than happy to finance.

Other Investors

You can also raise funds for your business by finding other investors who are willing to provide capital in exchange for a percentage share in your company.

Do you think an MBA graduate can be a partner with an Architect? Or a person who has extraordinary P.R and marketing skill can join the architect's firm? If a person sees potential in your practice to invest his capital and is ready to take his chances; why would you not consider it? Trust your entrepreneur skill and instinct. This arrangement may be beneficial to both you and the investor.

If you decide to go ahead in a joint venture with your investor, make sure your agreements are set out by legal consultants before signing the contract.

Equipment leasing

Your primary need like computers, plotters, air conditioners, etc. can be taken on rental basis which will prove an excellent way to finance your start up practice. Later, you can buy the same equipments at reasonable costs from the supplier when you have enough capital to invest. This is a cash saving preferred option if the offer from your supplier is attractive. I advise architects to negotiate at first on this option and if it works out affordable he should save cash in the beginning, even if it costs a little more at the end.

You can also think of purchasing these equipments in easy monthly instalments if you are expecting sufficient cash flow initially.

You may think of buying them for a loan. But it's not an advisable option in the first year of your business to purchase the equipments by making a full payment to the supplier and increasing the liability of a bank/loan provider.

If you wish to buy consider the used equipments and computers, many a times it proves to be a smart option.

Limited partnership

If you are good at teamwork, but are afraid of financial risk; you can form a limited partnership for your company. This way, you will have a financial partner who will fulfil all your requirements against his/her share in the profit. This sets you up free from financial liabilities to be able to focus on your core strength. Here your experience in the field and reputation plays an important role.

Joint venture /strategic partnership

The union is strength. JV works well if you wish to grow better and faster. Match your style, personality and common goals with your joint venture partner and have project wise strategic partnership. Your attorney knows better how to match your common interest and safeguard your concern legally.

Government grant program:

If you love research in challenging field like green buildings, mass housing, building technology, etc. you can contact research foundations, NGOs, and corporations established world wide for financial assistance.

While managing your finances, it is likely that uncertainties, irregularities and pitfalls will be a part of your daily life which you will have to look upon as a practical management lesson. Thus, if you are planning to begin your own practice, don't be just an architect, be an architectural manager!