Architectural Finances 101
The Architectural Financial Model App
The financial model of small architectural firms is based on this equation: COST OF BILLABLE TIME x FACTOR = TOTAL EXPENSES + PROFIT
In order to build your unique financial model, you must assemble the data and calculate the 'Factor'. The Architectural Financial Model will lead you through the process. First you will assemble the staff data and set a target for the percentage of their time that is spent on billable work.
Second, and this is optional, you will determine the Total Expenses that you will incur per month on average. Although this exercise is optional, determining your Total Monthly Expenses is not. You could use a close approximation from a tax return or a financial statement.
Third, and this is optional too, you will estimate the Profit that you want to base your model on. The worksheet will help you determine what is desirable although you can use an arbitrary target percentage.
Fourth, these three components will be used to solve the equation and determine the Factor that ties this all together.
Finally, you will review all the details of your financial model; and make adjustments if desired.
USES OF THE APP
The main use of the App is to determine if your firm is built on a sound footing. It is not unusual to find that what you are doing is working against your expectations.
Having built a Model that represents what you are doing, the next step is to build a Model that works better.
WHEN TO BUILD A MODEL
THE KEY METRIC
There are many metrics developed during the building of your financial model - the Overhead Factor, the Billing Overhead Factor, targets for Profit, Overhead Expenses, Total Revenue, Billable Ratios, Billable Time Expense. However Billable Ratios has a major impact on your Model and is fairly easy to track on a frequent basis, meaning multiple times a month.
You can track Billable Ratios by simply dividing the Billable Hours Worked by the Total Hours Worked for a specific timeframe. Paid Time Off is not include in the Total Hours Worked.
You can usually find an easy way to get these numbers from your bookkeeping system.
MyCorbu, for instance, provides a constant update of your Billable Ratios.