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Reimbursable Expenses

10/28/2017

 
Reimbursable Expenses
Reimbursable Expenses are like boomerangs.
They are supposed to return to you like a boomerang.
Are your boomerangs returning larger, smaller, the same size, or not at all?
​

A boomerang is a goofy metaphor. I thought of it when trying to come up with a graphic for “Reimbursable Expenses”. Desperation had arrived.

Reimbursable Expenses for architects include all the expenditures that we make on behalf of a client. Things like these:
  • Plots 
  • Printing (specs, etc.)
  • Drawing sets
  • Delivery charges
  • Reprographics 
  • Mileage (local travel)
  • Travel (out of town including accommodations)
  • Photos 
  • Models (physical and digital)
  • Permit fees
  • I wouldn’t include Consultants here but there are circumstances where they could be.

Generally all these items are considered reimbursable by standard contracts. Individual clients may accept that situation or not. (Disagreement, in my experience, is in direct proportion to the hours spent by their attorney working on the contract.) The reason these items are considered ‘reimbursable’ is that there isn’t any standards about how much will be required of each.

Requesting reimbursement is the fairest and easiest way of addressing the issue of these expenses. The simplest way of dealing with the issue is to ignore Reimbursable Expenses. That is invariably unfair. Unfair to you if you pay for these expenses out of your fee/profit. Unfair to you or to your client if you have increased your fee to cover the estimated cost. You will always be too high or too low in your estimate. 

So the fairest and easiest way of addressing reimbursable expenses is to send an invoice. Or add them to your invoice for your fee as a separate category. My preference is to simply list each expense by Date, Category, Amount. I would not attach backup, but I would hold onto the receipts just in case. But they rarely had to be provided in my experience. 

The trickiest of the Reimbursable Expense considerations is the ‘how much to charge’ issue - the same amount or a larger amount. The business-like approach is to charge a larger amount. Managing Reimbursable Expenses takes time. The time can be significant. I used a 5% markup. An accountant friend told me I was an idiot for not marking up the expenses at least 15%. Eventually I did. However, I also had one client whose attorney insisted on no markup. So I increased the fee.

MyCorbu, the bookkeeping app that I built, addresses Reimbursable Expenses and also Mileage, and can be SEEN HERE.  

If you aren’t going to use a markup, and even if you are, the time that it takes to collect the Reimbursable Expense information can be a burden. I experimented with a ‘tax’ solution. Here’s how that works. 
  • First put it into your contract
  • Determine what percent to use
  • On your invoices add a line item for Materials and Expenses
  • The calculation for Materials and Expenses is FEE x % = AMOUNT

You can determine the percentage by calculating what percent of your Fees that your Reimbursable Expenses represent. If you have records for a year that would be ideal, but a couple of typical months might work, too.  If during the time period in question you had fees of $100,000 and had Reimbursable Expenses of $3,000 then Reimbursable Expenses is 3% of you Fees. [3000/100000 = 3%] That is the Materials and Expenses ‘Tax’ to add to your invoices.

I might mark that percentage up. But the point of this approach is to virtually eliminate all the management that goes into logging  expenses into the project accounts for invoicing. In fact, you may explain this process in just that light to your clients. 

“Instead of itemizing expenses and charging you a markup for the effort that it takes to do that. We have calculated what the typical expenses represent as a percent of fees and simply charge that amount.”

Two caveats for taking this approach. First, you can never show backup for Reimbursable Expenses on projects using this scheme. Second, you will occasionally find a situation that doesn’t fit the scheme - paying a large plan review fee, say. This would have to be treated as an Additional Service with its own invoice. If time isn’t critical, you could also request a check from your client for the expense.

Be careful what your list of Reimbursable Expenses includes when explaining your ‘tax’ scheme.
Reimbursable Expenses
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