Practice Management - 04 Financial Management

 4.         Financial Management

·       What is cash flow

·       What is forecasting

Financial Control

·       Profit reporting

·       Fee forecasting

·       Debtor management

·       Cashflow forecasting and funding requirements

·       Annual budget cycle

Benefits of Financial Management

·       Provides vision of progress in way that can be understood

·       A mechanism for control of finances at both a project and practice level

·       A way of identifying and planning for future resources and revenue while ensuring solvency

Fee Forecasting           

·       Fee forecasting is crucial to running a business as it allows the future financial position to be assessed and it ensures that records are maintained of potential fees.

·       Fee income can be categorised as captive fees or possible fees

·       A way of assessing risk

·       Captive Fees are fees that will be definitely chargeable as they are covered by a contractual agreement.  They are contractually agreed fees for current projects

·       Possible fees can be assessed by quantifying the probability that they will become captive fess.  This allows for a possible fee forecast to be produced estimating likely future fee levels.

·       Helpful in planning for future resourcing needs, whether recruitment is necessary or how much time to devote to marketing to ensure that new work is in the pipeline.

·       By monitoring captive and possible fees a practice can obtain a good sense of short-medium term prospects for work that can be invoiced.

Cash Flow Forecasting

·       Cash Flow is the movement of money into or out of a business and/or project.  It is usually measured during a specified, limited period of time.

·       A cashflow forecast monitors the cash coming into the practice, against the chase going out.  It helps to establish whether there is enough cash to run the business or to expand it.  It will also reveal when more cash is going out of the business, than in.

·       Allows an evaluation of cash resources that are required and when they are required by and can identify like future gaps in funding.

·       Allows owners to assess “what if” scenarios by changing variable so see resulting affect of staffing levels, interest rates, rent increase etc.

Resource Forecasting

·       It is important to determine whether you will have the correct number and mix of people available to be able to deliver the work that has been accepted.  Having adequate resources in place to provide clients with a professional service is a requirement of both the ARB and RIBA codes

·       People allocation forecast should show how work has been allocated to each individual in the practice over the coming weeks and should take into account holiday, sick leave etc.  This total can then be carried forward to a project resource forecast which compares the total practice requirements with the total current availability in order to predict shortages or spare capacity

RIBA Guidance Note 2 and Guidance note 4

·       2.4 Members should ensure that they have or will have when needed the appropriate competence, skill and resources to meet the requirements of the work for which they are bidding

·       4.4 When accepting an appointment members should not undertake to provide services which they know, or ought to know, are beyond their competence or resources

Key Performance Indicators

Key performance indicators can be used:

·       Monitor costs

·       Track progress

·       Assess client satisfaction

·       Identify strengths and weakness

·       Compare performance across and between projects

·       Asses specific areas of a project such as sustainability, safety, waste management

Can be used to track profitability for example:

·       Turnover by director / partner

·       Turnover by fee earners

·       Profit by fee earner

·       By using a chart to track these key performance data a summary can be esetablished comparing each of the figures against the budget values and also industry benchmarks

·       As this is a ratio analysis, it is most useful when viewed as part of a trend rather than an isolated value.  Each practice will develop its own preferences as to the KPI that best suits its circumstances and what it wants to monitor

Professional Obligations of Chartered Practice

RIBA Standards for Chartered Practices

·       Evidence and Compliance with Point 11 –

The Practice must undertake to make an annual return to the RIBA Benchmarking Survey

RIBA Code - Principle 3 – Competence

RIBA Guidance Note 2 and Guidance note 4

·       2.4 Members should ensure that they have or will have when needed the appropriate competence, skill and resources to meet the requirements of the work for which they are bidding

·       4.4 When accepting an appointment members should not undertake to provide services which they know, or ought to know, are beyond their competence or resources

ARB Code

Standard 3 – Honest Promotion of your Services

3.1 Promote your professional services only in a truthful and responsible manner

Standard 4 – Competent Management of Business

4.2 Ensure you are able to provide adequate professional, financial and technical recourses when entering a contact and through its duration

4.3 You should ensure that you are able to provide professional, financial and technical resources when entering into a contract and throughout its duration.  You should also, when appropriate, ensure you have sufficiently suitable qualified and supervised staff to provide an effective service to clients

Standard 7 – Trustworthiness and Safeguarding Clients Money

7.1 You are expected to keep proper records of all money held by you which belongs to a client or other third party and to account for it at all times