ARCH 572: ARCHITECTURAL PRACTICE II. Economics

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1 ARCH 572: ARCHITECTURAL PRACTICE II Economics 01

2 AGENDA FOR TODAY ARCHITECTURAL ENTREPRENEURSHIP ENTREPRENEURIAL PRACTICE FINANCIAL SET-UP ARCHITECTURAL FINANCES ACCOUNTING QUESTIONS 02

3 ARCHITECTURAL ENTREPRENEURSHIP How does one start a firm? 03

4 ARCHITECTURAL ENTREPRENEURSHIP 81% of architectural firms have fewer than five (5) members. These firms employ over one-quarter of all architectural staff AIA Survey, The Architect s Handbook of Professional Practice 04

5 ARCHITECTURAL ENTREPRENEURSHIP Start-up and small firm new economic factors 1- Infrastructure - Technology - BIM 05

6 ARCHITECTURAL ENTREPRENEURSHIP Start-up and small firm new economic factors 1- Infrastructure - Technology - BIM 2- Collaboration - Expert Consultants - Contract Production Staff - Value Collaborators 06

7 ARCHITECTURAL ENTREPRENEURSHIP Start-up and small firm new economic factors: 1- Infrastructure - Technology - BIM 2- Collaboration - Expert Consultants - Contract Production Staff - Value Collaborators 3- Global Practice - Advances in production technologies and telecommunications - A variety of scales of firms can compete 07

8 FINANCIAL SET-UP Start-up Business Plan 1- Legal Requirements - Structure of the firm (sole proprietorship, partnership, corporation, llc, llp) 08

9 FINANCIAL SET-UP Start-up Business Plan - Legal Requirements - Structure of the firm (sole proprietorship, partnership, corporation, llc, llp) - Selecting and setting up an accounting system 09

10 FINANCIAL SET-UP Start-up Business Plan - Legal Requirements - Structure of the firm (sole proprietorship, partnership, corporation, llc, llp) - Selecting and setting up an accounting system - Establishing tax identification and filing status based on legal structure 10

11 FINANCIAL SET-UP Start-up Business Plan - Legal Requirements - Structure of the firm (sole proprietorship, partnership, corporation, llc, llp) - Selecting and setting up an accounting system - Establishing tax identification and filing status based on legal structure - Establishing a bank account 11

12 FINANCIAL SET-UP Start-up Business Plan - Legal Requirements - Structure of the firm (sole proprietorship, partnership, corporation, llc, llp) - Selecting and setting up an accounting system - Establishing tax identification and filing status based on legal structure - Establishing a bank account - Engaging trusted professional advisers, including an accountant and attorney, if needed, to help set up legal structure or agreements 12

13 FINANCIAL SET-UP Start-up Business Plan - Legal Requirements - Structure of the firm (sole proprietorship, partnership, corporation, llc, llp) - Selecting and setting up an accounting system - Establishing tax identification and filing status based on legal structure - Establishing a bank account - Engaging trusted professional advisers, including an accountant and attorney, if needed, to help set up legal structure or agreements - Acquiring start-up funding from outside sources, if necessary 13

14 FINANCIAL SET-UP 14

15 FINANCIAL SET-UP Financial Resources 1 - Small Business Administration (SBA) Loan - 7(a) Loan Program - MicroLoan Program 15

16 FINANCIAL SET-UP Financial Resources 1 - Small Business Administration (SBA) Loan - 7(a) Loan Program - MicroLoan Program 2- Firms without a credit history - Personal funding and loans through credit cards, personal loans, vendors and supplier loans 16

17 FINANCIAL SET-UP Financial Resources 1 - Small Business Administration (SBA) Loan - 7(a) Loan Program - MicroLoan Program 2- Firms without a credit history - Personal funding and loans through credit cards, personal loans, vendors and supplier loans 3- Securing investors through - Funding spin-offs - Partnership Agreements 17

18 FINANCIAL SET-UP Financial Resources 1 - Small Business Administration (SBA) Loan - 7(a) Loan Program - MicroLoan Program 2- Firms without a credit history - Personal funding and loans through credit cards, personal loans, vendors and supplier loans 3- Securing investors through - Funding spin-offs - Partnership Agreements 4- Secure grant funding through - Not-for-profit organization status - Microfinancing or crowd funding - Arcbazar - Kickstarter, GoFundMe, Indiegogo - +Pool 18

19 FINANCIAL SET-UP 19

20 ARCHITECTURAL FINANCES Financial Management - versus - Cost Estimating 20

21 ARCHITECTURAL FINANCES Financial Management - versus - Cost Estimating 1- Cost Estimating: - cost to design and construct a building design - internal systems needed for a project s operation - cost of each component of the design 21

22 ARCHITECTURAL FINANCES Financial Management - versus - Cost Estimating 1- Cost Estimating: - cost to design and construct a building design - internal systems needed for a project s operation - cost of each component of the design 22

23 ARCHITECTURAL FINANCES Financial Management - versus - Cost Estimating 1- Cost Estimating: - cost to design and construct a building design - internal systems needed for a project s operation - cost of each component of the design 2- Financial Evaluation: - costs related to a series of financial variables to determine the anticipated financial outcome of a project - considers estimated project construction costs and anticipated cash flow 23

24 ARCHITECTURAL FINANCES Financial Management - versus - Cost Estimating 1- Cost Estimating: - requires the architect be familiar with - building material & labor costs - local market trends - inflation during the project 24

25 ARCHITECTURAL FINANCES Financial Management - versus - Cost Estimating 1- Cost Estimating: - requires the architect be familiar with - building material & labor costs - local market trends - inflation during the project 2- Financial Evaluation: - requires the architect be familiar with - economic markets - financing costs - leasing rates - occupancy costs - sales costs of similar projects 25

26 ARCHITECTURAL FINANCES Financial Management - versus - Cost Estimating 1- Cost Estimating: - concludes when construction is complete 26

27 ARCHITECTURAL FINANCES Financial Management - versus - Cost Estimating 1- Cost Estimating: - concludes when construction is complete 2- Financial Evaluation: - continues after completion of construction - better positions the project - local real estate market - improve financial performance 27

28 ARCHITECTURAL FINANCES Capital Costs (Financial Evaluation) SITE COSTS HARD COSTS SOFT COSTS Land Building Interiors Development Costs - land cost - commission & fees - title insurance - transfer taxes - surveys - demolition - sitework - foundations - structure - enclosure - interior finishes - conveying - HVAC & plumbing - electrical - tenant work - artwork - furniture, fixtures, & equipment - telephone & data communications system - design fees - management fees - legal fees - taxes & levies - insurance - owner s administration - leasing commissions - interim finance -moving costs 28

29 ACCOUNTING Accounting allows for an accurate picture of a firm s finances - Income - money coming in - Expenses - money going out - Income & Expenses Statement or Profit & Loss Statement (P&L) - a historical or projected account of the flow between income and expenses a.k.a. profit and loss 29

30 ACCOUNTING Accounting allows for an accurate picture of a firm s finances - Income - money coming in - Expenses - money going out - Income & Expenses Statement or Profit & Loss Statement (P&L) - a historical or projected account of the flow between income and expenses a.k.a. profit and loss - Accrual basis - accounting when obligations occur - Cash basis - accounting when actual transactions occur 30

31 ACCOUNTING Accounting allows for an accurate picture of a firm s finances - Income - money coming in - Expenses - money going out - Income & Expenses Statement or Profit & Loss Statement (P&L) - a historical or projected account of the flow between income and expenses a.k.a. profit and loss - Accrual basis - accounting when obligations occur - Cash basis - accounting when actual transactions occur - Asset and Liability Statement - A snapshot of a firm s finances at a given moment - Assets - cash in bank accounts, accounts receivable, value of equipment, real estate holdings - Liabilities - taxes, salaries, consultants, suppliers, accounts payable, loans -NET WORTH is the difference between Assets and Liabilities 31

32 ARCHITECTURAL ENTREPRENEURSHIP Questions? 32

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