MANAGEMENT FOR DESIGN WINTER RELEASE 2019
The Importance of Cash Flow Forecasting Often, when Management for Design asks business leaders if they control their cash flow, we hear a resounding “yes!” But when asked how they do it—the response is usually a more tentative “well... we check the bank account every day.” This is not an effective cash flow management strategy! Firstly, your bank account is a historical record of the comings and goings of your money. Unless you have a proper plan in place for how you are generating money and how it will be spent, simply reviewing the bank balance daily will not make it grow! One of the most important tools in business is a cash flow forecast. Would you ever sit in a car, put a blindfold on, and then start driving? That’s what managing a business is like, if you don’t have a cash flow forecast in place. Three things to set you up for success 1. Know how to differentiate between profit and cash 2. Create a cash flow management system, including a safety bank balance 3. Review and manage your cash flow regularly Know how to differentiate between profit and cash Firstly, profit and cash are different. Profit is a measure derived from income (revenue) less expenses and is reported in your income statement. Cash is simply the money you have in your bank account. Each business transaction will affect your profit and cash in different ways—and at differing times. Paying tax, purchasing computers and equipment, waiting on debtors to make a payment, or the creditors you haven’t paid yet affect your profit and cash position differently. Most of the time, the effect on your cash position can be delayed and occur after the change in your profit position. So, which one’s more important? Profit or cash? The answer is actually more complicated—and the two are interrelated. As your business develops, the more you will probably need to invest in systems, equipment, additional people, and premises—all of which require cash. In most cases, you’re investing this cash before you earn any additional profit, so to make more profit or grow your business, you will require more cash. Of course, you can also borrow it or receive it from shareholders or investors, but the point is, to understand how cash and profit impact each other. In saying this, the age-old saying “cash is king” usually prevails. There have been plenty of profitable businesses that were forced to close down because they ran out of cash. Having a loss on your Profit & Loss statement (P&L) doesn’t mean you’ll go out of business, running out of cash is much harder to recover from.
Looking at just one of these metrics (profit and cash) doesn’t tell you the whole story. Just because you had a profitable month doesn’t mean you had a positive cash flow month. Similarly, just because you have cash in the bank doesn’t mean your business is performing well. That’s why cash flow and a P&L must be looked at together. Create a cash forecasting system Cash can be your single most important asset, it’s the lifeblood of your business. You need a cash system that allows you to forecast, as accurately as possible, your cash in and cash out. This may start as a monthly forecast, but depending on your needs, it could turn into a weekly or even daily system. The point is, you need a cash forecasting system. Starting with historical numbers, you can build out your first cash forecast using either a cash management system or simply MS Excel. The first time you create your forecast, everything is based on historical numbers and future assumptions. Each month that passes is going to tell you something about the accuracy of those assumptions and give you the opportunity to assess and revise. Ask yourself the following: • What was inaccurate about your assumptions? • Was this a “one-time thing”? • How can you refine your forecast based on the actuals that just happened? A cash flow forecast, coupled with your P&L, gives you an accurate picture of the financial position of your business and where it is heading. Most importantly, it gives you the knowledge to make more informed strategic decisions. If you don’t have the capability or capacity to create cash flow forecasts, work with an experienced accountant to create them for you.
Review and Manage With a cash flow forecast, you can see which months of the year you can expect to face a cash deficit and which months you’ll see surpluses. This information can assist you to hold over funds from surplus months to cover deficit months. It can also give you insights into your business when you compare forecasts to the actual figures. Not only can a cash flow forecast help you to even out your cash flow, but it can also help you to make important decisions, such as when to make a capital purchase and when to reduce expenses moving forward. By reducing sporadic cash flow and maintaining a healthy equilibrium, your business can enjoy the benefits of increased stability. So, what are the steps you can take in your business, to prevent you from running out of cash? 1. Ensuring enough cash reserves in your business to cover 2-4 months of expenses (this will depend on your risk profile) 2. A cash plan and forecast that you use to make informed business decisions 3. A clear understanding of the difference between profit and cash Management For Design adds certainty to business decisions by combining your strategic goals and hard data. We uncover the fundamentals of your business, identify areas for improvement and enable sound, evidence-based decisions, to move your business and projects forward confidently with fewer surprises. For more information, contact Gordana Milosevska on gmilosevska@m4d.com.au.
Managed Technology Solutions That Deliver Superior Results Management for Design has significantly developed our technology services through partnering closely with industry-leading architects, engineers, and designers. We are now the only AEC industry specialist technology provider that can provide you proven technology solutions specifically tailored to your business requirements.
Licensing From Autodesk to Adobe, Microsoft or M-Files—we take the work out of software licensing. By optimising types and numbers of licenses, we provide the best pricing and predictable billing, enabling you to focus on successful projects. Procurement We select, configure, install, and maintain devices that enable you to get the job done. We’re specialists in the AEC industry and understand how to outfit your team with the most suitable hardware, for each of their specialised roles. IT Managed Services We provide your team with superlative support. Through remote access or on-site expertise, our skilled technicians will help and assist you with all of your technology needs.
Strategic Consulting As experts in the AEC industry, we can help you plan for, and achieve, technological superiority in your business. Whether that’s through improved processes, work-flows, BIM readiness, or emergent technology, we’ll put you at the forefront of your industry.
Through integrated systems, expert people, and effective decision making, we maximise your potential and free up your time, allowing you to focus on what you do best—building your business and creating great design. To discuss how we can transform the technology in your practice and assist you to achieve superior results for your projects, contact Dinesh Rajalingam, Technology and Innovation Director, here.
Get More Out of Deltek Management for Design provides strategic, financial, technology, and business management services that maximise the potential of architects, designers, planners, engineers, and other design professionals. Maximising your business potential is a combination of strategy, systems, and people—interwoven, they enable you to build your business and produce great work. However, there’s often a disconnect that prevents you from realising the benefits of the investment you’ve made in your systems. What’s going wrong and what can you do about it?
Enhanced Deltek Support With over 10 years of experience helping architects, engineers, consultants, and other design professionals, we understand how to optimise your software, for your project and business success. Behavioural Change Our skilled team are experts in helping businesses to streamline and improve their operations, by combining the power of business systems and behavioural change.
System Reviews Your software is only a tool. In the competitive business environment that most architectural, engineering, and other design firms operate in, it’s important than ever that your systems are right for your business, work effectively, and are embraced by your whole team. Bespoke Deltek Development We can assist you to identify, develop, and implement custom Deltek functionality to enhance the software. M4D are specialists in the AEC industry and understand how to outfit your team with the best systems, for each of their specialised roles. Through integrated systems, expert people, and effective decision making, we maximise your potential and free up your time, allowing you to focus on what you do best—building your business and creating great design.
To talk about how we can help to optimise the systems in your practice and assist you to achieve superior results for your projects, click here to email Callum Bruce, our Business Systems Director.
Your Business is Only as Solid as Your Financials What Drives Profitability? There’s a number of factors that drive profitability for Architects, Engineers and Design (AED) businesses—particularly in today’s competitive environment. Even so, many businesses have set record profit levels in the past several years. How have they achieved this? Firstly, they have not spread their attention across the many components of the business that may affect performance. And secondly; they have had a clear and concise focus on the Financial Management of their businesses. Though notably, more pragmatic challenges in the existing environment can make this key area of any business difficult to address. The Financial Management Challenge Many AED businesses build their own systems or adapt to what they have been exposed to in the past. It’s rare for the leaders to be exposed to great business and financial management before establishing their own businesses. Not only that, we are in an environment of reducing fees for service. It’s goes without saying that winning work with low fees places significant pressure on profitability, quality, and cash flows—and ultimately on the “brand”. As a consequence, strong and effective financial control and management systems are becoming increasingly important. The ability to understand a company from financial statements is one of the primary differences between small and large businesses. Where and how will you attain this capability?
Where to Focus? You might feel that your finances are complicated and confusing, but the following should help you gain control of them. 1. Have a clear strategic direction Your strategic objectives will articulate where you currently are and where you would like to go, in the next few years. It should detail how you will finance your business and look ahead 3-4 years, with deliverable outcomes for the next 12 months and 90 days. It should be concise with definitive time-frames, yet flexible. Leadership needs to drive the process and it goes without saying that it should be exciting. 2. Know your financial position You should regularly monitor the progress of your business. On a daily basis, you should know how much money you have in the bank, how many invoices are currently waiting to be paid, and how many projects you have in the pipeline. You should also review your position against the targets set in your financial plan on a monthly basis. 3. Ensure clients pay you on time Businesses can run into major problems because of late client payments. To reduce the risk of late or non-payment, you should make your credit terms and conditions obvious from the outset. You should also quickly issue invoices that are clear and accurate. Using a sophisticated credit management system will help you to keep track of clients’ accounts. 4. Know your day-to-day costs Managing costs is a critical element of success. Even the most profitable companies can face difficulties if there isn’t enough cash to cover day-to-day costs—such as rent and wages. You should be aware of the minimum amount of cash your business needs to survive and ensure you do not go below this – increasing competition has put pressure on the pricing models of even the most established businesses. 5. Keep up-to-date accounting records If your accounts are not kept up-to-date, you could risk losing money by failing to keep up with late client payments or not realising when you have to pay your suppliers. Using a good record keeping system will help you to track expenses, debts and creditors, apply for additional funding, and to save time and accountancy costs. 6. Meet tax deadlines Failing to meet deadlines for filing tax returns and payments can incur fines and interest. These are unnecessary costs that can be avoided with some forwardplanning. Keeping accurate records saves your business time and money, and you can be confident that you’re only paying the tax you owe. Therefore, it’s important that you meet your obligations.
7. Become more efficient and control overheads Is your business operating at its most efficient? For example, cutting the cost of your internet, phone, or software licensing, through more competitive billing, optimising the number of user accounts required, or doing away with software and equipment that’s not essential, can save your business money and allow it to operate more efficiently. 8. Get the right funding It is essential that you choose the right type of funding for your business. Each type of funding is designed to meet different needs. Smaller businesses usually rely more on business overdrafts and personal funding, but this might not be the best kind of funding for your company.
9. Seek professional advice It is always very stressful facing financial problems as a business, but there is help and advice available to help you tackle them before they get too large to handle, so seek professional advice as soon as possible. There are also some initial steps you can take to minimise the impact, such as tackling priority debts first and assessing how you can improve your cash flow management. How Financial Management & Reporting Drives Consistent Profitability An effective solution—streamline financial management by unifying disconnected processes and fragmented information into a common, shared environment—a single source of truth. For decision makers at all levels, such solutions present a current view of clients, workload, resources, and finances to better manage budgets, create and consolidate reports, and look for trends and relationships in all parts of the business.
A unified business solution is ideal for exposing the consequences that can be wreaked from the numerous small and seemingly disconnected decisions that are made by the leaders. Clients now require complex and time-consuming project reporting and financial accounting. Though critically important for client relations and compliance, this non-billable work does represent an opportunity cost. Resources that are engaged in providing invoice transparency are not doing work that could otherwise be driving growth. Modern financial management solutions take care of this by placing controls on each project, enabling people to record billable time to the appropriate phase, task or cost-centre. Correct and client-acceptable invoices enable accounting teams to bill faster, reducing service-delivery cash cycles, while delivering a higher level of client satisfaction. Integrated financial reporting solutions provide consultancies with current, ondemand financial intelligence about their business operations, which help to manage risk and streamline operations. In turn, the efficiencies provide more time for senior managers and partners to focus on clients.
Conclusions Economic conditions are constantly changing and the factors that contribute to growth in all sectors are shifting. Profitability within the AED industry have historically been dependent on overall economic conditions. When the economy is booming, many businesses do so well they are too busy to implement solutions. And the economy slows, budget constraints usually forestall upgrading or implementing needed solutions. But that doesn’t need to make management queasy. Controlling the uncontrollable means businesses must smooth the jagged peaks and fill the deep valleys of an otherwise cyclical business. The only way to accomplish this is by truly optimising project and financial management capabilities. Only then will a AED business be able to profit consistently.
Management for Design’s New Website
We’re excited to announce the new Management for Design website is now live. On the site you can find more out about our services and areas of specialisation. You can also browse and read our full back catalogue of Business Journals and Seasonal Release articles. Additionally, you can learn about our client and strategic relationships, which we leverage to maximise the potential of architects, designers, engineers, planners and other creative professionals. To view our new website, please click here
Reading List Measure What Matters John Doerr Legendary venture capitalist John Doerr reveals how the goalsetting system of Objectives and Key Results (OKRs) has helped tech giants from Intel to Google achieve explosive growth—and how it can help any organization thrive.
The Infinite Game Simon Sinek A checkers match and the Super Bowl are finite games. Someone wins. Someone doesn’t. Business, by contrast, is a ceaseless endeavor in which playing field, players, and rules change constantly. Leaders require not just the resources but also the will to win such contests, organizational expert Sinek explains. Lean In: Women, Work, and the Will to Lead Sheryl Sandberg Written with humor and wisdom, Lean In is a revelatory, inspiring call to action and a blueprint for individual growth that will empower women around the world to achieve their full potential.
Building Confidence Report Building Ministers’ Forum This document outlines a roadmap for reforms, including target time-frames in each jurisdiction to implement recommendations. This approach acknowledges that implementation and timing will need to be tailored to varying regulatory systems. Read the full report here Future Practice Rory Hyde Seventeen conversations with practitioners from the fields of architecture, policy, activism, design, education, research, history, community engagement and more, each representing an emergent role for designers to occupy. Whether the “civic entrepreneur,” the “double agent,” or the “strategic designer,” this book offers a diverse spectrum of approaches to design, each offering a potential future for architectural practice.
