financial considerations
Sales forecasting:
We will be looking at the positive and negative value of the future performance of our finances, we will evaluate the problem and locate an alternative option that will enable us to avoid any financial loss.
Our sales forecast must be realistic and rather than being optimistic about the forecast we must approach it in a pessimistic manner so that we can be prepared for any problems and solve them beforehand/quickly as possible.
If a problem occurs we could for example cut the salaries of employees and cut the cost of energy used on the practice’s premises to help any financial loss.
Cash flow:
Cash flow is the movement of money into or out of our business. It is usually measured during a specified, limited period of time.
The (total) net cash flow of a company over a period, generally a quarter, half year, or a full year, is equal to the change in cash balance over this period. It is positive if the cash balance increases, meaning if more cash becomes available, and it is negative if the cash balance decreases. The total net cash flow is the sum of cash flows that are classified in three areas:
Another important factor is that we need to keep trading flow on a constant too. If we fall into overtrading it could have a negative implement on our business. We cannot take on too many projects at one time as we will have more cash going out than coming in, and if a project fails then it will be at our cost meaning we’d have a financial loss.
Start-up expenses:
These would usually be the paying of utilities, rent, deposits, etc. and as we are a new practice being set up we must set budget constraints for certain activities because there is not a steady form of income yet.
Capital costs:
Capital costs are fixed, one-time expenses incurred on the purchase, for example this will include stationary, furniture, computers, printers, etc. Basically, it is the total cost needed to bring the project to a commercially operable status.
Usually the government generally provides subsidies through investments and partnerships in the initial capital costs of research and manufacturing infrastructure that cannot be matched by investor-owned companies. Even so, we must not rely on this and again set budget constraints as we don’t have a steady income at the beginning of the step-up of the firm. Usually costs do not need to be paid straight away but could be spread over a certain amount of time.
Running/operating costs:
Operating costs are expenses which are related to the operation of our practice. They are the cost of resources used by our practice just to maintain its existence.
Our running costs will fall into two categories, fixed costs and variable costs. Fixed cost, which are basically the same whether the firm is in operation or closed and are paid at 100% capacity. For us this would be the rent. On the other hand, variable costs are those which include indirect overhead costs such as cell phone services, computer supplies, credit card processing/payment processing, electrical use, express mail, janitorial supplies, office products, payroll services, telecom, utilities, or Waste Disposal etc.
Again we must set budget constraints due to the fact that as a new practice we don’t have a steady income.
Contingency planning:
A contingency plan is a plan devised for an outcome other than in the expected plan. We will often use this for risk management when an exceptional risk that, though unlikely, would have catastrophic consequences.
For example, if we have a certain architectural project which is taking longer than expected and we are relying on this project for income then we may need to take a loan for another project to take place (regardless of the deposit we will receive to start the project).
Response to boom/downturn in investment:
Boom in cash investment is brilliant but we must use this wisely preferably not using most of it. But if there is a downturn in investment, of course this is disastrous but we would have to re-invest.
Marketing costs:
Due to our architectural firm being new we will require marketing to get our name/brand known to retailers/develop, etc. One of the ways to do this, is we must network. Currently our practice is part of the Nottingham & Derby Society of Architects and we will continue to join in exhibitions to show our work. Other ways include advertising and we currently hold rights to a shop property which we will use to advertise our brand.
Again as stated before due to us being a new practice and not yet having a steady source of income we must set budget constraints to ensure we don't overspend.
Another way of preventing overspending is to network through social network sites such as Facebook, Twitter, instagram, etc. which means we won't necessarily need to pay for networking through them.
Commerciality:
Commerciality is basically having the ability to produce a profit and our firm must be profitable, and of course even as a architectural firm we need to have this. To do this we must make sure that our firm keeps the costs for expenses, loans, etc. on a low and our sales figures need to be higher, so that we can have a higher gross margin.
We will be looking at the positive and negative value of the future performance of our finances, we will evaluate the problem and locate an alternative option that will enable us to avoid any financial loss.
Our sales forecast must be realistic and rather than being optimistic about the forecast we must approach it in a pessimistic manner so that we can be prepared for any problems and solve them beforehand/quickly as possible.
If a problem occurs we could for example cut the salaries of employees and cut the cost of energy used on the practice’s premises to help any financial loss.
Cash flow:
Cash flow is the movement of money into or out of our business. It is usually measured during a specified, limited period of time.
The (total) net cash flow of a company over a period, generally a quarter, half year, or a full year, is equal to the change in cash balance over this period. It is positive if the cash balance increases, meaning if more cash becomes available, and it is negative if the cash balance decreases. The total net cash flow is the sum of cash flows that are classified in three areas:
- Operational cash flow: cash received or expected
as a result of our practice’s business activities. This must be a net positive so the form can
remain solvent.
- Investment cash flow: cash received from sales
of long-life assets, or spent on capital expenditure (investments,
acquisitions, long-life assets).
- Financing cash flow: Cash received from the
issue of debt and equity, or paid out as dividends, share repurchases or debt
prepayments.
Another important factor is that we need to keep trading flow on a constant too. If we fall into overtrading it could have a negative implement on our business. We cannot take on too many projects at one time as we will have more cash going out than coming in, and if a project fails then it will be at our cost meaning we’d have a financial loss.
Start-up expenses:
These would usually be the paying of utilities, rent, deposits, etc. and as we are a new practice being set up we must set budget constraints for certain activities because there is not a steady form of income yet.
Capital costs:
Capital costs are fixed, one-time expenses incurred on the purchase, for example this will include stationary, furniture, computers, printers, etc. Basically, it is the total cost needed to bring the project to a commercially operable status.
Usually the government generally provides subsidies through investments and partnerships in the initial capital costs of research and manufacturing infrastructure that cannot be matched by investor-owned companies. Even so, we must not rely on this and again set budget constraints as we don’t have a steady income at the beginning of the step-up of the firm. Usually costs do not need to be paid straight away but could be spread over a certain amount of time.
Running/operating costs:
Operating costs are expenses which are related to the operation of our practice. They are the cost of resources used by our practice just to maintain its existence.
Our running costs will fall into two categories, fixed costs and variable costs. Fixed cost, which are basically the same whether the firm is in operation or closed and are paid at 100% capacity. For us this would be the rent. On the other hand, variable costs are those which include indirect overhead costs such as cell phone services, computer supplies, credit card processing/payment processing, electrical use, express mail, janitorial supplies, office products, payroll services, telecom, utilities, or Waste Disposal etc.
Again we must set budget constraints due to the fact that as a new practice we don’t have a steady income.
Contingency planning:
A contingency plan is a plan devised for an outcome other than in the expected plan. We will often use this for risk management when an exceptional risk that, though unlikely, would have catastrophic consequences.
For example, if we have a certain architectural project which is taking longer than expected and we are relying on this project for income then we may need to take a loan for another project to take place (regardless of the deposit we will receive to start the project).
Response to boom/downturn in investment:
Boom in cash investment is brilliant but we must use this wisely preferably not using most of it. But if there is a downturn in investment, of course this is disastrous but we would have to re-invest.
Marketing costs:
Due to our architectural firm being new we will require marketing to get our name/brand known to retailers/develop, etc. One of the ways to do this, is we must network. Currently our practice is part of the Nottingham & Derby Society of Architects and we will continue to join in exhibitions to show our work. Other ways include advertising and we currently hold rights to a shop property which we will use to advertise our brand.
Again as stated before due to us being a new practice and not yet having a steady source of income we must set budget constraints to ensure we don't overspend.
Another way of preventing overspending is to network through social network sites such as Facebook, Twitter, instagram, etc. which means we won't necessarily need to pay for networking through them.
Commerciality:
Commerciality is basically having the ability to produce a profit and our firm must be profitable, and of course even as a architectural firm we need to have this. To do this we must make sure that our firm keeps the costs for expenses, loans, etc. on a low and our sales figures need to be higher, so that we can have a higher gross margin.