FINANCING YOUR BUSINESS
Like a farmer who needs to invest in a seed to grow a plant, businesses need to invest money before they can start picking up any winnings. This is the money that you need for renting an office space, registering your company, paying for electricity, buying office equipment, marketing, etc. These are the expenses that you need to incur in order to generate income in your firm.
This initial capital is called the SEED money.
Architects often consider that as their business is not as capital intensive as other industrial businesses, their knowledge of the field will be enough to start their own practice. Due to this reliance on only their technical knowledge, most architects begin their firms by applying their personal savings and do not do any prior financial planning. When the business rolls down, they frequently discover that there is not enough money to continue the day-to-day operations and face a panic situation.
Therefore, understanding your capital requirements before starting your firm is of crucial importance for building a sound and sustainable business.
From my experience, I suggest that you carefully plan following three types of capital needs:
Capital required prior to start-up (initial cap): For instance, the costs of registering your company, obtaining the licenses and permits, finding and setting up an office space, purchasing office equipment, etc.
The capital needed for ongoing operational activities (working capital): For instance, the costs of administration, marketing, operating your office equipment (such as computers, printers, etc.), employing and retaining staff members, paying for utilities (phones, electricity, internet /communications), etc.
Capital required to cover living expenses: If you are a one-person firm or a group of partners, calculating your personal expenses is critical. You do not want to execute a business because of which you experience difficulty paying your own household expenses. Carefully examine how much money you will need to maintain your lifestyle and make provision to acquire that money before starting your firm.
So, how much fund is enough? What are the expenses that you should consider? How can you predict the money you will need as your SEED money?
Now, different types of businesses need different ways of calculating their funding needs. I have created an easy-to-use template that a standard architectural firm can use. I encourage you to customize this template taking into account your own conditions and calculate your requirement for start-up funds.
If you wish to view or download this template, please visit: Calculating fund requirements for starting an architectural firm
Additionally, you can also refer to our resources about Business Planning for Architects and find a sample business plan in our E-Book which includes a financial plan showing you how you can identify your capital requirements.