Did you know the Swiss-French architect Le Corbusier went solo when he was 25 years old?
Sir Norman Foster – a North West of England lad, from Stockport – was 28 when he co-founded his first practice in 1963.
Zaha Hadid, whose temporary Bach concert hall in Manchester blew everyone’s minds in 2009, was just 30 when she set up her own firm, bearing her own name.
I could go on but you get the idea: wanting to strike out on your own is only natural if you’re bright and ambitious.
And that’s true whether you’re an accountant or an architect. I learned a lot working for other people but at a certain point, I needed my own firm so I could really start doing things my own way, working with the kinds of clients I find most interesting.
If you’re creative, I guess you feel that even more strongly – you want to express your own style and get credit for your best work.
At the same time, when you decide to set up a practice of your own, you’re letting go of the safety cable. You get the acclaim, but you also bear the risks and responsibilities.
That’s why it’s important to think hard about structures, systems and processes before you make the leap. The better your business startup planning, the more chance your new architectural practice will have to thrive.
Business structures
How you structure your architecture business will affect your legal liability and the amount of tax you pay.
You might choose to keep things simple and operate as a sole trader. This gives you a lot of freedom, you don’t have to do as much reporting to the Government and, contrary to what some people might tell you, you can even employ people.
On the downside, you’ll be personally liable if the practice gets into trouble financially or legally. It’s also generally less tax-efficient – though of course it’s different in every case.
Another business structure very common in architecture is the partnership, whether it’s former colleagues banding together, married couples or simply individuals drawn together by a common approach to their work.
In practice, a partnership is very similar to a sole trader setup except that the burden is borne by at least two people, not just one. Tempting as it might be to keep it informal, I’d really strongly recommend getting everything pinned down in legally-binding contracts – even if your partner is your best friend or partner. (In fact, especially if that’s the case.)
A limited company is the structure most people think of when they consider setting up a business. When you incorporate, you get a whole load of new statutory obligations, from corporation tax returns to filing accounts with Companies House.
At the same time, you also get some protection if the business begins to struggle because your personal assets aren’t treated as belonging to the business, unlike with a sole trader setup. There are also lots more opportunities to claim tax reliefs and to draw income from the business in ways which minimise the tax you pay.
Finally, an increasingly popular option for architects is a hybrid model that the Government passed into law about 20 years ago: the limited liability partnership, or LLP. It was the result of lobbying by professionals who were fed up of being taken to court and held personally responsible for work they’d undertaken.
Under an LLP, you operate much like a sole trader or traditional partnership, and pay income tax as a private individual; but you also have to register and file accounts with Companies House, and have some of the protection you’d get if you set up a limited company.
This is the kind of thing I advise clients on all the time, talking through their situation to help them make the right decision for them.
Who’s going to manage your money?
One of the benefits of working in someone else’s practice is that you don’t often have to worry about the state of the business’s finances. When you’re the boss, you don’t think about much else.
That’s why it’s important to put proper processes in place from day one. They’re like a safety net or foundation that give you the freedom to focus on the aspects of the work that get you most excited.
As a bare minimum, you need to decide who is going to manage your bookkeeping, payroll, tax returns and accounts.
You might decide to do it yourself but, obviously, I feel about that the way you might feel if you heard I was working on plans for my own house – it’s inefficient, unnecessarily stressful and the finished results probably won’t be sound.
Alternatively, you could hire a bookkeeper, accounts manager or finance director, or maybe all three. It’s relatively expensive – pensions, national insurance, office space, and so on – but you will get dedicated expertise on tap from people who know your business well.
Or you could outsource it to a firm like Alchemy. This is a good choice if you want to keep your business lean and your options open. I’d certainly say that in your early days, when you’re getting established and need to be agile, it’s the best way to go.
Financial systems
When it comes to the technical side of things, the obvious way to go in 2020 is with cloud accounting packages.
For smaller businesses, I tend to recommend FreeAgent, while Xero is best for growing firms. They’re both great, though, and getting these properly embedded from week one will get your new practice off to a flying start.
They’re easy to use. They run on phones, tablets, desktop computers or wherever you need them to. And both are equipped to work within a project accounting environment, enabling you and your colleagues to manage budgets on the go.
Talk to us about starting up your new architecture practice.