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Architecture Firm Business Plan for Starting Your Business
Do you want to start an architectural firm? An architecture firm provides interior and exterior designing services varying from small works like designing a room, to larger projects such as designing a complex structure. Whereas, several tasks can also require expertise in the latest architectural software.
So, if you have decided to enter this venture, you are required to make a business plan for architecture firm. By doing so you can avoid certain problems that can come up with the initiation.
In case you are confused about how to start an architecture business, read the following sample business plan for a startup named, Michael Architects, based in New York.
Executive Summary
To give you a summarized view on how to start a business architecture and take the decisions appropriately we are sharing details about Michael Architects startup. So, if you want to know how to run an architecture firm efficiently, you can get a lot of help from here.
2.1 The Business
Michael Architects will be a registered and insured architectural firm based in Buffalo, New York. The company will work for improving and enhancing the structures and communities in which we live – utilizing proper technical approach to plan and design big and small structures
2.2 Management of Architectural Firm
Michael Architects will be owned by Michael Craig. Craig will be managing the firm by himself. Craig wants to use his skills to run his business as he acknowledges that starting an architectural firm is a much easier task than running it.
2.3 Customers of Architectural Firm
Target customers of Michael Architects will be the homeowners, government agencies, construction company business, and contractors. Knowing the importance of marketing for architectural firms to attract the desired community, our company will be taking effective steps to attract these target groups.
2.4 Business Target
Before you even think about how to start an architecture firm, set your goals for your business as it can help you a lot in taking major decisions.
Michael Architects aims at providing the best experience to both its customers and workers. Moreover, becoming a renowned company and recovering the investments within one year of the launch is the company’s main goal.
Company Summary
3.1 Company Owner
Michael Craig will be the owner of Michael Architects. Craig has an MBA degree from Stanford University. Besides just a degree, Craig has exceptional managing skills along with 6-year experience of working as a manager in a famous architecture agency, Perkins and Will.
3.2 Why the Architectural Firm Business is being started
Based on his experience in an architectural firm, Craig had realized that the architecture business is a business which had a never-ending scope. From the small task of deigning a corridor – to a larger one such as planning a road, people will always need the services of architects.
So, to invest his and his employee’s energies into a work that the world needed frequently and to make a profit in this domain, Craig had decided to start a business in the architecture domain.
3.3 How the Architectural Firm Business will be started
A building owned by Craig himself in Buffalo, a city of New York, was supposed to be interiorly decorated and designed to convert it to an extremely beautiful artifact. The building will serve as a sample to attract target customers. Moreover, Craig has decided to hire the required crew 2 months before the launch so that he could get the work of engineering his firm’s building done by the professionals of his own company.
Michael Architects will be financed by the owner himself. The firm will be ensuring a strong web presence to show its work and expertise to a wider audience. Moreover, effective steps will be taken to make an influential architecture marketing plan.
The detailed start-up information is given below:
| Start-up Expenses | ||
| Legal | $143 200 | |
| Consultants | $0 | |
| Insurance | $54 000 | |
| Rent | $54 000 | |
| Research and Development | $32 000 | |
| Expensed Equipment | $35 000 | |
| Signs | $5 300 | |
| TOTAL START-UP EXPENSES | $323 500 | |
| Start-up Assets | $322 000 | |
| Cash Required | $344 000 | |
| Start-up Inventory | $54 000 | |
| Other Current Assets | $376 000 | |
| Long-term Assets | $412 000 | |
| TOTAL ASSETS | $1 508 000 | |
| Total Requirements | $1 831 500 | |
| START-UP FUNDING | ||
| Start-up Expenses to Fund | $310 000 | |
| Start-up Assets to Fund | $1 342 000 | |
| TOTAL FUNDING REQUIRED | $1 652 000 | |
| Assets | ||
| Non-cash Assets from Start-up | $653 000 | |
| Cash Requirements from Start-up | $423 000 | |
| Additional Cash Raised | $38 000 | |
| Cash Balance on Starting Date | $42 000 | |
| TOTAL ASSETS | $1 156 000 | |
| Liabilities and Capital | ||
| Liabilities | $37 000 | |
| Current Borrowing | $0 | |
| Long-term Liabilities | $0 | |
| Accounts Payable (Outstanding Bills) | $46 000 | |
| Other Current Liabilities (interest-free) | $0 | |
| TOTAL LIABILITIES | $83 000 | |
| Capital | ||
| Planned Investment | $1 652 000 | |
| Investor 1 | $0 | |
| Investor 2 | $0 | |
| Other | $0 | |
| Additional Investment Requirement | $0 | |
| TOTAL PLANNED INVESTMENT | $1 652 000 | |
| Loss at Start-up (Start-up Expenses) | ($579 000) | |
| TOTAL CAPITAL | $1 073 000 | |
| TOTAL CAPITAL AND LIABILITIES | $1 156 000 | |
| Total Funding | $1 652 000 | |
Services for Customers
Before starting your own architectural practice, it is essential to know how does an architecture firm work. Deciding your services even before the launch can help you in exploring the ways through which you can facilitate your customers. Moreover, it can help you in devising an effective architecture marketing plan for marketing architectural services.
To give you a notion of services that an architectural firm provide, we are enlisting some from the plan of Michael Architects.
- Interior Design: Our architects will be using their brainstorming ideas to add beauty and value to your roofs, floors, doors, windows, corridors any other space interior design business to your building.
- Restoration of old buildings: Our workers will repair the defects and will do more than just ‘restoration’. We know which antique structures, doors, and windows have to be replaced to modernize your existing property.
- Modern Architecture Design: We will be using innovative techniques to design your buildings according to the modern world. Using the high-quality glass, steel, wood and reinforced concrete we can give your property a view that you had only imagined.
- Landscape Designing: To give your property a complete, natural, look, our architects will be working on any outdoor area. Our workers can transform any piece of land for environmental or aesthetic purposes.
Note
Along with these services, we will also open a small store for selling pet-related products like shampoos, foods, medicines, ties, chains, and clothes for the dogs.
Marketing Analysis of Architecture Firm Business
A common component of all successful business plans for architects is an accurate marketing analysis. Analyzing your market before the actual launch can help you in making major decisions such as what quality you will have to provide to your customers to make them come again – and which sort of architectural design ideas you have to offer to keep pace with the demands of your community.
Though for a fresh architecture startup, it is hard to recognize the things which must be noticed to analyze the market properly. So, to give you an idea about which things should be under your vigilant observation, we are providing a detailed sample of the marketing plan of Michael Architects.
5.1 Market Trends
According to a report by IBISWorld, more than 71 thousand architecture firms are currently operating in the United States. The outlet also revealed the exact stats showing the revenue generated by architecture firms on an annual basis in the United States this year – which is $46 billion. The amount is no doubt, more than that anybody could expect because this is the sort of business which can earn great profit even from a single project if done properly
Though more than 233 thousand people are servicing in architectural firms, there is still demand for many. IBISWorld has reported a 4.1 percent growth rate in the business of architecture firms this year, which means more people can still enter the domain. These satisfying stats and figures demonstrate that one cannot be at a loss if they prepare well before starting their firm.
Operational and Strategic Planning
5.2 Marketing Segmentation
As an entrepreneur the biggest question on your mind would be, how to find architecture clients? It can easily be figured out by you, yourself if you divide the wide range of people into three and four groups. Such segmentation will help you to recognize their demands and devising your marketing strategy according to them.
The groups which can become our potential customers are:
The detailed marketing segmentation comprising the company’s target audience is as follows:
5.2.1 Real Estate Owners
The people who own any sort of building for public and personal use will be our topmost target. Such as a person running a restaurant will need our constant services to make their place attractive for their customers. Several homeowners also require architecture firm services for implementing a new staircase or installing modern flooring.
5.2.2 Contractors & Construction Companies
The second group of our target customers will comprise of the construction companies and contractors who will need our services whenever they get some project. A constructor just builds the idea of an architect, so in collaboration with our architecture firm they can build the designs which can amaze everyone.
5.2.3 Government Agencies
To maintain and preserve the art in old historic buildings, government agencies will be needing our services of restoration. Moreover, our services will be a permanent requirement for them to keep the city’s structures appearing as maintained architecture models.
The detailed market analysis of our potential customers is given in the following table:
| Market Analysis | |||||||
| Potential Customers | Growth | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
| Real Estate Owners | 36% | 13 491 | 15 746 | 19 533 | 22 119 | 24 243 | 12,43% |
| Contractors & Construction Companies | 42% | 26 354 | 38 166 | 51 525 | 62 002 | 78 390 | 12,00% |
| Government Agencies | 22% | 15 183 | 17 031 | 18 879 | 20 727 | 22 575 | 13,32% |
| Total | 100% | 55 028 | 70 943 | 89 936 | 104 848 | 125 207 | 10% |
5.3 Business Target
Michael Architects aims at providing the best services to its customers and the best environment for its workers. Within the next three years, we want to be a renowned figure in the world of architecture firms.
Our financial goals are:
- To balance the startup costs with earned profits by the end of the first year
- To get the net profit margin of $10k per month by the end of the first year, $15k per month by the end of the second year, and $25k per month by the end of the third year
5.4 Product Pricing
Although the market demands for new architecture firms is high, we still have priced our services low for the first eight months of our launch. Our pricing will also be used as a tactic for marketing architecture firm and it will also be helping our startup to get introduced to the people who can become our potential clients in future.
Architecture Marketing Strategy
If you are passionate for creating an architecture firm, the part you must focus on is the sales strategy. In define a strategic plan, you have to look up for architectural marketing ideas and decide which would suit your startup the most.
From this sample business development plan for an architecture firm, you can get the idea of how others are publicizing their architectural services.
6.1 Competitive Analysis
Under the extensive experience of our staff and architects and managing skills of our firm owner, we will be ensuring top quality work even in limited resources.
Our workers are highly collaborative and will keep in touch with you during the project so that you can get exactly the work which you want. Moreover, using design software like AutoCAD, Revit, etc. we can give you a view before implementing your idea so that you can introduce any changes.
Lastly, our prices are extremely low in the first year providing a golden chance for you to try our services even if you require small works like modernizing a corridor or a balcony.
6.2 Sales Strategy
To get introduced to our target customers, we will:
- Keep our prices low in the first year
- Advertise our services through local newspapers, magazines, and social media
- Display various views of our own-designed firm as proof of our experience and skills
- Use SEO techniques to ensure a strong web presence
6.3 Sales Monthly
6.4 Sales Yearly
6.5 Sales Forecast
| Sales Forecast | |||
| Unit Sales | Year 1 | Year 2 | Year 3 |
| Interior design | 1 914 | 2 716 | 3 784 |
| Restoration of old buildings | 774 | 834 | 830 |
| Modern architecture design | 576 | 660 | 518 |
| Landscape designing | 440 | 522 | 756 |
| TOTAL UNIT SALES | 3 704 | 4 732 | 5 888 |
| Unit Prices | Year 1 | Year 2 | Year 3 |
| Interior design | $1 000,00 | $1 200,00 | $1 450,00 |
| Restoration of old buildings | $1 430,00 | $1 560,00 | $1 650,00 |
| Modern architecture design | $2 000,00 | $2 200,00 | $2 400,00 |
| Landscape designing | $1 200,00 | $1 300,00 | $1 400,00 |
| Sales | |||
| Interior design | $1 914 000,00 | $3 259 200,00 | $5 486 800,00 |
| Restoration of old buildings | $1 106 820,00 | $1 301 040,00 | $1 369 500,00 |
| Modern architecture design | $1 152 000,00 | $1 452 000,00 | $1 243 200,00 |
| Landscape designing | $528 000,00 | $678 600,00 | $1 058 400,00 |
| TOTAL SALES | $4 700 820,00 | $6 690 840,00 | $9 157 900,00 |
| Direct Unit Costs | Year 1 | Year 2 | Year 3 |
| Interior design | $750,00 | $1 050,00 | $1 100,00 |
| Restoration of old buildings | $860,00 | $1 050,00 | $1 150,00 |
| Modern architecture design | $950,00 | $1 200,00 | $1 250,00 |
| Landscape designing | $770,00 | $850,00 | $1 000,00 |
| Direct Cost of Sales | |||
| Interior design | $1 435 500,00 | $2 851 800,00 | $4 162 400,00 |
| Restoration of old buildings | $665 640,00 | $875 700,00 | $954 500,00 |
| Modern architecture design | $547 200,00 | $792 000,00 | $647 500,00 |
| Landscape designing | $338 800,00 | $443 700,00 | $756 000,00 |
| Subtotal Direct Cost of Sales | $2 987 140,00 | $4 963 200,00 | $6 520 400,00 |
Note
If you are thinking about how to set up an architectural practice which will not end up as a failure you must focus on the staff you hire.
Personnel plan
After all, it is the personnel that decided the future of a startup.
The same can be applied for if you are worrying about how to manage an architecture business because the construction management business can be effective only if you hire the right person for the right job.
7.1 Company Staff
Michael will be the owner and manager by himself, however, he will hire the following people:
- 1 Accountant to keep financial records
- 3 Architects to work on the projects
- 5 Field Employees to work as laborers
- 1 Technician to upkeep the machinery
- 1 Structure Engineer to help in providing sustainable solutions
- 2 Drivers for transportation works
- 1 IT Expert to manage the company’s online record, website and social sites
7.2 Average Salary of Employees
| Personnel Plan | |||
| Year 1 | Year 2 | Year 3 | |
| Accountant | $35 000 | $38 500 | $42 350 |
| Architects | $30 000 | $33 000 | $36 300 |
| Field Employees | $65 000 | $71 500 | $78 650 |
| Technician | $25 000 | $27 500 | $30 250 |
| Structure Engineer | $40 000 | $44 000 | $48 400 |
| Drivers | $30 500 | $33 550 | $36 905 |
| IT Experts | $29 500 | $32 450 | $35 695 |
| Total Salaries | $255 000 | $280 500 | $308 550 |
Financial Plan
The final part in developing your <strong>architecture firm business plan<strong> is to make a financial plan. A financial plan must cover the details about how much money will be spent by you in certain situations and on which portion of your startup you will be spending the most. It must also contain the details about your plans to balance your investments with the earned profits.
Though, Michael himself was a person of this domain, yet, he had decided to have this task done by a person who was a professional financial expert and had much more experience than him. The sample financial plan of Michael Architects is given here for help.
8.1 Important Assumptions
| General Assumptions | |||
| Year 1 | Year 2 | Year 3 | |
| Plan Month | 1 | 2 | 3 |
| Current Interest Rate | 9,00% | 10,00% | 11,00% |
| Long-term Interest Rate | 8,50% | 9,50% | 11,00% |
| Tax Rate | 27,43% | 28,54% | 29,65% |
| Other | 0 | 0 | 0 |
8.2 Brake-even Analysis
| Brake-Even Analysis | ||
| Monthly Units Break-even | 4300 | |
| Monthly Revenue Break-even | $165 030 | |
| Assumptions: | ||
| Average Per-Unit Revenue | $287,50 | |
| Average Per-Unit Variable Cost | $0,84 | |
| Estimated Monthly Fixed Cost | $189 950 | |
8.3 Projected Profit and Loss
| Pro Forma Profit And Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $4 700 820 | $6 690 840 | $9 157 900 |
| Direct Cost of Sales | $2 987 140 | $4 963 200 | $6 520 400 |
| Other | $0 | $0 | $0 |
| TOTAL COST OF SALES | $2 987 140 | $4 963 200 | $6 520 400 |
| Gross Margin | $1 713 680 | $1 727 640 | $2 637 500 |
| Gross Margin % | 36,45% | 25,82% | 28,80% |
| Expenses | |||
| Payroll | $255 000 | $280 500 | $308 550 |
| Sales and Marketing and Other Expenses | $90 000 | $105 000 | $145 000 |
| Depreciation | $2 300 | $2 540 | $2 750 |
| Leased Equipment | $0 | $0 | $0 |
| Utilities | $3 500 | $3 800 | $4 000 |
| Insurance | $2 000 | $2 200 | $2 400 |
| Rent | $4 800 | $5 000 | $5 400 |
| Payroll Taxes | $35 000 | $40 000 | $45 000 |
| Other | $0 | $0 | $0 |
| Total Operating Expenses | $392 600 | $439 040 | $513 100 |
| Profit Before Interest and Taxes | $1 321 080 | $1 288 600 | $2 124 400 |
| EBITDA | $1 321 080 | $1 288 600 | $2 124 400 |
| Interest Expense | $0 | $0 | $0 |
| Taxes Incurred | $264 216 | $257 720 | $424 880 |
| Net Profit | $1 056 864 | $1 030 880 | $1 699 520 |
| Net Profit/Sales | 22,48% | 15,41% | 18,56% |
8.3.1 Profit Monthly
8.3.2 Profit Yearly
8.3.3 Gross Margin Monthly
8.3.4 Gross Margin Yearly
8.4 Projected Cash Flow
| Pro Forma Cash Flow | |||
| Cash Received | Year 1 | Year 2 | Year 3 |
| Cash from Operations | |||
| Cash Sales | $45 000 | $50 210 | $54 390 |
| Cash from Receivables | $6 500 | $7 030 | $8 700 |
| SUBTOTAL CASH FROM OPERATIONS | $47 143 | $53 651 | $59 359 |
| Additional Cash Received | |||
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
| New Current Borrowing | $0 | $0 | $0 |
| New Other Liabilities (interest-free) | $0 | $0 | $0 |
| New Long-term Liabilities | $0 | $0 | $0 |
| Sales of Other Current Assets | $0 | $0 | $0 |
| Sales of Long-term Assets | $0 | $0 | $0 |
| New Investment Received | $0 | $0 | $0 |
| SUBTOTAL CASH RECEIVED | $47 143 | $53 651 | $55 359 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $33 200 | $35 000 | $36 500 |
| Bill Payments | $15 430 | $17 400 | $18 340 |
| SUBTOTAL SPENT ON OPERATIONS | $35 296 | $39 549 | $43 582 |
| Additional Cash Spent | |||
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $0 | $0 | $0 |
| Other Liabilities Principal Repayment | $0 | $0 | $0 |
| Long-term Liabilities Principal Repayment | $0 | $0 | $0 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| SUBTOTAL CASH SPENT | $35 296 | $35 489 | $43 882 |
| Net Cash Flow | $12 430 | $13 760 | $14 330 |
| Cash Balance | $20 550 | $21 550 | $25 640 |
8.5 Projected Balance Sheet
| Pro Forma Balance Sheet | |||
| Assets | Year 1 | Year 2 | Year 3 |
| Current Assets | |||
| Cash | $176 200 | $198 000 | $221 100 |
| Accounts Receivable | $15 400 | $17 600 | $19 800 |
| Inventory | $2 670 | $2 980 | $3 550 |
| Other Current Assets | $1 000 | $1 000 | $1 000 |
| TOTAL CURRENT ASSETS | $201 259 | $237 468 | $273 677 |
| Long-term Assets | |||
| Long-term Assets | $10 000 | $10 000 | $10 000 |
| Accumulated Depreciation | $12 350 | $13 760 | $14 860 |
| TOTAL LONG-TERM ASSETS | $980 | $610 | $240 |
| TOTAL ASSETS | $198 839 | $232 978 | $267 117 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $10 870 | $11 500 | $14 950 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| SUBTOTAL CURRENT LIABILITIES | $9 482 | $10 792 | $12 102 |
| Long-term Liabilities | $0 | $0 | $0 |
| TOTAL LIABILITIES | $9 482 | $10 792 | $12 102 |
| Paid-in Capital | $30 000 | $30 000 | $30 000 |
| Retained Earnings | $56 000 | $65 000 | $87 000 |
| Earnings | $112 300 | $134 000 | $156 000 |
| TOTAL CAPITAL | $189 360 | $222 190 | $255 020 |
| TOTAL LIABILITIES AND CAPITAL | $198 839 | $232 978 | $267 117 |
| Net Worth | $189 000 | $213 000 | $245 000 |
8.6 Business Ratios
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | INDUSTRY PROFILE | |
| Sales Growth | 5,65% | 5,65% | 6,43% | 3,00% |
| Percent of Total Assets | ||||
| Accounts Receivable | 6,43% | 7,54% | 8,54% | 9,70% |
| Inventory | 2,33% | 3,20% | 4,32% | 9,80% |
| Other Current Assets | 1,98% | 2,32% | 2,45% | 24,54% |
| Total Current Assets | 129,40% | 135,60% | 140,60% | 65,33% |
| Long-term Assets | -8,51% | -9,12% | -10,21% | 12,20% |
| TOTAL ASSETS | 100,00% | 100,00% | 100,00% | 100,00% |
| Current Liabilities | 3,75% | 3,98% | 4,23% | 24,30% |
| Long-term Liabilities | 0,00% | 0,00% | 0,00% | 28,30% |
| Total Liabilities | 4,86% | 3,86% | 5,42% | 45,30% |
| NET WORTH | 99,32% | 101,04% | 102,76% | 44,90% |
| Percent of Sales | ||||
| Sales | 100,00% | 100,00% | 100,00% | 100,00% |
| Gross Margin | 95,42% | 96,40% | 97,43% | 0,00% |
| Selling, General & Administrative Expenses | 86,20% | 87,64% | 89,30% | 76,40% |
| Advertising Expenses | 1,60% | 1,70% | 1,80% | 1,50% |
| Profit Before Interest and Taxes | 30,43% | 34,33% | 38,43% | 34,50% |
| Main Ratios | ||||
| Current | 32,32 | 34,54 | 36,54 | 2,3 |
| Quick | 29,43 | 30,53 | 32,32 | 0,76 |
| Total Debt to Total Assets | 2,68% | 1,04% | 0,76% | 56,32% |
| Pre-tax Return on Net Worth | 65,30% | 68,53% | 72,32% | 4,64% |
| Pre-tax Return on Assets | 67,42% | 63,32% | 76,32% | 9,87% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 20,32% | 29,32% | 32,23% | N.A. |
| Return on Equity | 56,32% | 57,32% | 58,32% | N.A. |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 4,54 | 5,32 | 6,4 | N.A. |
| Collection Days | 100 | 100 | 100 | N.A. |
| Inventory Turnover | 34,3 | 35,4 | 36,5 | N.A. |
| Accounts Payable Turnover | 12,31 | 13,41 | 14,32 | N.A. |
| Payment Days | 27 | 27 | 27 | N.A. |
| Total Asset Turnover | 2,3 | 2,4 | 2,5 | N.A. |
| Debt Ratios | ||||
| Debt to Net Worth | 0 | -0,02 | -0,03 | N.A. |
| Current Liab. to Liab. | 1 | 1 | 1 | N.A. |
| Liquidity Ratios | ||||
| Net Working Capital | $176 000 | $187 000 | $196 000 | N.A. |
| Interest Coverage | 0 | 0 | 0 | N.A. |
| Additional Ratios | ||||
| Assets to Sales | 0,56 | 0,67 | 0,76 | N.A. |
| Current Debt/Total Assets | 4% | 4% | 3% | N.A. |
| Acid Test | 24,31 | 26,64 | 28,32 | N.A. |
| Sales/Net Worth | 1,8 | 1,9 | 2 | N.A. |
| Dividend Payout | 0 | 0 | 0 | N.A. |
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