The ArchVIZ BIZ – Growing a Studio : The Finance

We covered Art, Technology & Studio Culture so far, and now it’s time to talk about money. Growth and success can be expensive. Thankfully, there are things you can do to stay on top of your finances. There’s even free money available in most countries!

Leave the numbers to the professionals and focus on running your studio.

If you are a real pro with numbers and want to handle it, do it, but you probably have enough to worry about as it is! Hiring good talent costs money, but what you spend here will pay off a hundredfold.

So, who to hire?

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First off, hire a good bookkeeper and accountant, or have a person on your team dedicated to these functions.

I think that’s a given, but I’m always surprised by how many small businesses treat finances as an afterthought.

Too many business owners try to save money by doing these functions themselves. You have enough to worry about as it is. Leave the numbers to the professionals and focus on running your studio. The money you spend on these services will pay for itself over and over.

Secondly, hire an outside payroll administrator to manage your pay.

They will make sure both your team and the government get the right funds at the right time. Speaking of governments, I highly recommend you open a second bank account to stash away the taxes you collect in your fees. Resist the temptation to spend those funds (we have a REALLY hard time with this) or you could end up in some pretty serious trouble (we have).

When making decisions on spending money, request an up to date set of financial reports and make sure you can afford the purchase. Also, use the reports over time to predict revenues and establish budgets (we’re working on that). To keep making money, you need to know when and where you’re spending it.

Free Money?

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From the last passage, you might think the only role of government is to take your money. They can, however, be a great source of free money for small to medium sized businesses like most illustration studios tend to be. Most governments have incentives to hire young people and recent grads (perfect for our industry), grants related to research and development (start looking into real-time interactive on the government’s dime), and some jurisdictions will have incentives for you to locate within their region.

These are only a few of the benefits you might be able to apply for. Again, this is a time-consuming task. It is, however, a function you can hire out. There are agencies you can hire on a contingency basis (typically up to 30% of the grant value, depending on the size of the grant) and they can really help to increase your likelihood of success.

Maybe you can tell us what do you know about in your own region?

Not Free Money

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After you’ve exhausted free money, you will most likely have to turn to a bank. First off, if you don’t have your books and taxes in order, the bank won’t even look at you. Head back to step one and get yourself a good bookkeeper and accountant.

The first thing a bank will offer you is a line of credit. As a starter, they will probably give you something small ($10,000 to $35,000 CAD is pretty normal here), which will likely need to be secured by a property in order to get the lowest rates.

No property? No problem!

They’ll probably give it to you anyways (at a higher interest rate) as long as you can show a healthy balance sheet. Manage this for a couple years and the bank will likely offer you a much bigger line of credit, which is, usually based on a percentage of your receivables (money owed to you by your clients) under 90 days old. Don’t be afraid to take this money.

As your clients and projects grow larger, you ability to collect your fees will naturally slow down. Large clients in architecture, engineering, and construction here in Canada tend to take upwards of 60 to 90 days to pay. But your rent is due every month and your team needs to get paid every two weeks or so as well. Lines of credit are useful tools to bridge the gap between payments due and getting paid by your clients.

By managing your credit facilities wisely, you can build a relationship with your bank that will become the backbone for all your future growth plans.

Get to know your banker. Get your banker to know you. You’re going to need them for a long time.

Another great tool banks can provide you is a capital lease line. When making major purchases or upgrades (our 3DS Max licensing costs us $60,000 CAD a year!) it can be very difficult to pay for it in one go. By setting up a leasing facility with the bank, you can get decent rates (better than most providers will offer you) and better terms.

Once you’re swimming in money, all is good, right? Not so fast.

Prequalify you up to a limit and then allow you to lease back any equipment or upgrades that fall within your agreement on a monthly basis. This will really help manage cash flow.

Speaking of cash flow, did you know the simple move from bi-weekly payroll to a semi-monthly payroll can make a huge difference? It will smooth out the payments due to a regularized schedule. In any given year, some months will have three pay periods as opposed to the normal two and can really dent your ability to manage cash flow.

So it’s nice that you got all that free money from the government and your bank has loaned you a pile of theirs. But the bank will want its’ money back at some point. In fact, even better, don’t use the bank’s money at all. This can be difficult (we’re not there yet) but can be achieved. Start by having a person(s) on staff dedicated (part time for a smaller studio, or full time for one the size of ours – this is also a function your bookkeeper or accountant may provide) to collecting your receivables.

Show Me the Money

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We’d like to think that our clients will just pay us when we send them an invoice, but in reality getting payment requires work.

Often times, sending your invoice doesn’t mean it automatically gets entered for payment. Architects are notorious for avoiding administrative tasks. Have your receivables person build relationships with the persons responsible for writing checks for your clients. Follow up with them regularly and make sure the architect passed on your invoice. Better yet, get to know them so well that you can copy them on the emails.

Try to get money before you start (it’s quite customary to get 30% up front) and when you finish (some studios require full payment before high res delivery). While these are good tools, they can also hamper your ability to compete in the marketplace with larger, more established clients. Having a bank or government financing that enables you to work within the cash flow cycles of your larger clients will make you more attractive, even if you are asking for a higher fee than your competition. Being short on cash(flow) has the potential of driving you to do bad things for your business considering the bigger picture.

Used all together at the right times, these financial tools should enable smooth and steady growth.

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I know this can be way more difficult than it sounds; I’ve lived through it and know first hand. But hopefully, my pain can be your gain! Ronen tells me there are applications out there that can make number handling (time tracking, invoicing, collecting payments and reports) easier and fun. Two such options you can try are Freshbooks and Costlocker. If you decide numbers really aren’t your thing, you can always hire a fractional CFO to help you manage all of it. They can be expensive, but a good CFO is worth their weight in gold.

Norm Li.

Part 1 - Starting a Studio : Art
Part 2 - Starting a Studio : Technology
Part 3 - Growing a Studio : Culture
Part 4 - Growing a Studio : Finance
Part 5 - Growing a Studio : Client Management

ArchVIZ BIZ

4 thoughts on “The ArchVIZ BIZ – Growing a Studio : The Finance

  1. Shaun on Reply

    Hi Norm,

    Your articles are a very interesting insight into running an Archviz business. There is one thing that I would like to understand regarding your hiring practices and culture theory.

    “Most governments have incentives to hire young people and recent grads (perfect for our industry)”

    What are the advantages of hiring young people over more experienced artists? You suggest this hiring practice is ideal. Can you elaborate on the benefits of profiling this category of employee?

    Also, as your business continues on, do your ‘not so young anymore’ staff become less beneficial than young people/recent grads?

    I understand that salary is the largest ‘cost’ in creative businesses but I’m interested to know if you have a cutoff age range where you would not consider a person of a certain age because they are no longer “perfect for our industry”.

    In your article “Culture”, you don’t say it but I sense that your charter outlines a creative staff on entry level salaries that facilitate the receipt of government incentives.

    I realize I’m asking a lot of questions, but I guess my main question is why older employees are not considered as ideal in the Archviz industry.

    Thanks again for your interesting articles.

  2. Norm on Reply

    Hi Shaun. I’m going to tackle you question out of order if that’s ok 🙂

    Firstly, salary is indeed the largest cost of our studio. It accounts for 85% of our expenses. In any creative service business, this is pretty common; maybe not that high, but always the biggest single line item on the books.

    We have no cut off for hiring. We’ve hired people who are 40+, we have celebrated a 50th birthday, and generally, age is not a determining factor in our hiring process. Mental age is what we hire for. Innovation, creativity, passion, artistry … these are the things that get us excited about candidates.

    As time passes, we do our best to develop our more seasoned staff into leadership positions; they guide our newbies through all the pitfalls they experienced in the past so that we can be a more efficient team going forward. A good team member will only get better with age. In fact, I would say “benefit” comes from more time and experience. Maybe we become better artists; maybe we become great trainers; maybe we develop into great client managers. But that usually involves gaining that experience with your current team. We have found that about half of the senior hires we’ve made came with quite a bit of baggage. If they are joining out studio after 10+ years elsewhere, that doesn’t mean we will turn our studio upside down to accommodate their working style. There needs to be give and take; filtering out everything but the best practices from both sides. This is often difficult for “older” hires who are stuck in their habits. We’ve had greatest success in hiring experienced people when both sides understand that there will be great adjusting to do for the first few months.

    Re our culture: there, you’d be wrong. We pride ourselves in paying at the top of range in salary and benefits. In fact, we pay on par or better for a 4 year architectural under grad than most architectural firms pay for a kid with a 6+ year masters degree. I firmly believe that the last thing our team need to be thinking about is how they will pay for rent and groceries. We access government incentives, but only for a very small percentage of our staff (like 3 out of 36 at best). I was pointing that out for smaller studios. It was a huge benefit for us when we were a team of 5. Having the government subsidize the wages of 20% of your team is GREAT! Our culture is based on a never ending desire to do better; better work, better relationships, better timelines, etc. You can’t be Always Better if you’re paying the worst.

    And finally, to answer your first question, keeping our studio young keeps us all fresh, no matter what age. We work in a tech driven field. Sure, we can spend days and nights keeping up with all the latest tech while we try to run our studios as well, but young people are just inherently on top of tech. It’s in their blood. They are just inherently innovative. They aren’t jaded from years of blood soaked battles with clients. Young people tend to see opportunity where we oldies might see danger. I love the energy they bring to the team. It keeps our office vibrant. And let’s be honest – I don’t wanna lead the Friday Drink night anymore either!

    Hopefully that helps … I see that you’re in the Toronto … feel free to drop the office by and say hi anytime!

  3. Shaun Chapman on Reply

    Thanks for the reply Norm,

    My lengthy comments are not intended to be critical of your business practices. You certainly have success as a business owner and have strong views on how to cultivate your team and your team’s work is clearly excellent.

    My disagreement is how you somewhat comically generalize that “oldie” CG artists are “jaded” and “carrying baggage”. These are words to describe people with negative dispositions which is not age-related. Encouraging new studios to adopt these views is misleading and inaccurate and what encourage me to write.

    “Young people are just inherently on top of tech” may be true but dismissing “oldies” as not being on top of tech is another inaccurate statement. Staying current and innovative are constant demands on the CG artist at whatever age. I’ve dedicated my working life to be professionally up-to-date, efficient, knowledgeable, artistic and technical so obviously I feel the need to disagree. Being born in a certain decade doesn’t mean you “have it in your blood”. This may be somewhat true with social media, but this has little do with CG production in my opinion.

    You’re clearly being facetious about “blood soaked battles” with clients but it’s been my experience that a relationship even a tiny bit less than “pleasant” or “friendly” with a client means usually means instant (and deserved) termination. I’ve seen it.

    Again, I’m politely calling you out on your exaggerations regarding “oldies” as being generally unwieldy and a client hazard. In my experience clients are in contact with directors, accountants, managers and office staff not CG artists anyway, but if they are in contact it can only be a pleasant exchange. Obviously!

    “Young people tend to see opportunity where we oldies might see danger.” What? Lost me on this one.

    Even your tie-in of “energy,” “vibrancy” and “Friday night drinks” is slanted to age-centric profiling. I’ve been there too but these days I put the majority of my daily energy into work and then put what’s left into family. I’m not able to drink alcohol and have mobility issues that would exclude me from post-work bars and likely affects my general “vibrancy”. Yet not having these traits definitely doesn’t exclude me from being a productive, positive and effective CG team artist.

    I don’t plan to extend this exchange beyond this because we do generally agree that positive attitude teams mixed with talent and hard work are the keys to success of an archviz company. I just don’t buy into the jaded-client-toxic-behind-the-times-stuck-in-his-ways-afraid-of-HDRI “oldie” caricature.

    I would animate that guy though… that’s a great character profile! I see some dust buildup on his CRT tube display running Alias, drinking coke and chain-smoking!

    Yes, I am in Toronto, thanks for the invite. I can visualize my visit… a man enters office reception… “Mr. Li, The Oldie is here to see you.”

    Ouch 🙂

  4. Norm on Reply

    Shaun … I think I should have been more explicit … I can see where you may have misread my reply since I answered your questions 1:1 …

    The gist of my reply is that we value older employees immensely … They are our strongest contributors … However, it usually requires that they come into our team at an earlier point … This is not an age related issue … It’s about culture and nothing else … Regardless if your 60 or if you’re 30 … If you’ve spent 10 years so where else before coming to us, unless you’re willing to meet us half way, it’s not going to work … And that’s our main hesitation of hiring senior (in experience, not age) staff.

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