Steps To Starting Your Own Architecture Firm
As architecture is a highly skilled field that demands competency in multiple domains including engineering, design, communication, management, information technology, and much more, it is important to have a strong foundation in these and several years of experience before starting your business.
Who is this business right for?
Starting an architecture firm may be right for you if you have completed your architecture education, training, and licensure, or you have worked as an architect with a firm and are ready to branch out on your own. It is the right business for those who not only have the necessary skills, training, and creative expertise but also for those who are passionate about being an entrepreneur.
What is the target market?
Architect firms handle local, state, and federal government projects as well as design requirements of private clients. They handle simple to complex residential and commercial projects.
With a growing emphasis on market segmentation and emerging disruptions in technology, building and equipment, architect firms are focusing on niche target markets. Some of the specialized segments include:
- Landscape design
- Green or sustainable design
- Interior design
- Urban design
- Industrial design
- Commercial buildings design
- Residential design
- Restoration design
Architect firms are specializing in specific areas within these broad segments. For instance, within the residential design, specializations can include the design of historic homes, huge residential complexes, smart home design and accessible building design to name a few. Within commercial buildings, there are sub-segments such as energy efficient buildings, sports complexes, or restaurants and within each of these, there are niche segments. For instance, an architect firm may specialize in the design of indoor stadium or an aquatic facility. Another firm could be focused on the design of zero carbon hotel.
The target market in each specialization can be defined using relevant metrics. The more specialized the firm is, the easier it is to identify its target audience, which enables it to focus and optimize its marketing efforts.
Growth Potential for the Architecture Business
The architecture industry has witnessed steady growth over the past decade. In the last five years, there has been a 5.0% growth with collective revenue being $47 billion in 2019. With a projected rise in both residential and non-residential construction, the demand for architects is slated to rise over the next decade.
Starting an Architecture Business
One of the first things you need to note when you are looking for information on how to start an architecture firm is the need for you to be a licensed, certified, and qualified architect. In the US, the National Architectural Accrediting Board (NAAB) offers accredited Bachelor’s and Master’s degrees in architecture. If you have already crossed these milestones, the next step is to ensure you have the necessary experience and skills required to start an architecture business.
If you are looking for information on how to start an architecture firm, the following aspects are the starting points. Asking these questions will help you formulate a strategy for starting your own architecture firm:
- What kind of projects and clients do you want to focus on?
- Whether you are looking to focus on design or on managing the business
- What are your business and financial goals?
- Are you looking to sell the firm in a specified timeframe?
- Are you looking to employ staff or go solo?
- Will you be able to work from home or do you need an office?
- What state, local, or national licenses or permits do you need?
- Where and how will you secure the finances?
The amount of money you need to start your own architecture business depends on many factors.
Some of the aspects to consider when calculating the total startup cost are:
- Location of the business
- Business structure
- Financial goals
- Size of the business
- Office equipment and furniture
- Computer hardware and Software
- Branding and Marketing expenses
- Cost of licenses and permits
- Architects professional liability insurance
Steps to start the business
Once you have thought about the requirements, costs, and the target market, the following points describe the next steps in starting your own architecture firm:
- Formulate a business plan: A business plan is a roadmap that describes your firm’s vision, mission, goals, and the details of how you will achieve these goals. The plan should include every detail about the structure of your business, the target market, initial and running costs, and when you expect to break even.
- Establish the legality of your business: When your business is a legal entity, you are protected from personal liability in the event of a lawsuit against your firm.
- Ensure you are registered for taxes: Register your business for federal and state taxes as applicable.
- A business bank account is a must: Starting your own architecture firm requires you to open a business checking account so that your finances are organized, while your firm looks more professional to your clients.
- Focus on accounting: A key aspect of running a business is bookkeeping and accounting. If you plan to do your own accounting, it is important to keep a detailed record of sources of income and various expenses.
- Obtain licenses and permits: Without the necessary permits and licenses, your firm could be shut down or may have to pay hefty penalties.
- Get business insurance: Architects professional liability insurance is one of the key factors that architects must pay attention to. If your firm employs other staff, it is a mandatory legal requirement to have workers compensation insurance. Apart from professional liability insurance for landscape architects, other insurance products cover your business assets and personal liability in case of injuries or accidents.
- Showcase your brand: Your brand encompasses your core business values, letterheads, logo, website design, business cards, office design, and photography.
- Have a website: Many customers turn to the internet to find the “best architect firm near me.” It is not only important for your firm to be found but to rank high on search engines.
The business plan outlines your firm’s mission, values, goals, and all other details. Some of the segments the business plan needs to cover include:
- The industry overview: This section highlights important trends in the industry, the current local, state, or national market scenario, the projected growth, and an analysis of your competitors and your target market.
- Vision, mission, and goals statement: This section describes the core values, short and long-term goals, and the details on how you are going to achieve these goals.
- Business structure: If you are an LLP, you would need to describe the different departments and personnel your firm will employ apart from their roles and responsibilities.
- Competitive advantage: This segment highlights how your business is unique and what are its key differentiators.
- Sales and marketing strategy: In this section, list out the different marketing strategies your firm will use to attract and retain your clients.
- Sales forecast and pricing strategy: Describe in detail how you will charge your clients on hourly/per design/per project basis apart from the sales forecast for the first three fiscal years.
- Funding/startup capital: Whether your firm will take up a loan, use cash reserves, or go in for soft loans from family members has to be described in this section.
The three basic legal entities are that of sole proprietorship where you are the sole owner of the business, partnership, and a corporation. A sole proprietorship is an unincorporated business entity, and there is no legal distinction between the business entity and the owner. While you have access to all the profits, you are also solely responsible for all losses, debt, and liabilities.
A partnership is owned by two or more people and all assets, unless defined otherwise in the partnership agreement, are equally owned by the partners. Liabilities, in this case, are shared by the partners. A corporation is a legal entity that is owned by the company’s shareholders while a Limited Liability Company (LLC) combines the flexibility and tax efficiency of partnership and the limited liability features of a corporation.
Sole proprietors file taxes using the standard Schedule C and Form 1040, which identifies the business earnings and transfers these to personal income. In a partnership firm, taxes are filed by submitting the “annual information return” where the deductions, losses, gains, and income of the business is identified. Corporations pay tax on the profits it receives, and these taxes are separate from the shareholders. In an LLC, each member pays personal tax return similar to a sole proprietorship.
Permits and Licenses
The criteria and policies for architectural firms are maintained by the US General Services Administration, along with policies for building technology, engineering design practice, building systems, materials, and products.
A firm offering architectural services should register and obtain a Certificate of Authorization from the state board of architects, which is necessary for practice in close to 60 percent of firms. Firms without the certificate may have to pay steep penalty fees.
In some states, including Alabama, there are specific ownership requirements for the Certificate of Authorization. It is necessary for at least two-thirds of members, partners, or directors of the firm to be architects registered in any US jurisdiction. Both the initial application fee and license renewal fees vary based on the location of the architecture firm.
Architect Professional liability insurance
Architects professional liability insurance is a professional insurance cover for architects designed to protect them from lawsuits arising from their business activities.
Architect Professional Liability Insurance, also called “errors and omissions insurance,” offers coverage in the event of financial loss and personal injury as a result of defects or negligence in your work. For instance, if your client files a lawsuit that your firm failed to do the design job properly, Professional Liability Insurance covers the cost of legal defense, judgments, and settlements.