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Tips for a recession-proof practice

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This week’s news serves as a reminder of just how volatile the business of architecture can be, writes Christine Murray

When I ask directors, partners and clients about the eurozone crisis, or the UK and global markets, most find it impossible to see beyond the next six months, even those whose firms are performing well.

China is currently booming and looks set to continue, but for how long? London commercial property is considered a safe haven for investment, but will it falter? The only thing that’s certain is uncertainty.

Lately, we’ve seen just how volatile the business of architecture can be. Two weeks ago, BDP announced redundancies and the closure of four offices after its £420 million redevelopment of the Royal Sussex County Hospital in Brighton was put on hold and it failed to win two other major hospital jobs.

This week, Austin-Smith:Lord was forced to seek a company voluntary arrangement, in addition to letting 70 staff go, after failing to recoup millions of unpaid fees from a prominent Abu Dhabi client.

It was not long ago that Abu Dhabi was considered a safe market, oil-rich and wise, having learned from Dubai’s excesses. Now, several Abu Dhabi projects are on hold, and while it is likely that a revised version of Abu Dhabi’s 2030 vision will eventually be delivered, Austin-Smith:Lord will not be the only practice affected by the scaling back of its ambitions.

If there is anything to learn from Austin-Smith:Lord’s woes, it’s the importance of carrying a diverse portfolio of projects. Practices get hurt when they are too dependent on one sector, one country, or in the case of Austin-Smith:Lord, when the practice goes into debt to deliver a major project, and becomes reliant on payment from a single client to bankroll the firm.

Regardless of your practice’s size, making a pie chart of your work is a good exercise in examining your level of exposure. If one sector or project dominates your turnover, you need to think about what you’ll do if that big client turns off the tap.

Tips for a recession-proof practice include keeping overheads low, no debt, competitive fees, billing more often and for smaller amounts, being vigorous with credit control, increasing marketing and networking, and focusing on pushing any specialist services you provide. If money is tight, clients are more likely to hire an expert – or a friend, which is why building relationships with new clients is so important, preferably in diverse sectors.

We know there is no such thing as a foolproof market. Even practices doing well at the moment – I know of several who are recruiting – need to stay aware. As an economist on the radio the other night put it: when the party is in full swing, no one wants to talk about it ending. We’d all rather board the yacht and drink champagne. But it’s exactly in the heat of the boom, that we need to plan for the bust.

Behind every headline we print, there are hundreds of people affected by the fall-out of market corrections. This week, we’ve heard of Austin-Smith:Lord staff owed thousands of pounds, who’ve now been made redundant. It isn’t their fault that all the eggs were in one basket.

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