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Richard Brindley Executive director, RIBA Professional Services I have been frantically busy since setting up my one-man practice three years ago, but suddenly Im faced with no work and potential bad debts. My main client has just stopped his projects, wants to renegotiate the fees for my work done to date and has warned me that he may have difficulty in paying my existing invoices. What do you advise? Regretfully there is no magic medicine to solve this ailment. No one knows the outcome of this economic turmoil. Those of us who went though previous recessions will have some experience of dealing with downturns, but each economic cycle is different, with new lessons for us all. However, there is one simple piece of advice: if you plan for the worst, you can only be pleasantly surprised. Your first priority must be to sort out your current workload and clients. Keep in close contact with your existing clients. Find out about their problems and concerns. Then you will be better placed to work out together how best to resolve the issues. It may be prudent to accept a reduced fee payment now than to hang out for more later. There is the risk of your client going under and you getting even less payment as an unsecured creditor. You could negotiate a deferred payment or a stake in the projects, but that depends on the future prospects of both your clients and the projects. You should also keep in mind your longer-term relationship with your key clients and how you can continue to work together when the economy picks up. Your next step is to decide whether you can and want to keep your practice going. Assess the minimum income you need to survive and cover your costs. You may need to supplement your own work by doing another job as well, perhaps diversifying into another sector or collaborating with another practice. You could look to share resources and overheads with other practices. Forming a consortium may enable you to create a bigger critical mass and be able to bid for a wider range of public sector projects. Several successful practice networks such as the Acanthus Group were formed during the last recession.
You may decide to close down or put your practice into mothballs. You will still need to maintain PII cover and other business insurances, tax returns etc, so will need to make due allowance for this. Prepare a revised business plan based on your assessment of your business situation and your decision for your way forward. Share this with your bank manager and mortgager. Keep them regularly informed and assured that you are business-savvy, a good bet for funding and worth keeping on their books. Remember that cash is king. Maintaining your cashflow is all important and the key comfort indicator for your funders. So invoice as quickly and as often as you can. Minimise your work in progress. Chase tardy payments vigorously even offer discounts for early settlement. Carefully manage and be pragmatic about writing off bad debts. Get expert business, financial and legal advice. There are several sources of this, which need not be costly. Your bank manager and mortgager have a vested interest in your financial wellbeing, so they are likely to be helpful. There are several government sources for advice and support for small businesses nationally and from your local council. If you are an RIBA member or RIBA chartered practice, the RIBA can give you access to specialist practice, legal and financial consultants and a wide range of business and employment support services, plus access to other practices to network with. The effect of the global financial crisis on the profession is the RIBAs top concern, and it is adapting its member support services to respond to these challenges. There is still some work about in even the deepest recessions. You will need to think and work smarter and harder than your increased competition. Look for different types of work from different sources in different sectors. Think about learning new skills or even retraining in another field. Economic downturns create different and new types of work opportunity. Current buoyant areas include energy audits and certification; development control planning; and assessing/converting new private housing for public sector housing use. Your solution will need to be unique to you, relate to your specific needs and talents, and create your own special niche to weather the economic storm. RB
Patrick Perry Partner with London law firm Barlow Lyde & Gilbert
As well as the money owed, you will usually be able to recover the fees of the process and interest. The Late Payment of Commercial Debts (Interest) Act 1998 gives businesses a statutory right to claim interest if another business fails to pay its bills on time. Creditors can claim interest at the Bank of England base rate plus 8%. Debt recovery is a painful process and needs to be carefully thought out. Court proceedings should usually be the last resort. If there is a real dispute over your entitlement to the money, be wary as a number of notifications to professional indemnity insurers arise from counterclaims that are brought by clients in response to fee demands.