Over the years, I’ve presented a number of workshops on financial management for design firms, and I have often sensed a skepticism in my audiences about making a design firm consistently profitable.
I think there may be a prevalent mindset that the design profession just isn’t very profitable. Case in point— the old joke that asks what a practitioner would do were he or she to win the lottery— the punch line being that the practitioner would just continue working until the money ran out.
I’ve had people tell me that you just can’t make this business profitable. Period.
Can we, in fact, make our firms reliably and persistently profitable?
We do face many obstacles to such an obviously desirable goal. One is having sufficient time to focus on it. The overall economy can sometimes work against us. Another challenge is winning fees generous enough for the work required to earn them.
I learned a long time ago from a mentor that it was really a matter of priority. If we wish to be profitable, then we must commit ourselves to that, and not accept the alternative.
I would quickly emphasize that he never, ever, suggested that great design was not also a priority. They must both get the firm’s laser-like focus, as they won’t just happen by accident.
Here are the four things our firms must have in order to be reliably and persistently profitable:
- Accountability
There must be accountability for financial performance, across the firm, and at all levels. Project leaders must be expected to make their projects successful, not only for the client, but for the firm as well. Team members must understand how they are to contribute. Rewards should be, at least in part, based on an individual’s contribution to project success.
- A senior profitability champion
If no one in a senior leadership position is driving a focus on profitability, no one else will be, either. At least one leader of the firm (and preferably more than one), must act in this capacity, day in and day out. Staff must know that this person will be relentlessly focused on it.
- Solid and disciplined financial management processes
Sloppy or inconsistent accounting processes will guarantee a lack of profitability. The daily blocking and tackling of time-keeping, bookkeeping, invoicing, and accounts payable and receivable are not just important, they are mission critical. And regular management oversight and review of the whole thing is just as critical. Things go off the rails quickly if no one is watching or it is not a priority.
- An ability to generate revenue on a consistent basis
While it may go without saying, firms just cannot generate consistent profitability from an inconsistent or unpredictable stream of revenue. Maintaining a reliable flow of income while also remaining focused on design and profitability can be a real challenge for design firms, particularly smaller ones.
Let’s abandon the old mindset and adopt a culture of profitability.
Everyone will win.