Beyond Blueprints: The Untold Struggle Architects Face in the Financial Maze

By Siddhant Jadhav

Artwork created by the author using generative AI (Stable Diffusion, 2024)

Introduction

As a fresh graduate from India's top architectural college, I eagerly embarked on my first solo architecture project, brimming with passion, hope, and a plethora of architectural visions. Creativity took center stage, driving every aspect of my work. However, little did I know that my journey would take an unexpected turn straight into a financial roadblock.

Imagine this: a novice architect, filled with dreams of designing magnificent spaces and grand structures, suddenly thrust into the world of budget sheets and construction costs. In this blog, join me on a journey through my own financial roller coaster ride.

Furthermore, this blog aims to delve into the intricacies of charging for architectural services, navigating tax matters, and the pivotal decision of whether to incorporate or operate as a sole trader. Drawing from my experiences as both an architect and interior designer, I aim to provide insights into these nuanced topics, shedding light on the complexities within the industry.

The Fallacy of Lowball Rates: Building a Sustainable Freelance Business

Many freelancers grapple with the initial pricing conundrum: Should they start low to attract clients or aim high from the outset? My experience managing a freelance practice for over four years offers valuable insights into this critical decision.

The Allure (and Peril) of Low Rates:

The initial temptation to charge low rates to secure initial projects is understandable. However, it's crucial to acknowledge the potential pitfalls (dangers) associated with this approach. In my case, while low rates seemed effective for a handful of initial projects, it ultimately led to a client base primarily focused on cost-effectiveness (minimizing expense) rather than the value I provided. This created a perception of me as the "budget-friendly" option, making it difficult to attract clients seeking premium expertise.

Transitioning to Value-Based Pricing

The key to a sustainable freelance practice lies in value-based pricing. This approach focuses on the unique value proposition (specific benefits) you offer clients, not simply the time invested. By transitioning to value-based pricing, I experienced a shift in my client base. While some price-sensitive clients moved elsewhere, I began attracting high-paying, reputable clients who recognized and appreciated the value I delivered.

Building a Sustainable Future

The initial drop in new client acquisition after raising rates is a common phenomenon (Danner, 2023). However, with perseverance, establishing a value-based pricing structure can lead to a thriving practice (Weinstein, 2022). My experience demonstrates that attracting the right clients, those who value your expertise and are willing to invest accordingly, fosters a more sustainable and rewarding freelance career.

Considerations and Cautions

It's important to acknowledge that this is just one example, and the optimal pricing strategy may vary depending on your specific field and experience level. However, the core principle of value-based pricing remains universally applicable.

Here are some additional considerations :

• Research industry averages to establish a baseline for your pricing.

• Focus on the client's benefits and how your services will add value to their project.

• Project confidence in your expertise and the value you bring.
  

By adopting a value-based pricing approach, freelancers can cultivate a thriving practice that rewards their skills and expertise.

Are you an artist, designer, or creative professional? I want to hear from you! Share your experiences in my poll:

🔍 When do you decide to charge for your services?

• Always charge upfront
• Negotiate based on project complexity
• Offer free work for exposure

Introducing Tax Matters: Navigating the Fiscal Landscape

Navigating the fiscal landscape can indeed pose challenges for creatives, especially when it comes to tax matters. For architects, one common question is whether VAT registration is necessary. According to (White Oak, 2024), architects must register for VAT once their taxable supplies exceed the current VAT threshold, which is currently set at £85,000. While the prospect of a 20 percent VAT rate may seem daunting, there are notable benefits to VAT registration.

Firstly, VAT registration allows architects to reclaim VAT on their inputs if it exceeds their outputs. This can result in significant savings, particularly for businesses with high input costs (HM Revenue & Customs, 2023).

Secondly, being VAT-registered can enhance the credibility and appeal of an architect's business. Many buyers, lenders, suppliers, and clients prefer to work with VAT-registered companies. By obtaining VAT registration, architects can unlock new opportunities and forge valuable connections that can propel their businesses toward success (Harper James, 2024).

In summary, while VAT registration may seem like a significant step, it offers tangible benefits and can be a strategic decision for architects looking to expand their business and maximize their financial efficiency.

The freelancer’s choice: sole trader or limited company?

The decision between incorporating a design practice and operating as a freelancer can have significant ramifications that extend far beyond just the legal formalities involved. It's important to carefully consider the potential impact on both the financial stability and legal obligations of the designer (Freelancer's Union Blog, 2017).

Even if you find yourself alone in a spare space, facing a screen, you are still running a business. As a sole trader, legally, you and your business are indistinguishable entities. This means you have full control over your earnings, but you're also personally liable for any debts incurred by your business. There's no separation between you and your company (Sharpe, 2020).

Conversely, operating as a limited company transforms you into both an employee and a boss. Even if you're the sole shareholder, your liability is limited, as your business becomes a distinct entity separate from yours (Townley, 2018)

As an architect and interior designer, these intricacies hold personal relevance. Whenever I used to do work, there was a threat of everything going wrong and me not being able to protect my assets. Within this setting a limited company will have benefits.

According to the lecture (Walls, 2024), as soon as I reach an income of £45,000 per year, I should incorporate a company. This will not only save on taxes but also shield my income from potential client disputes.

Here is a YouTube video that explains this:

Credits: (Accounts Studio, 2022)

Conclusion

The transition from creative passion to financial responsibility can be a rollercoaster, but with careful planning and informed decisions, you can build a thriving freelance practice.

Ask yourself the following questions and feel free to contact me!

• Do you have questions about starting a freelance architecture or design business? Leave a comment below and share your experiences!
  

• Are you unsure about VAT registration or the pros and cons of incorporating? Conduct further research tailored to your specific circumstances and consult with a financial advisor.
  

Remember, a freelance career in the creative industry requires not just artistic vision but also a solid understanding of the business aspects. By taking control of your finances and legal structure, you can pave the way for a fulfilling and financially rewarding journey.

Bibliography

Accounts Studio (2022) Sole trader vs limited company for creative freelancers - why and when should I incorporate? 3 March. Available at: https://www.youtube.com/watch?v=uHX9-LN46qU (Accessed: 16 March 2024).

Danner, S. (2023) Common customer acquisition challenges and how to overcome them. Available at: https://www.marketreach.co.uk/blog/common-customer-acquisition-challenges-and-how-overcome-them (Accessed: 23 March 2024).

FREELANCERS UNION BLOG (2017) When is the right time to incorporate?. Available at: https://blog.freelancersunion.org/2017/06/09/when-is-the-right-time-to-incorporate/ (Accessed: 15 March 2024).

Harper James (2024) The benefits of being VAT registered. Available at: https://harperjames.co.uk/blog/the-benefits-of-being-vat-registered/ (Accessed: 15 March 2024).

HM Revenue & Customs (2023) VAT guide (VAT Notice 700). Available at: https://www.gov.uk/guidance/vat-guide-notice-700 (Accessed: 18 March 2024).

Sharpe, L. (2020) Which Business Entity? Sole Traders. Available at: https://www.taxinsider.co.uk/which-business-entity-sole-traders-ta (Accessed: 20 March 2024).

Townley, G. (2018) 'What does it mean to be a 'limited' company?', GOV.UK,15 May. Available at: https://companieshouse.blog.gov.uk/2018/05/15/what-does-it-mean-to-be-a-limited-company/ (Accessed: 14 March 2024).

Walls, E. (2024) 'Guest Talk' [Lecture]. HA7514: The Creative Freelancer. Kingston University. 5 March.

Weinstein, M. (2022) Building Your Ideal Clientele Through Value-Based Pricing With Shannon Weinstein. Available at: https://www.linkedin.com/pulse/building-your-ideal-clientele-through-value-based-michelle-weinstein/ (Accessed: 21 March 2024).

White Oak (2024) All you need to know about VAT – and how to fund it. Available at: https://whiteoakuk.com/all-you-need-to-know-about-vat-and-how-to-fund-it/ (Accessed: 20 March 2024).