Creating and Maintaining a Professional Practice

Transcription

1 Creating and Maintaining a Professional Practice Edward M. Hord, FAIA Hord Coplan Macht, Inc. and The AIA Trust Michael L. Prifti, FAIA BLT Architects and The AIA Trust Frank Musica. Esq. Victor O. Schinnerer & Company, Inc. Chevy Chase, Maryland Learning Objectives This webinar is provide by The AIA Trust. For more information go to Recognize and analyze the concerns that should be addressed in creating a professional practice. Identify the keys to client relations and ethical practice. Comprehend the legal, registration law and insurance issues intrinsic in creating a new practice entity Pursue personal and professional goals while managing risks routinely and profitably. Overview Starting your own firm is a challenge; structuring it to be sustainable is a formidable task. To make that dream of running your own firm a reality and not a nightmare examine the issues involved in getting started (the practical, professional, technical, legal, and insurance issues) and in staying solvent. You must understand the concepts of the business context of practice, professional integrity, client satisfaction, and risk management. 2014, Victor O. Schinnerer & Company, Inc. 1

2 The Fundamentals of Managing Risk Your greatest risk is: Not getting paid for your services Your greatest risk management technique is: Listening to and communicating with your client Reasons for Starting a Firm The ability to realize goals and follow interests A desire to balance or integrate personal and professional life The need for a direct relationship between effort and reward A drive for greater control over design The goal of working with specific colleagues A hope that a firm can span bad economic times Making the Decision to Start Have a clear vision of what you want Define the type of firm you want to be initially and eventually Formulate an internally consistent statement of the firm s goals for the first year and long-term Research the success of others and look at what combination of abilities led to their success 2014, Victor O. Schinnerer & Company, Inc. 2

3 Making the Decision to Start Decide if you have the capabilities necessary or determine where you will get them Determine how you will get funding and continue to support the firm Conduct an objective analysis of the firm s strengths and weaknesses Define what skill set or special services or abilities you will offer that potential clients need Focusing on the Essentials Legally and ethically pursuing clients and projects Maintaining professional integrity and a reputation of value to your clients Establishing productive client relationships on a long-term basis Negotiating reasonable professional service agreements Billing and collecting fees and reimbursables Focusing on the Essentials Establishing productive interprofessional and subconsultant relationships Structuring for stability or growth and eventual ownership transfer Evaluating financial performance using standard industry measurements. Facing professional liability, employment liability and other business risks 2014, Victor O. Schinnerer & Company, Inc. 3

4 Addressing Legal and Ethical Issues Professional Status and Ethics Don t steal credit or clients (or time or software or equipment or employees) General Business Issues Research and meet licensure, regulatory and business entity law constraints Organizational Structures Read or get advice on the appropriate legal structure for your firm Meeting Legal Requirements The form is often dictated by state law, by tax considerations and by ownership goals Proprietorship/Partnership Professional Corporation (PC) S Corporation(a business corporation) General Business Corporation (Inc.) Limited Liability Company or Partnership (LLC/LLP) Firms also have to meet other federal, state and local laws on the operation of a business entity Relying on the Advice of Others Seek professional advice on regulatory constraints, legal options and tax status, initial contributions of capital, cash flow management, distribution of profits and losses, changes in ownership, insurance coverages, and other business issues. 2014, Victor O. Schinnerer & Company, Inc. 4

5 Starting With a Business Plan Include four essential parts: a basic strategy summary a list of tactics to execute the strategy, such as financing sources, marketing initiatives, project leads, and launch date concrete details of assumptions, tasks and milestones to start the business basic forecasts for revenue and spending Business Development Principles Understand your potential client s issues, concerns and specific needs. Identify an unmet need and fill it. Spot trends or demands that could led to projects in the future. Market continuously through social media and personal contact by displaying professional expertise and client concern. Business Development Principles Learn about doing market research, writing proposals and refining presentation skills. Find people who know about projects before the client seeks a design firm. Research the selection process Remember that sometimes there are bad projects for good clients but there are no good projects for bad clients. 2014, Victor O. Schinnerer & Company, Inc. 5

6 Surviving: Keeping a Firm Going Marketing initiatives How are you going to find and retain clients? Operations and quality control Do you have procedures in place to perform in a timely and competent manner? Financial controls Are you monitoring costs and focusing on cash flow? Contractual obligations and protections Are you using reasonable agreements that define scope, time and compensation? Risk management and insurance Do you understand your insurable and non-insurable risks? Surviving: Financial Controls Working capital is critical and cash flow control is imperative. Scope and risk should dictate fees. Do not reduce fees to match competition Contractual provisions and billing practices are essential to collecting fees. Understanding and controlling costs are basic to staying in business. Professional liability insurance Negligent acts, errors or omissions may cause damage to owners, contractors or other third parties. If such responsibility is established, the firm and its owner may be liable for correcting these damages. In buying a professional liability insurance policy, the firm is asking a broader financial entity the insurance company to absorb a portion of the costs of claims in exchange for a premium paid to the insurance company. 2014, Victor O. Schinnerer & Company, Inc. 6

7 Professional liability insurance covers services and not contractual commitments. Definition of Professional Services Professional services means those services that you perform for others on behalf of a Named Insured in your practice as an architect, engineer, land surveyor, landscape architect, construction manager, scientist, or technical consultant. Definition of a Wrongful Act Wrongful act means an error, omission, or other act that causes liability in the performance of professional services for others by you or any person or entity including joint ventures, for whom you are liable. 2014, Victor O. Schinnerer & Company, Inc. 7

8 Transferring Risk through Insurance Practice Policies Cover all professional services of a firm during the policy life. Deductible obligation Per Claim limit of coverage Aggregate policy limit of coverage Project Policies Cover all design firms providing services on a specific project for a specific time period. Insurance Policy Definitions Named Insured Listed on Declarations page of policy Claim Definition can vary on policies Circumstance Can trigger support Professional Services State what types of services are within scope Wrongful Act Basis for coverage Insurance Premiums Factors Billings (Gross modified to Ratable) Location of Practice Project Type Emphasis Prior Claim Experience Extent of Repeat Business Use of Standard Industry Contracts Risk Management Programs 2014, Victor O. Schinnerer & Company, Inc. 8

9 Insurance Limits of Liability Limits of liability are per claim and aggregate for policy period Limits are reduced by defense costs and claim payment Availability of project specific limits as endorsement to practice coverage Insurance Deductible Obligations Deductible is firm s commitment Applies for each claim Generally applies to defense costs and indemnity payments Deductible influences premium Minimum and maximum deductible options dictated by assets Insurance Purchase Options Almost all insurance is purchased through: A broker representing the firm s interests An agent representing the insurer Per Claim/Aggregate options $250,000 per claim/$500,000 aggregate is common minimum coverage but level often dictated by clients Minimum premium may be applicable 2014, Victor O. Schinnerer & Company, Inc. 9

10 Surviving: Other Insurable Risks Workers Compensation By statute, workers compensation insurance is required. Disability Benefits State disability benefit laws provide benefits for employees who are disabled due to non-workrelated injury or illness. States that require this coverage, prescribe by statute minimum benefits. Health Insurance Health is a major but costly consideration, for both employees (the beneficiaries of the coverage) and employers (whose professional livelihood, to a great extent, depends on a productive and healthy staff). Surviving: Other Insurable Risks General Liability Coverage A general liability policy provides coverage for claims arising against the named insured involving third-party legal liability, but it doesn t cover professional, automobile, and workers compensation exposures. Automobile (aircraft, watercraft) liability Commercial auto insurance should be written with adequate limits of liability to cover the use of automobiles by the policyholder, by employees, or by others. Surviving: Other Insurable Risks Employers Liability An architect can be subjected to claims by employees for job-related injuries. In most instances, these claims are covered by workers compensation insurance. Gap situations may exist in which an employee s injury isn t covered under workers compensation so the workers compensation policy is extended to cover what is called employer s liability. Excess (Umbrella) Liability Policies When higher limits are required, certain policy limits can be increased through coverage on top of other coverages. 2014, Victor O. Schinnerer & Company, Inc. 10

11 Surviving: Other Insurable Risks A Business Owners' Policy (BOP) combines property insurance and general liability insurance. It is a package policy can combine additional business coverages into one cost-effective program. It offers a single source of protection one broker, one business insurance program and one application process. The goal is seamless coverage so that a professional service firm can focus on serving clients rather than on whether an exposure is covered under a professional liability insurance policy or some other coverage. Surviving: Other Insurable Risks Employment Practices Liability Coverage Commonly covered claims under an employment practices liability policy includes wrongful termination, harassment, discrimination, and employer retaliation. Architect s Property Insurance The architect s office building or the leasehold improvements where the architect is a tenant should be insured by a standard policy covering named perils or by a broader allphysical-loss form, which is generally available. Surviving: Other Insurable Risks Directors and Officers Liability Insurance This provides protection for corporate leaders against claims alleging breach of duty, negligence, error or misrepresentation. Fiduciary Liability Insurance The Employee Retirement Income Security Act (ERISA) requires that firms that establish plans meet certain minimum standards. The law requires accountability of plan fiduciaries. This provides protection of fiduciaries against liabilities that arise from their administration and oversight of any employee benefit or pension plan. 2014, Victor O. Schinnerer & Company, Inc. 11

12 Questions This webinar is provide by The AIA Trust. For more information go to , Victor O. Schinnerer & Company, Inc. 12