Running an interior design business is a mix between project management and business operations. Keeping projects on schedule can easily consume your focus, prioritizing financial planning is essential to longevity.
We had the pleasure of interviewing the team at ID Bookkeeper, a top bookkeeping and accounting firm (and Design Manager partner) specializing in the business of interior design and all of its unique characteristics. This team of experts has seen the problems small businesses commonly run into and has shared their insider insights on how to financially plan.
Interior designers take note–these are the ID Bookkeeper teams' six ways to successfully manage your small business’s finances.
• Daily bookkeeping: Managing your small business finances is a daily task and you need to be steadfast in keeping detailed records free from errors. Interior designers have a lot of incoming and outgoing cash flow and every transaction needs to be recorded in real time so you know your net cash position.
You will also be able to quickly spot mistakes, like not collecting payment from a client before making a purchase for them, so that you can proactively rectify such issues. The team at ID Bookkeeper also says, “It’s easy to lose money as an interior design business because of these large and numerous outflows. Keeping timely records gives you the big picture of what's coming in and going out.”
• Create correct purchase orders: Make sure the information on your purchase orders is correct down to the last detail. A common problem they have seen over the last couple of years, for example, is business owners being caught off guard by changes to the freight costs. ID Bookkeeper’s team highly recommends always double checking your work.
• Keep receipts: Don't wait to collect receipts and file them at a later date. The team says, “You need to keep your receipts because if you don't accurately reconcile your spending every month, you will potentially be in a position where you have to get money back from a client six months down the line.” This obviously causes several issues, such as potentially never receiving this money or looking unprofessional.
Close Your Books Monthly
Closing your books—the process of re-confirming that you have correctly recorded all of your firm’s financial transactions—should be done on a monthly basis. Your income statement and balance sheet are produced using this information, and they are only as accurate as the data in your accounting records.
These reports not only allow you to see your project related inflows and outflows, but also your outgoing overhead costs for running the business (for example, rent, utilities, payroll) alongside your incoming revenue for the same period. Does your revenue cover your overhead? If not, how much cash do you have to pay your expenses for the coming months? Reconciling your company’s records on a monthly basis will make your financial reports accurate and helpful tools for planning your future.
Separate Personal from Project Money
The team says, “Some people run personal expenses through their business, which can lead to spending project money on personal expenses.” Doing so not only becomes a bookkeeping headache, but raises a red flag to the IRS, and could even become a legal problem. Spending a client’s money on anything other than the specific purpose they authorized is technically a crime, even if done by accident. The solution is to not commingle project money with business/personal money. They continue, “we recommend when you start a project, you have a process where purchasing funds, including sales tax funds, go into their own account and all money spent on a project goes out of that account.”
Hire Specialized Help, but Be Strategic
• Work with accountants who specialize in interior design businesses: Working with accountants, bookkeepers, and operations experts who specialize in interior design is important, since the business model is so unique and takes a deep understanding of the many specific processes and various possible ways to structure. Likewise, choose support software that is specifically built to serve interior design businesses.
• Avoid seeking generalized financial advice: Consult with financial professionals on how to achieve specific goals. The team says, “get strategic advice around certain objectives, for example, how to become a two million dollar firm, or how to grow from a two person team to a fifteen person team. That will help you get the information you need without overspending on consultants.”
• Seek out education: Having the creative talent and interpersonal skills to start an interior design business says a lot about your overall intelligence and capability. Luckily, even if you don’t know the first thing about accounting and finance, you can learn everything you need to know if you seek out the right information. “Traditionally, you could find a one day seminar in your area where they would give you a sufficient overview so you'd know how to read an income statement, balance sheet, and a statement of cash flows. These days, you can find anything on the internet,” says the team.
Learn What You Don't Know
• Invest in training for your staff: The team says, “If you have a staff, you can also invest in training a team member to gain a deeper knowledge of small business and accounting. You can create support internally to help you follow these key steps to managing your business’s finances.”
Formalize Your Standards
Create a best practices manual that details all of your company’s policies and procedures—and include a section about finances and accounting. What actions are you going to take to ensure your business follows these key steps?
Every employee should learn this manual so that everyone is operating to the same standard. The team at ID Bookkeeper has a creative idea to incentivize your team to get on board. They say, “You can get everyone to buy into the idea of working to the high standards you set forth by creating a bonus pool for meeting milestones, for example.”
Managing your small business finances takes effort, and as an interior designer it can be hard to set time apart from the creative work that you love. However, once you learn the basics of accounting, commit to keeping careful and timely records, and make a practice to review your data monthly, staying in control of your finances will become second nature. Facing your finances head on will keep your mind clear to let your creative side flourish.