When it comes to business success, following good accounting practices is essential to ensuring your business can thrive over time. Whether you're depositing money in your business account to pay the bills, or setting that money aside to fulfill a contract, your ledgers need to show how much you deposited and how you spent it.
For a design firm, this can get complicated because designers are often running on funds in the form of retainers and deposits. Accurately and correctly recording these funds can get complicated, fast. That’s especially true if you are using a traditional accounting tool, which can require users to go through an exhausting step by step process.
At Design Manager, we recognize that designers are already strapped for time and need a better solution. That’s why we built a feature that allows designers to easily allocate retainers and deposits.
Accounting for Designers
Accrual accounting is the recommended accounting method for interior designers, so Design Manager is built to help even sole proprietors manage their funds at this level (rather than a cash accounting system). In accrual accounting, income and expenses are recorded as they occur, such as at project signing, regardless of whether cash has exchanged hands or not.
At the start of a project, designers need the funds to purchase the necessary materials to execute against a defined contract. The client deposit at this point is not actual income. Accrual accounting keeps your taxable income at a level that is more accurate for your business rather than inflating it with funds that will ultimately be used for purchase.
Allocating Retainers and Deposits
Retainers are those funds received from the client that allow you to begin purchasing and ordering the agreed-upon goods. This good faith deposit allows the project to move forward while reducing the risk of using business funds to bootstrap a project. Retainers not only remove some of this risk, but they might also earn a little extra money for the business if they are deposited in an interest-bearing account while you hold the money for product purchase.
Deposits, on the other hand, are tied intricately to the Items listed on the Proposal. Deposits are automatically applied item by item against an invoice.
In most cases, deposits and retainers will eventually be used to reduce the balance of the total invoice to the Client. Until that time, the Client Deposit Account is an income liability. This is because the funds are still technically the client’s until they are applied to an Invoice representing the transfer of ownership of those goods and services.
How Design Manager Makes Deposits and Retainers Easy
For traditional accounting tools, like QuickBooks, a designer has to create a liability account and name it something like “Client Retainers.” Then comes the arduous process of creating item lists, and naming each against the retainer. This makes the item list long and unwieldy, and that’s just for one client. If you are working multiple projects this process can be incredibly time-consuming. And that’s not even the end of it. Each item has to be associated with the Client Retainers account and a sales receipt must be generated for each item in the retainer list.
In Design Manager, it’s much easier:
- You simply create a New Cash Receipt with the aptly named button.
- Tag the Retainer line or the Deposit line.
- Then simply enter the amount.
- Design Manager then automatically distributes the deposit to the Items and applies the money when the client is invoiced.
Design Manager also supports reporting functionality for Open Client Deposits and Deposit Analysis. These reports assist in tracking and managing deposits and retainers in real-time.
Deposits automatically drop from the report as they are applied so that the report always matches the balance in the Client Deposit Account on your Balance Sheet. This function can be used to easily apply retainers, and move funds from retainer to a new estimate or existing invoice automatically.
This is where Design Manager’s allocation tool comes in to simplify the process.
Manually Allocating the Received Deposit
Design Manager simplifies manual allocation of deposits with an intuitive process that you can complete in a matter of minutes. Adjusting deposits takes place directly on your Proposals, which you access from your Project Menu.
To modify a received deposit:
- Enter your project code
- Highlight the proposal you wish to edit
- Select the Status button and choose to manually allocate received deposits
- Highlight the item you wish to modify and select the Edit Deposit button
For instance, you may need to remove a deposit received because an item was back-ordered and the Client wishes to use the deposit on another item. Using this interface, you can zero out the deposit for the back-ordered item and reallocate those funds on any other item in your proposal.
Reallocate a received deposit:
- Highlight the item on the proposal to re-allocate this deposit
- Select the Edit Deposit button
- Add the unallocated amount
- Select OK
Your deposit received amount and the total unallocated amount will automatically update based on your changes. Close the proposal and you are done!
An Accounting Game-Changer for your Business
Since Design Manager uses accrual accounting, deposits and retainers are placed into a Client Deposit account rather than Revenue. This is beneficial for the business because taxes do not need to be paid on that money until the client is ultimately invoiced for the goods and services.
Because accounting isn’t static work, Design Manager also has a number of other useful features that make it easy to keep your business finances in order, such as:
- Edit a Proposal– If a client rejects an item on a proposal, you can easily remove items and Design Manager will automatically redistribute the deposited funds.
- Move Deposits – You can move a deposit from the proposal to a retainer, another proposal, or apply as payment on an invoice.
- Deposit Request – Request your next deposit on a project using the Additional Deposit Request, which is especially useful in an on-going project.
Watch how Design Manager simplifies accounting.