Is Your Design Firm Financially Healthy? Follow THIS Financial Rhythm.

Jul 29

What does it mean to have a financially healthy design firm? Tons of cash in the bank? High-profile clients? Multi-million dollars in revenue? While this might indicate you have a healthy business, there are many other ways to assess the health of your design firm, such as paying yourself regularly, paying your team a fair and equitable rate, and keeping up with your sales and income taxes.

However, based on our experience, the most foundational step towards a financially healthy interior design firm is simply staying involved in your business finances. Nothing is more detrimental to your business than checking out. Staying involved does not mean that you have to do the accounting or financial tasks yourself, but it does mean that you should ensure those tasks are getting done by someone who knows what they are doing.

Interior Designers Should Do This Every Week to Attain Financial Success

The weekly tasks are fairly quick and easy (our favorite) and are best accomplished with a mug of coffee in hand. First, update your QuickBooks Online bank feeds by categorizing the transactions in the downloads module.

Next, update your project management system (Houzz Pro, Design Files, etc.) and post payments on any retainers, invoices, and/or purchase orders.

See? Easy.

Monthly Money Tasks Every Interior Design Firm Owner Should Do

Your monthly financial tasks will require a bit more time, perhaps an hour, and should be done during the first week of the month. If you’re measuring time by how many cups of coffee you’ll need, we estimate that you’d better brew a double batch.

Start by reviewing your bank and credit card accounts for duplicate or fraudulent transactions. Keep an eye out for any subscriptions that you meant to cancel and didn’t yet.

Look at the most recent financial reports sent to you by your bookkeeper. Review those reports, paying special attention to things like overhead, net income, and outstanding invoices. Gross income is a helpful metric but should not be considered a key success factor by itself.

Next, send invoices and follow up on overdue invoices. If you consistently run into the issue of 1) forgetting to send invoices in a timely manner or 2) struggling to get clients to pay on time, it’s worth having a conversation with your bookkeeper about how you can streamline your invoicing and payment system. Receiving automatic payments from clients when appropriate, such as ACH or credit card, can easily outweigh their associated fees because, overall, it ensures you’ll get paid on time.

Next, file and remit monthly sales tax payments as determined by the state. You do not want to get behind on filing and paying your sales tax, as you’ll then need to pay both fines and interest on top of those regular tax payments, and repeat offenders are at risk of losing their resale certificates, which would severely impact your ability to operate your business.

Whew. This is starting to feel like a lot. We’re almost done!

Next, request missing W9s from your vendors. This is something you’ll need to do any time you get a new vendor and might take less than a minute to review if you haven’t added any new vendors to your arsenal in the last month.

Lastly, the fun part: Pay yourself. (And by this, we mean actually transferring funds into your personal checking account, not just buying yourself things with your business credit card.) If you aren’t sure how much you should be paying yourself as an interior designer, you can get that information in our FAQ blog post here. (Yep, we’ve got you!)

The Top Design Firm Bookkeeping Tasks that Should be Done Quarterly

Every three months, you should review your last three months of financial reports. Look for trends (e.g. Is net income trending up or down? Is overhead staying high or has it decreased?) and make any necessary adjustments to your spending habits.

Next, be sure to file and remit quarterly those sales tax payments. Fun stuff, we know…but it doesn’t stop there. You’ll also need to set aside funds for future income tax payments. We recommend that our clients allocate 15-20% of their revenue for income taxes, and this should be set aside in a separate business checking or savings account (not kept in your operating account).

End-of-Year Money Checkup for Interior Design Businesses

While the end of the year has most of us in a holiday-infused fog, you as the design entrepreneur have a few more things to do. You have until January 30th of the new year to send W-2s (to your employees) and 1099s (to your subcontractors). Often, your bookkeeper or CPA will prepare these documents but you’ll need to coordinate with them on who exactly is handling the physical mailings.

Another big financial moment for December / January is your Year End Review. You might do this alone or alongside your bookkeeper / CPA. During this meeting, you’ll review your financial reports for the last calendar year and cover topics such as…

Determine whether your spending is aligned with your goals. We generally recommend setting aside 15-20% of revenue for taxes and keeping payroll costs under 30%.
Updates to your business plan. What worked for your business in the past year, and what didn’t? Have any competitors moved into your market? How have economic changes impacted your business, and what are experts forecasting for the upcoming year? Since business plans are living documents, it is important to periodically review and update them to ensure they are still relevant. Entrepreneurs are often thinking about these things, but it is extremely important to formally outline your thoughts and plans.
Set goals for the upcoming year. This can be as granular as “increase the profit margin on furniture sales by 5%” or as vague as “hire a junior designer.” The point of an annual goal-setting process is to stay in charge of driving changes in your business instead of flying by the seat of your pants.

These tasks have major “New Year, New You” energy. Some people love this stuff. Others are really overwhelmed by such large tasks. Having the right people on your team - such as bookkeepers who understand your business model (that’s us!) - makes this process so much easier.

Feeling financially frustrated?

Managing the money side of your business might not be your cup of tea. That’s why we at Business by the Book exist. Our job is to handle your weekly, monthly, quarterly, and annual financial tasks, in addition to conducting your monthly and year-end financial reviews and helping you make educated financial decisions to spur the growth of your design firm.

Together, we can move your business forward! Get started by booking a Discovery Call with us today.