by Caroline Van Wassenhove, CPA
Over the years I have had the privilege of working in a variety of industries, but the one that stands out to me is the Interior Design industry. I don’t know if it’s the beautiful furniture, the pops of color, or the one of a kind art pieces, but it continues to impress me. Designing is a form of artistry and it takes a great deal of talent and creativity to transform a person’s living space into their dream home. And while this seems tough enough, designers must do so on time and on budget all while having enough cash to pay their vendors and employees and more importantly themselves.
So how do they do it?
Creativity and project management are unarguable key factors to a designer’s success, but their ability to understand the company’s cash position is just as important. One of the first questions I am typically asked when meeting with a designer is “how much cash is mine?”. They want to know how much cash is needed to pay their vendors and sales tax so that they can see how much is left to pay their operating expenses as well as themselves. Fortunately for designers, these are concerns that can be easily addressed with not only the right software in place, but with the support of the right interior designer accountant as well.
Interior design is a capital-intensive industry and typically requires large up front vendor payments upon order placement. So if, for example, a designer isn’t collecting a sufficient client deposit before hand, or collects a client deposit but then spends it all before the project even begins, there won’t be enough cash left to pay the vendors and they will find themselves in a cash deficit. And not only that, they also have this little thing called sales tax to deal with. In a perfect world, the designer would collect the sales tax as it’s due and make the payment, but rarely does this happen. There is usually a time lag between the collection and payment of sales tax, which can sometimes mislead the designer of their true cash position. Fortunately, there are software applications, like Studio Designer, that provide designers with the tools they need to manage cash flow and their projects all in one system. The key to Studio Designer, however, is to properly utilize the software. The user needs to understand how to track all deposits, project workflows, work in process, inventory, and sales tax, all while managing their cashflow. And as you can imagine, this can become a little overwhelming and time consuming, which is why many designers seek the help of interior designer accountants.
Some might say that bookkeeping and accounting are the same for every company, but interior design bookkeepers and accountants may think otherwise. While the core principles remain constant, interior designer accountants specifically help designers understand the financial impacts their decisions have on their business. As an interior designer accountant myself, I understand project workflows specific to the industry and the impact they have on the company’s cashflow. I understand the implications of shipping cost fluctuations and custom vendor orders, as well as the requirements of sales tax, out of state sales, and inventory tracking. And I’m also aware of the frequent merchandise returns and exchanges that occur during the course of a project and how those returns can impact both the project’s time line and it’s bottom line.
We, as accountants in interior design also help designers by identifying other key areas such as wasteful spending, the company’s break-even point, and the true costs of adding employees, so the designer can decide on things such as hiring more staff, purchasing versus leasing new office equipment, or moving into a bigger office space. We uncover the differences between the highly profitable and less than highly profitable projects to help the designer determine which new projects to take on. We also illustrate the effects of delayed client billing and collecting on the designer’s cash position to help prevent them from fronting any of the project costs. But most of all, we distinguish project cash from operating cash and value the true importance of properly managing cash flow so the designer knows how much cash is theirs!!! So yes, while debits and credits are still the same in bookkeeping and accounting for interior design, a quality interior designer bookkeeper or accountant will go beyond basic bookkeeping and help the designer manage their cash flow so they can make sound business decisions while continuing to grow their business.