Be sure to check out my other article, “Interior Design Accountants & Bookkeepers: How are we different?” Click here.
Studio Designer: New Year, New Start
By Caroline Van Wassenhove, CPA
(Originally featured in Studio Designer)
A New Year brings new opportunities for a fresh start. Now is the time to reflect on the last year and put systems in place to set yourself up for a successful year ahead. Below are some best practices I recommend for Studio Designer going into the new year.
1. Create a Budget in Studio Designer
A budget is a tool that can help a business manage its operations over an accounting period. It quantifies a plan for the company to reach a desired goal and provides a target for future performance. It is static and is compared to actual results throughout the accounting period and helps determine variances from expected performance.
You and/or your interior design accountant can set up a budget directly in Studio Designer, under Settings/Budget. A best practice would be to start with the historical data and adjust for any known changes & assumptions for the upcoming period. It will remain static, which will allow you and/or your interior design accountant to run comparative financial statements in Studio Designer throughout the accounting period. The budget will help you measure key performance indicators (KPI’s), which will demonstrate how effectively your company is in achieving its key objectives. It will also allow you make decisions to help achieve your target goals. Examples include: 1) cash flow management (i.e. how long can the company operate in a positive cash flow? when can the company pay its owners/shareholders?), 2) break-even analysis (i.e. at what point is the company profitable?), 3) debt payoff (i.e. what is the cost & impact of carrying debt? how quickly can the company pay off its debt?), 4) personnel (i.e. when is it time to hire more staff?), 5) expansion (i.e. when is it time to rent a larger space?), and 6) increase sales revenue (i.e. when is it time to implement a promotional marketing plan? what are the additional costs & resources needed?).
2. Manage Cash flow
The interior design industry is very capital-intensive, and typically requires up front client & vendor deposits. Without a cashflow management process in place, it can be difficult to understand “how much money is yours”, which then bears the risk of running out of project funds prior to its completion.
A best practice would be to utilize Studio Designer reporting and to implement a cash flow management process. Examples of different strategies for you and/or your interior design accountant to adopt include: 1) the use of multiple bank & credit card accounts to track funds separately for operations, projects, taxes, and profit (i.e. Profit First System), which can help you understand your cash position in real time, 2) the use of cash flow projections as part of your budget process listed above, which can help you determine when the company will receive and spend the money throughout the accounting period, and/or 3) the use of a cash flow statement, which can help illustrate the company’s overall health (your interior design accountant can customize a report in Studio Designer to assist with this process).
3. Understand Sales Tax Nexus and Update Rate Changes in Studio Designer
Sales tax compliance can be a complex but critical component to the operations of an interior design business. It’s important for you and/or your interior bookkeeper to understand what triggers sales tax nexus to ensure your business maintains compliance. This is true for both in state and out of state projects.
A best practice would be to perform your due diligence on the state sales tax nexus requirements and sales tax laws prior to taking on a new project, as the tax laws and nexus requirements can vary by state. This will help you gain an understanding as to how the sales tax will impact the project, the business, as well all those involved (i.e. clients, vendors). You and/or your interior design bookkeeper can set up defaults & templates directly in Studio Designer (under Settings) to help ensure the project items are then taxed accordingly.
Sales tax rates can also change periodically, so it’s best to be aware of any upcoming tax rate changes prior to them going into effect. If there are changes in the tax rates, you and/or your interior design bookkeeper can make the changes directly in Studio Designer in a few different areas:
• Update the Tax Location rates for any state, local, and/or county sales tax rate changes. This is done in the Tax Locations tab found under Settings.
• Update the Tax on items and activities that are not invoiced. This is done in the Update Tax tab found under the Client Address ID.
Another best practice would be to register with the government agency’s website to receive any notifications related to sales tax rate changes, as the rates can change monthly, quarterly, or annually.
4. Implement a system for new Vendors in Studio Designer
When working with a new trade or vendor, it’s recommended to obtain the following:
• W9 (for 1099 purposes)
• Liability & Worker’s Compensation Certificate of Insurance
• License # (if applicable)
A best practice would be to obtain these documents prior to starting the work with the vendor, as they can be much more difficult to obtain once the work has been completed and the vendor has already been paid in full.
Another best practice would be for you and/or your interior design bookkeeper to enter this information in the Address ID Codes tab directly in Studio Designer. Address reports (which can be customized to include the Insurance Expiration dates) can be run periodically in Studio Designer throughout the year to help determine which certificates of insurance have since expired and need to be renewed. These reports can also highlight any missing W9s for potential 1099 vendors. Doing so will help alleviate the 1099 process as well as the Worker’s Compensation audit process.
5. Customize Reports in Studio Designer
Studio Designer offers several standard reports as well as allows for customized reports as needed.
A best practice would be for you and/or your interior design accountant to determine what reports are needed to help make sound business decisions throughout the year. If a report isn’t offered as a standard report in Studio Designer, you and/or your interior design accountant or bookkeeper can customize a standard report in Studio Designer and filter as needed.
6. Create Efficiencies in Studio Designer
There are a few ways to help save time in Studio Designer. One is to inactivate any Clients and/or Vendors that are no longer in use. All of the historical data will be maintained and will remain available in Studio Designer. This process will reduce the # of results in your dropdown lists, alleviating your search process as well as improving your reporting process.
A second way is for you and/or your interior design bookkeeper to utilize templates in Studio Designer that will auto populate cells when performing certain tasks. An example is to enter a default expense account for your office vendors that are typically coded to the same account each time (i.e. postage).
A third way is to create recurring office payments in the Money Out section of Studio Designer. This process will allow you and/or your interior design bookkeeper to save time by updating the dates and amounts as needed, versus creating the entries each time from scratch. Another best practice would be to use generic office vendor names to cut down on the address ID list (i.e. use “restaurant” vs. the restaurant’s name, and instead enter the name of the restaurant in the office payment description).
7. Know your limits and surround yourself with the right professionals
It takes a village to run a successful business, therefore surrounding yourself with a strong team of professionals can help take your interior design business to the next level.
A best practice would be to work with a team of experts that will alleviate some of the operational responsibilities, allowing you to focus on the design and growth of your business. Examples of such professionals include: attorneys, interior design bookkeepers / interior design accountants (it’s important that they have a strong understanding of Studio Designer), CPAs/Tax Preparers & Tax Planners, Insurance Agents, IT/Website Specialists, Payroll Administrators, and HR Specialists.
Interior Design Accountants & Bookkeepers: How are we different?
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.