Bookkeeping Tips For Interior Designers to Keep Projects on Track
Original photography posted at Unsplash by Karen Levand.
Original article posted at Designer Manager.
Start Each Project With Proper Preparation
One of Design Manager’s core features is the ability to save various types of markup rates and fee calculations, so entering this information at the beginning of a project will save you and your team precious time after kick-off, when the pace of the project speeds up. It also minimizes the chance for human error, which will be a huge relief for your bookkeeper. Before the project starts, be sure that you and your staff are properly trained on how to make the most of Design Manager’s vast capabilities. Elaborating on the importance of setting your project up correctly, Denise says:
“Proper project setup in Designer Manager, which is the project management and accounting support software I recommend for interior design businesses, is critical. Design Manager offers a variety of settings at the project level, which is great. The design team should set up each project with the markup rates for merchandise, freight, reimbursables, and time billing activities. Many projects have different tiers and billing rates that you can set in Design Manager, and if the information is entered incorrectly, It could obviously affect the profitability of the company.”
Priya echoes the importance of triple-checking the information you enter at the beginning of your project, saying, “I think Design Manager has an extremely good internal control system which is great, but at the same time, you want to use it correctly from the beginning.”
Once you have hammered out the project details in the client agreement and then entered them into Design Manager, the next step is to schedule a recurring calendar appointment to review your books throughout the duration of the project. Priya suggests making these review meetings a weekly event where you “look at all of your numbers, including banking transactions and credit card statements.” She says, “It's your business, so however many outside consultants and accountants you have to help you, you know your business better than any of them.” Denise agrees that you should review your books at least weekly, as she explains, “because as time goes on, if you don't capture certain items, you tend to forget what project it's for and how to allocate it, especially when it comes to credit card charges and reimbursables.”
Ongoing Maintenance
Purchase Orders
Now that your project is moving full steam ahead, your creative mind is likely brimming over with design ideas and less so with bookkeeping to-dos. This is why starting each project with a plan for handling bookkeeping procedures helps keep you on track and identify potential problems before they arise. Both Priya and Denise agree that purchase orders (POs) are the source of a lot of accounting mistakes, and they are usually the first thing they look at when their clients’ books aren't adding up. Thankfully, Design Manager makes it easy to stay on top of potential PO problems with comprehensive reporting tools. Priya recommends checking the “Open Purchase Orders” report in Design Manager at least every two weeks during the course of a project. She says, “Things often fall through the cracks. For example, a PO is sent but doesn't reach the vendor, and that order never gets processed. If you don’t know, you fail to follow up.”
Denise explains another more complicated, yet common bookkeeping problem interior designers face when working with POs and how to use Design Manager to manage it (Your accountant will be delighted by this revelation!):
“Designers should review open POs regularly to be sure that the POs for completed items are properly closed. Due to the nature of the industry with regard to sending vendor deposits, many of the PO payments are recorded in Design Manager as Deposits on the Project PO instead of entering them as payments on a Vendor Invoice. Accordingly, when the client is invoiced for an item that has an open PO, the cost does not automatically transfer to the cost of goods sold account on the Profit and Loss statement until the PO is closed. So it is important to remember the Vendor Invoice step just like the Client Invoice step because invoices in Design Manager software act as the financial triggers. Regular review and closing of the POs, recommended as a regular procedure immediately after invoicing a client, will help ensure the proper matching of income and expense on the financials.”
Working With Deposits
In addition to staying on top of POs, Denise and Priya advise interior designers to hold off on purchasing anything for a project before collecting payment from the client. Denise adds, “You never really want to use company money; you want to always use client money for their purchasing because otherwise, you may be on the hook financially if a client unexpectedly rejects an item.” Many interior designers collect deposits to mitigate this type of risk, but Priya warns that deposits must also be handled carefully to avoid bookkeeping problems. She explains,
“In interior design, client deposits and vendor deposits are commonplace, but there are different ways the billing can be handled that can become problematic. In some cases, designers bill based on the proposal price, and in others, they bill on the actual price. I've seen in some instances that a price change will happen from proposal to actual, and the deposit should also change to reflect the actual price, but whoever is doing the invoicing is unaware of this. Then the client ends up under billing or over billing.”
In order to help stay organized through the process of moving from proposal to invoice, Denise suggests breaking up proposals by project phase instead of having all items for one project on just one or two proposals. Everything you are ordering at one time can go on one proposal.
Utilize the Work in Process and Pre-Billing Reports
With so many items to be accounted for, project management and accounting for an interior design project can feel overwhelming without the right tools to keep you organized. Thankfully, Design Manager offers a number of reports to help keep track of the many moving parts of your project. In addition to the Open Purchase Orders report, Priya and Denise also recommend using the “Work in Process” and “Pre-Billing” reports to make sure nothing slips through the cracks. “The Pre-Billing report is a wonderful report in the system to show what the client has paid for, what balances are outstanding, and what has yet to be invoiced," says Denise. The “Work in Process” report will essentially create your project management checklist, which is extremely helpful because “When you don't stay on top of tasks throughout the project and you're trying to do it at the end, it's too late."
Wrap Up a Project Neatly
Design Manager’s project management reports also come in handy when you’re checking for loose ends as you prepare to wrap up a project. Priya says:
“If a project is done, my purchase order reports should show zero open POs and my “Work in Process” and “Pre-Billing” reports should have nothing for that project. There should be nothing in the “Unordered Components” report for active proposals. So basically all my accounting books are showing that this project is technically complete, because if there is nothing in any of these reports, it's a zero balance and I can technically mark the project as closed.”
It’s also important to conduct a thorough reconciliation of your bank statements, cash, and credit card statements. You want to catch any potential errors before handing the reins over to your bookkeeper or accountant, since it will be easier for you to recall the details of what actually occurred. Design Manager’s reporting tools make it easy to become your own first line of financial defense with easy-to-read financial reports. Once you are sure your project is complete with all payments sent/received and recorded, take time to analyze your project from an efficiency, productivity, and profitability perspective. Denise says, “I like to look at the Profit Analysis report because it provides you with all of the relevant details like the markup percentages, line by line. Seeing these specifications for the project on an item by item basis helps you pin-point profitability, item by item.”
It All Comes Down To Proper Procedure
Managing an interior design project involves keeping track of numerous moving parts and complicated financial transactions, but it doesn't have to be stressful. Make a sound plan for project management and accounting procedures and employ a strong support system, including an experienced bookkeeper and industry-specific software like Design Manager to put your plan into action. Denise adamantly agrees, “Having the proper office process is important.” If you set your project up for financial success and enact a plan to keep the moving parts running smoothly in sync, you can feel confident in focusing your energy on creating the beautiful interiors your clients are dreaming of.