Implementing the Profit First method for your interior design accounting is a multi-step process, but it doesn’t have to be a complicated one. Maybe you’ve read the book and learned the method, you’ve opened all of your different bank accounts, and now you just need to allocate the right amount of money to those accounts!
Things can get tricky here, so we’re going to break down the process with you step by step, and talk through how to determine your allocations for each account.
- Income
This is the account that every dollar you make will pass through. All incoming money gets deposited here, but unlike a traditional checking account, your money won’t stay here and you won’t make payments out of it. All of your allocation transfers originate here – in other words, your income account acts like a holding place for your money until you distribute it to the other bank accounts. - Mats and Subs
As an interior design business owner, paying for materials and subcontractors makes up a significant portion of the spending in your business. You can determine what money needs to go into this account by calculating payments from clients that are for product and subcontractor costs, plus any sales tax you owe. This dollar amount is what goes in your mats and subs account. - Operating Expenses
This account is meant to be used for the expenses you incur that keep your business up and running, from app subscriptions to employee payroll. Don’t panic if a large percentage of your income goes into this account – that’s normal, and you have plenty of time to work towards balancing things out. - Profit
This account is a good place to start small. Depending on how strapped for cash you are, you may start by transferring only 1% of your income to this account
If cash flow is good and you typically take distributions on a consistent basis, then start with 2% or 3%. Don’t be discouraged by these small numbers! These numbers aren’t set in stone by any means – you will develop a target percentage or dollar amount that you want your allocations to eventually reach. There’s always a bigger and better goal in mind for your money! - Owner’s pay
Owner’s pay is extremely dependent on different variables, so AccountSolve will typically advise a fixed amount or a percentage based on the individual. But in general, if your cash flow is good and you’re already able to pay yourself consistently, it should be easy to determine how much to transfer to this account weekly.
If your cash flow is strained, and you aren’t used to getting paid, this is another area where it’s wise to determine what is doable and start small. After you’ve used Profit First for a month or more, you can revisit this allocation and make some changes. - Owner’s tax
The best way to calculate what your tax allocations should be is to find out how much you owed to the IRS in the previous year, or what you pay in quarterly estimated payments. After this, you will take that amount and determine what percentage of revenue that is. For example – if you paid $20k to the IRS last year and your annual revenue (after mats and subs) is $500k, then your tax percentage would be 4%.
These 6 accounts and allocations will set you up for a world of success in the near future. It may seem overwhelming at first, but once you determine your allocations, you simply transfer the correct amounts every week and you’re set!
Still need help determining allocations for your different interior design accounts or need guidance on your interior design accounting? We’re here to help. Schedule a call with AccountSolve today to get clarity and start making financial progress!
