Starting and owning an interior design business can put you in survival mode from the outset. There are so many costs, you’re focused on staying afloat, finding the right clients, paying bills, working with subcontractors, and so much more. If you’ve been in the interior design industry for a long time, you probably have been focused on just about everything except turning a profit. That can always come later, right?
That’s the tricky thing about profits – you can run your business for a long time and get by without focusing on the true financial health of your company. This approach will create the inevitable situation of having enough cash flow to pay your employees and yourself (hopefully), and yet still coming out on the other side without any significant profit. Today we’ll talk about how to avoid getting to that place, and how to quit being used to not making a profit!
Understand Your Business Finances
The first step to setting profit goals is to understand your business’s overall finances. The Profit First method forces you to look at every element of your business, not just one isolated part. You need to establish a clear understanding of your expenses in every category – from operating costs and subcontractor pay to your own paycheck and taxes.
If it feels overwhelming to even begin this process – we promise it’s doable. Here are two steps to help you get started:
- Profit and Loss statements
You should get a profit and loss statement from your interior design bookkeeper or accountant on a monthly basis, or generate it yourself. Rather than hiding your head in the sand, take a moment to review the report and analyze your spending. Keep an eye out for how costs may fluctuate over time, any patterns of increased spending that you could eliminate, and the ROI of all expenses.
- Individual projects
Not all projects are created equal. Certain clients or jobs will have particular needs that require more time and effort than others. Review every project on its own for profitability. You may be able to pinpoint certain areas where you should charge more for particular services or materials.
Developing a greater understanding of your interior design accounting by paying attention to these reports and your projects will help you identify areas where you can cut back, or increase pricing, and therefore increase profit. Maybe you’ve racked up membership payments you don’t really need or you are not charging enough. Either way, making these changes may be challenging – but the profit you’ll turn as a result will be so worth it in the long run.
Set Realistic Profit Goals
We would all love to make a huge profit right away – but the reality is that if you haven’t set your business up to be profitable from the beginning, it’s going to take some time to get it up to speed!
When we talk about setting realistic goals, we mean it.
It may seem small or insignificant at the moment, but you can set your profit goals as low as 1% of your business’ real revenue. The point is to start taking a profit, not to have a huge pile of cash immediately.
Achieving profit goals is a long game – you aren’t just setting your goals for the next 6 months, but rather thinking of the big picture. If your profit goal is 10%, you still might only start at 1%. It may take 2 years to steadily build up to that 10%, and that’s ok – we fully believe baby steps are one of the best ways to make progress.
When you are able to increase your profit goals, don’t throw out a random target number without doing your research. Look at where your business is financially, research industry standards, and how your business expenses may ebb and flow over time. Making an informed and practical decision about your profit goals will help you actually reach them!
Monitor Your Progress
Becoming profitable is what makes all of the upfront work worth it. Monitoring your progress will help you stay on track and see results when your business starts becoming profitable!
This process doesn’t have to be completely rigid – small businesses ebb and flow in ways that are often out of your control. If you have to adjust because plans have changed over time, it’s okay. Because you’re gradually building up your profitability, you should have some room to make needed adjustments.
Thinking about becoming profitable can so easily turn into a “later on” problem for your business to deal with – but we hope this blog has shown you that increasing your profitability can start happening today.
Every business deserves to be profitable and yours should be no exception. We invite you to contact an interior design bookkeeper at AccountSolve today. We’re here to walk you through it!
