How to create a financial plan for your interior design business
As the owner of an independent decorating firm, you know how important it is to review the business periodically and to set goals and financial plans for the long term. Even though we are well into 2021, it’s never too late to start! Crunched for time, or, have no idea where to begin?
Here are our top tips for to help you achieve financial success:
1. Financial plan: Develop a high-level financial plan for your business. Start by looking at your total sales, cost of goods, total expenses, and net income from last year. Are your numbers where you want them to be? If not, consider where you would like to be at the end of 2021.
2. Fees: Next, it’s time to review a few key reports that focus on your sales. For fees, if you work off an hourly rate look at total hours and dollars by project, including all the hours not billed – if you have tracked your non-billable hours, you can accurately see how much time you are leaving on the table. Doing this will allow you to see what projects work better than others for you, so you can try to target those in the future. It may also reveal opportunities to correct any internal procedures or sourcing decisions that might have led to an excessive amount of unbillable time. This is the time to consider questions, such as, are you really billing all the time you work? What would be the impact if you increase your rates, even a little? Also, look at all the time worked generally in the business that was not billed to clients – this could also include how much time you spend attending seminars, blogging or other activities.
If you charge a flat design fee, ideally, you would have tracked your time, even though you’re not necessarily charging for it on an hourly basis. That way, you can identify how many hours you’ve spent on past projects to gauge how profitable they were for your business. Are you consistently putting in more work than you’re charging your client for? It might be time to consider whether your design fee is accurately representing the work you’re putting in, so you can charge your clients more appropriately for future projects.
3. Goods: After analyzing your fees, have a look at the goods side of the business. Specifically, review your product sales and the cost of those sales. If you are using a business management software, you could also look at your gross profit by project, by supplier, and by product category. Each of these will help you to decide if you want to make any changes moving forward. For starters, it will show you the type of project that has the best impact on your business and that can affect your marketing decisions. It can also reveal plenty about your suppliers which could lead to tightening ties with some and loosening with others.
4. Overhead expenses: Review your overhead expenses to see if anything can be reduced in the future. A key consideration here is whether costs that really relate directly to projects and should be passed on to clients are slipping into your overheads. Some examples could include building permits, printing costs, courier charges and additional freight fees. If you look at all these small expenses, and then multiply them by the number of projects you have, it’s surprising how quickly they can add up. By reviewing your overhead expenses, this can help you identify if your bottom line is being impacted, and by how much.
5. Additional support: Lastly, consider hiring additional support. This may seem a bit counter-intuitive, especially if you’re focused on limiting costs and hitting specific revenue goals. However, by investing more in support for your team, either internal or outsourced, it can have a positive, long-term impact on your bottom line. For example, if you’re spending a lot of your time on non-billable administrative work, you have less time to spend with clients that may be billable. Similarly, if you are attempting to do your book-keeping yourself, you could invest a small amount in a monthly bookkeeper to help lighten the load. That way, you have more time to invest in other areas of your business to bring in more revenue.
A simple plan and an annual review like this can get you motivated to grow the business and realistically meet your financial goals this year. You will be surprised at the impact that these changes can make. Having long-term targets also keeps you focused – so, be sure to keep that up by checking in on your progress throughout the year to see whether you’re on track.