When you have your own interior design firm, you know you have a lot on your plate. Between client meetings and making sure that you give them the best results within their budget, you barely get time to do anything else. However, keeping and maintaining your accounting books is also an essential part of running your business.
Failing to do so could result in delayed payments, incorrect invoices, and losses. Read along to know more about how you can streamline the accounting for your interior design business.
Accounting for interior design firms is a little different from other businesses. This is partly because the projects can go on for a long time, depending on the scope of work. Moreover, the payments are not standardized and may not come in as per schedule. Besides, labor costs can also be exorbitant if the project gets delayed.
Interior designers work with a number of suppliers, and payments are usually made after delivery. In this scenario, it becomes essential to track all the pending payments. To maintain your business' cash flow, many design firms take deposits to keep everything going. Without proper accounting, keeping track of this money can be quite a challenge.
Another complication is that interior designers do not have a standard means of charging their clients. Some interior designers charge on an hourly basis and bill their clients on the amount of time they spend on their projects. Others charge a percentage of the total cost, and even this percentage can vary.
When a design firm charges clients on the time spent, they need to log every single minute they spend on their client's projects. Ten minutes here and fifteen minutes there get added up and can often be easy to miss. In the end, this can lead to issues about the amount of work you put in and can also result in you being underpaid.
Filing the year-end taxes for your design firm can be a tedious task unless you follow proper accounting basics throughout the year. Here are a few tips to make taxes easier for your firm.
More often than not, designers get to bank reconciliation during the tax season. However, this should be done consistently throughout the year to avoid any accounting mistakes and outstanding payments that you have missed. If these errors go unnoticed while you are doing your taxes, the penalty can often take a significant toll on your business' finances.
The end of the year is a good time to review your accounts to make adjustments as required. For instance, if you have any outstanding invoices for which the payment has not come through, you may want to call your clients and ask them to clear them off.
If there is a problem, you could write them off as bad debts. This will save you from having to pay sales and income tax on the money you haven't earned.
Similarly, double-check your accounts payable to ensure that you have cleared everything. You may also want to check if you have entered any entry more than once.
If you have completed a project and haven't received a part of your fees, the end of the year is a good time to speak to your client about it and have any issues resolved.
Finally, it is advisable to double-check your income statement to look for any errors or omissions. Also, ensure that all the expenses have been categorized correctly and have been invoiced. This will help reduce your tax liabilities, and it is always better to spot such discrepancies before you file your taxes.
As per the US tax jurisdiction, if you are buying a product for your client, you will be responsible for collecting the tax on it from them. Moreover, you will have to collect the tax as per the district your client resides in and submit it to the government. However, taxes may vary across states, and you may want to understand them a little more to avoid any mistakes.
The rates of taxes also vary across items and services. For instance, while furnishings are taxed at the sales tax rate definition, the design fee can be taxed as a service rate. For more clarity, you may want to work with an experienced accountant who understands these nuances and knows how to accurately handle your business' taxes.
An accounting service can be a boon when you have a business to run, as it can become challenging to keep track of all these nuances.
As the owner of a design firm, it will help to understand how to calculate your operating expenses. This understanding is essential in controlling your costs and ensuring that your business remains profitable.
Expenses such as utilities, rent, mortgage payments, and building maintenance costs can form a sizeable chunk of your expenses. As your firm grows and you move your business outside your home, these expenses tend to increase. While rent and mortgage payments tend to become more or less fixed, your utility payments may vary every month.
Calculating labor costs can end up taking a huge chunk of your time if you do not have a system in place to track them. If you have a large team, your labor costs can become more complex. Moreover, when you pay them on an hourly basis, calculating these costs can become more of a challenge.
To avoid any hassles or discrepancies, you may want to ensure that you record them properly via a system to create regular reports.
There are other operating expenses that directly relate to running your business. You should add these to your accounts as they can impact your operating profits. These could include property taxes, advertising costs, legal fees, license fees, and insurance premiums.
At times, your firm may receive payments from clients for work you will do in the future. This payment is referred to as deferred revenue. Similarly, there could be expenses like rent or insurance payments that your business has paid but not incurred yet. Such expenses are called deferred expenses.
Accounting for both of these is a little different. You can consider deferred revenues as revenue only when you earn it or deliver your services. Until then, it is reported in your balance sheet as a liability. Similarly, deferred expenses are recorded as an asset unless you incur them.
Whether you like it or not, accounting is a crucial part of running your interior design business. Although accounting for designers may seem complicated as you might not have much experience with it, you can always seek help.
Bookkeeping services like Fincent can help take all your accounting needs off your plate to ensure you can give your work your complete and undivided attention.