Speaker 1 00:00:06 There are a lot of things they don't teach you in interior design school, like finances. They definitely don't teach you enough about that. And unless every single future interior designer is going to work for an already established firm or in a corporate setting, that's a big oversight in our opinion. We would hate for any designer wanting to open up their own studio to hesitate on realizing their dreams because they feel overwhelmed or even scared by things like bookkeeping, accounting, taxes and payroll. That's where today's episode comes in. And we could think of nothing better than to invite Britney Beer, a finance expert specifically for interior design industry and someone we've personally turned to for council and guidance when it comes to running our business. Britney is a wealth of accessible and applicable knowledge. This virtual bookkeeper for interior designers is a total unicorn. It often feels nearly impossible to find someone with the education experience and skillset necessary to properly keep the books who also actually understands the completely nuanced and complex world of running an interior design studio from flat rates for certain projects or phases to hourly fees for others, from taxes on home furnishings to revenue from affiliate or e-commerce shops.
Speaker 1 00:01:18 The books are often far from straightforward for interior designers. We're asking Brittany, all the most important, the most confusing, and even just the where do I even start questions. Whether you're just considering branching out to open your own studio or your designer who has been operating your own business for a decade or more, we know you'll come away from this episode feeling better educated and more equipped to run your own business or future business. Well, there's a lot to cover, so let's get started. Hello, Brittany. It is so good to chat with you again. For those listening, you should know I talked to Brittany on a weekly basis now as she has come to Idco as our C F O, but her background, as you heard in the intro, is really about financial planning and advising for our interior designers and those listening. This is the episode you don't want to miss. So welcome Brittany. I'm so glad to have you.
Speaker 2 00:02:15 Hi Anastasia. I'm so glad to be here. Thank you for having me.
Speaker 1 00:02:19 As you know in our planning meetings that just started a couple months ago, I usually end up in tears and I'm so overwhelmed by this whole concept of finances and the accounting side of my business, and I know for interior designers it's even more complex and confusing and can be so stressful. Let's start with the basics. For those who are just starting out or are just starting out really looking at this side of their business, can you walk us through the difference between a balance sheet, an income statement, and a p and l statement?
Speaker 2 00:02:55 Absolutely. And to talk about what you just mentioned, finances, especially for your own business, that's your little baby. They're very personal and emotional for people, and so understanding the ins and outs of everything or having someone to help you understand that is very important. So like you asked, there's three major financial statements that myself as a bookkeeper would provide my clients on a monthly or at least quarterly basis. Those are a balance sheet, an income statement, which is also referred to as a p and l, profit and loss and a cash flow statement. So an income statement is just that it shows your income from your company and your expenses and what you're left with is your net income or a net loss. A balance sheet is where your company stands at a certain point in time and it shows your assets what you own.
Speaker 2 00:03:57 So this is cash on hand, your accounts receivable, inventory, equipment, fixed assets, and it also shows your liabilities, things that you owe, which would be accounts payable, bills, debt, wages that are about to be due. So it's important to look at that as well. Your statement of cash flows is also really important and I feel like this is an often overlooked statement to look at because it shows all the money coming in and out of your business. So you could technically operating at a net loss showing that on your income statement, but your statement of cash flows says your cash positive, which is great. You know, you might be at a net loss because you are taking out depreciation expenses on your income statement, but you have a lot of money coming in otherwise on your cash flows. So we like to look at all of these three together and talk through them.
Speaker 1 00:04:57 Amazing. Thank you for clarifying. I know that we've had this conversation personally, so I know those listening really appreciate it. Brittany, how do you recommend interior designers set up their bank accounts? How many accounts should they have and what are they? Because I hear a lot of people talk about how they have 17 different accounts. I hear other people say that they like it in one place. I know your taxes should be in one. Can you break it down for us?
Speaker 2 00:05:23 Absolutely. So the most important thing I tell everybody is you need to separate your business and your personal expenses. That is number one. So once you have that, you need to have a business checking account, and this is for your day-to-day operating expenses. I always recommend having a separate business savings account, and this is where you might put a certain percentage of your sales every month for tax purposes, whether that's sales tax and federal income tax. Generally about 20% of your income you could set aside and that will give you a good cushion when it comes to tax season. And some people even have a third business savings account and this would be kind of like your rainy day fund where I would recommend setting aside around three months worth of operating expenses in the event of unforeseen circumstances. We saw this a few years ago with Covid where people didn't know if they were going to continue to be able to operate. So by having this little cushion, you will still be able to stay afloat, pay your employees and other expenses that come up and are needed during this period where you're trying to figure out what you need to do.
Speaker 1 00:06:48 Brittany, you mentioned necessary operating expenses and I'd like to clarify a little bit what someone should really be accounting for as necessary.
Speaker 2 00:07:00 So I would say a necessary would be payroll expenses to pay your people rent if you have an office space, things that you know are coming up and you need to operate your business at the bare minimum. So I would say this wouldn't include things like meals with clients and gifts and maybe certain advertising or photography expenses that you could definitely hold off on for a little while. And aside from those checking and savings account, I would also say open a business credit card. You're leaving money on the table if you don't because these credit cards give you points and cash back and as long as you're diligent about paying it on a regular basis, then it's only beneficial. And a lot of my clients use Chase or Wells Fargo and some use amex. There's lots of different credit cards available for you depending on what kind of reward you're looking for.
Speaker 1 00:08:00 Amazing. Just for everyone listening, we bank with Wells Fargo and we use Amex and everyone on our team has access to an Amex card that all contributes points to our company account, which means I get points to pay for travel or cash back or anything like that. In full transparency, I didn't start doing that until probably two years ago. And in hindsight, I look at how much money was left on the table, not to mention the additional perks or benefits at for a long time I was a believer in like, don't take out loans, don't like I'm cash only, don't use a credit card, don't get set up like that. But after having my business be profitable for a few years, I saw that we could treat it really like a debit card. Mm-hmm <affirmative> and just be paying it off automatically on a weekly basis.
Speaker 2 00:08:47 Absolutely. And if you're keeping up with your books on a regular basis, you should know how much money you are spending and know how much money you need to have to pay off that credit card.
Speaker 1 00:08:57 Okay. So again, this is a foundational question. Should designers be setting their business up as a sole proprietor L L C or an S-corp? And I know from my experience there's a threshold that really changes this. Can you talk us through that?
Speaker 2 00:09:13 Of course. So choosing a business entity structure for your company is kind of a confusing step for a a new business owner by default. When you start a business and you're just like, okay, today I'm gonna start Britney Veer design, by default, you're a sole proprietor, right? However, you should definitely choose to file as an L L C as soon as possible. The reason being is that when you're a sole proprietor, there is no separation between your personal and your business assets. If something was to happen and someone was to come after you, your personal assets, your house, your car, anything can be taken away from you. So filing as an L L C is definitely recommended and that's pretty simple to do. You go through your state, go online, enter your information, most state websites will walk you through the different steps as far as getting registered agent and filing your articles of organization, which basically just states that you're the owner and this is the purpose of your business.
Speaker 2 00:10:25 And then once you have that filing, you can go and get an E I N with the I R s and then that number, that's like your business' social security card, uh, social security number, right? So you use that number to then open your business, checking your savings and your credit cards. Once you're an L L C, then if someone was to come after you, they can only go after your business assets, your personal stuff is protected. Now, once you're an L L C, you can then choose to be taxed as an S-corp. So choosing to be taxed as an S-corp is a decision that you should probably bump up against your C P A because there is a threshold in your business when you start making a certain amount of revenue and you're paying yourself a certain amount that it makes sense tax wise to pay yourself as a W2 employee. It usually is around the 50 grand annual threshold of taking a salary as a business owner that you would want to make sure you initiate that conversation. There's a lot of tax implications as well to becoming an As corp good, good tax implications and ways that you can save and reduce your net income and your taxable, your taxable income. So it's definitely something worth talking about once you're hitting that
Speaker 1 00:11:46 Threshold, I believe that while you, when you switch to an ESCORP and start paying yourself, honestly, it's also really nice because when you start paying yourself, your taxes come out of your check like a regular employee. You don't have that huge self-employment tax bill at the end of the year so, or quarterly. So that is a really nice change as well.
Speaker 2 00:12:08 Yes, cuz when you're a sole proprietor or an L L C, those are considered pass through entities. So any income that your business makes passes through directly to you and goes on your personal income tax statement, whereas the S corp, it is separate, just like you said.
Speaker 1 00:12:25 Okay. So who do interior designers need on their financial team? There are bookkeepers, tax payment services, tax advisors, payroll managers, CPAs, CFOs. What is the difference between each <laugh> and what can we expect them to be responsible for? And as a smaller business, I'm talking, you know, five people or less, who do we really need?
Speaker 2 00:12:49 So if you're just starting out as a small business, I may be biased in this answer, but I think you should have a bookkeeper from the get-go. This is somebody like me who can come talk to you and understand your business and get you set up appropriately so that when you begin operating, it's just easier. It's easier to keep track of the, the types of income that you have, the types of expenses. And they set up your chart of accounts, which is basically like an organizational tool to categorize the various streams of income, the various expenses that you have. And now those flow onto your different income statements, balance sheet and things like that. So a good bookkeeper is someone that you can meet with monthly and they give you insight into your numbers that you can provide these different reports to you, you can talk through them and it'll allow you to make more proactive decisions about your business versus waiting the entire year.
Speaker 2 00:13:52 You give your C P A these numbers and they're not responsible for going through every transaction and digging into them. They just do a high level of due diligence to make sure everything looks good and file your taxes and by then it's too late to make any changes. It's you're, you're done. Your year is what it is. So a bookkeeper should be your first step and then also you should have a CPA that's going to help you file your taxes. And it's important to know that all CPAs are not created equal, right? Take the analogy of going to the doctor. If you are having, like if, if you broke your bone, you're not going to go to a cardiologist, right? If you need surgery on your heart, you're not going to go to family medicine doctor. So as cpa, you want someone that specializes in filing taxes and it's also important to to ask them if they have any additional specialties and maybe small businesses that are your size.
Speaker 2 00:14:56 And I just think that gives it an even more tailored approach when they can understand the type of business that you have and they'll give you better answers. But having a good bookkeeper goes hand in hand with the CPA because cpa, it's gonna cost you more hourly if you have your books in order, all you need to do is give them to your CPA tied up in a nice little bow, they can prepare your taxes so you kind of minimize your fees on the end. Those are the most important. Once your business starts getting in that almost seven figure range in revenue, it might be time to start thinking about talking to a tax strategist. And these are people that can look at your statements and say, all right, this is where we can make some changes to reduce your taxable income, save you money, these are legal ways we can use these tax loopholes in your favor. So I think that would be a very good step to have once you reach that threshold. A C F O is also someone that you should have on your team when you start hitting that threshold as well because they'll be able to have regular conversations with you, a liaison between your C P A and potentially a tax strategist to make sure that the decisions that you're making are going to be beneficial for your company now and in line with the goals that you have in the next one to five years.
Speaker 1 00:16:29 Can you circle back a little bit and talk to me about which of these people would be the person to run payroll?
Speaker 2 00:16:37 Okay, so most bookkeepers can run help you run payroll. You can also do this yourself. There's a lot of tools out there available to help you. For example, QuickBooks has a payroll module that you can just set up. They have specialists that can help you make sure it's ready to go. There's another online tool called Gusto that I use with some of my clients, and that's a payroll management tool. ADP is also one. So you, they make it easy for you to do yourself, but if you wanted to outsource that, that's something that a bookkeeper could help you with.
Speaker 1 00:17:11 Awesome. Okay. So do most design studios need full-time or part-time help with finances, do you feel, and should they hire someone internally or can this be a contract position?
Speaker 2 00:17:27 Most that I've seen, it's a contract position because bookkeepers, CPAs, they all have their own businesses and multiple clients. So these will be 10 99 contractors that you have to help you as much as you need. So bookkeepers, they can help you and meet with you every week, every month, every quarter. CPAs, you probably will check in with them on a quarterly basis and then again at your end when they're starting to prepare your taxes and have follow up questions for you. So it's not someone that you need full-time to be working with you, but it is nice to have that open line of communication with them whenever you need in case you have questions.
Speaker 1 00:18:08 Absolutely. If you have someone that you're meeting with externally, how often do you recommend? And I probably think that there's some sort of tiered system here. Like if you're making X number that seems like you'd be meeting with someone X number of times, et cetera,
Speaker 2 00:18:26 It depends as well. So if you have a lot going on in your company and a lot of transactions happening on a weekly basis, then a weekly check-in, even if it's just for 30 minutes, can be helpful just to hold yourself accountable, right? Because it's easy to let something like finances fall through the wayside because it's not what's on the forefront of your mind and it's not what you wanna deal with. It's not very fun <laugh> for most interior designers. So by setting these weekly calendar invites up with your bookkeeper or someone who you can discuss financials with, that's very helpful. I recommend at least on a monthly basis checking in.
Speaker 1 00:19:13 Okay. So I have to admit that since we've started, the fact that we are talking almost on a weekly basis makes every conversation less scary and every conversation feel less stressful. And so by biting it off in little tiny pieces and going through, okay, we had 150 transactions this week, let's get those categorized versus here we are at the end of the quarter or here we are at the end of the year and we have thousands to go through. It really has just provided me so much stress relief and so much comfort and I'm so grateful to you for providing that for
Speaker 2 00:19:50 Me. I'm so glad.
Speaker 1 00:19:55 One of the first impressions prospective clients have of your brand is your website. If you don't have a strong online presence to show off your work though you're losing out on potential clients. ICOs Studio offers a selection of limited edition website templates designed specifically for interior designers just like you. If you're looking for a more hands off experience, you can add on implementation and professional copywriting and we'll have your new website up and running within a few short weeks. Visit idco.studio to choose your favorite before it sells out. From your experience, is there an interior design software that's best in terms of financial management? There's so many out there. We've got Ivy, QuickBooks, design manager, studio designer, design files, my doma, and everybody's like, which one is the best? From your perspective as an accountant and bookkeeper, what do you think is the best option?
Speaker 2 00:20:49 You are right. There are so many options and I feel like with my clients we've dabbled in a few different ones and have learned a lot from that experience. <laugh> for accounting purposes and bookkeeping and linking bank accounts and categorizing transactions, I recommend using a software specific to accounting like QuickBooks. Some people use zero x e r o.com and I just feel like those systems are very comprehensive and they're, their help desk is also very helpful and knowledgeable about that. And for me it makes it easy to go in and look at a report. If I see anything I, I can dig in a little bit deeper. It's with these other softwares, I feel like we haven't really found something that's a one stop shop. Every designer operates their business a little bit different, so you kind of take the best pieces from each software that you can and try to use as little as possible to get the maximum coverage. Right. So for bookkeeping, I say have your own accounting software for that, for extra designer stuff, I have people who have dabbled in studio designer, oh gosh, design files, different things for invoicing, but I prefer QuickBooks.
Speaker 1 00:22:24 Yeah, so Lindsay Burke Design, one of our best friends, we host design camp with her. I know she made the transition from Ivy to Studio designer, which not only was a transition as far as like getting her line items approved with her clients and presenting, but she does say that studio designer is specifically set up as an accounting software for designers. And so she has suffered the significant learning curve of making that jump, but has been really, really happy with it. So if you are interested in checking out a new design software that is more appropriate for a bookkeeping, from a bookkeeping standpoint, from what I have heard across the board, studio designers seems to be the way people are going, but they still always also have that QuickBooks account. So like you said, it's kind of piecemealing a lot of different softwares to get the best utilization for your specific needs. But that's just a little tip I hope to get studio designer on the show at some point to talk us through this more in depth. But for now we'll leave you with that. Just make sure that you are using something like QuickBooks, most likely QuickBooks to be tracking all of those expenses, especially when you're purchasing for clients.
Speaker 2 00:23:38 And to add onto that, I, there's different tiers of in within the software that you can use. So you don't need to spend a hundred dollars on a software if you're not going to be using it to that full potential. So start small. A lot of people start out in Excel spreadsheets just as long as you have a way to track these things. However, we've c we come into issues where I've worked with the client who was tracking expenses in an Excel spreadsheet and it missed certain things like when you accept stripe, stripe payments on invoices, it doesn't take out those fees. And so they had no idea how much they were paying in fees, whereas a software like QuickBooks can automatically categorize that for you and when you see over a period of time, wow, I've spent X amount of hundred dollars in fees, when you were checking it in a spreadsheet before and you're like, whoa, I missed all of that, it's very eye-opening.
Speaker 1 00:24:40 Yeah, absolutely. That 3%, it's usually somewhere around 3% is shocking. When I look at our finances at the end of the year, how much that 3% really is. Okay, so finances can feel like a lot, an overwhelming amount of information to look at what is the most efficient and responsible way to sift through information provided by your bookkeeper and what are those top level numbers that you as a business owner should be looking at to know if you're on track with your goals and if your business is really healthy.
Speaker 2 00:25:09 So we kind of talked about this earlier and found that it's helpful to break things down by a weekly or even monthly basis and help things seem not so overwhelming. So when you are making time to look at your numbers on a regular basis, personally as a bookkeeper or C F O for my clients, we look at the following metrics. We'll look at sales from their income statement, how much have we made this period? How does that compare to last month, last quarter, last year? Are we where we wanna be? We look at the different revenue streams and see where are we making the most money? Where can we get better? Another area I look at would be margins. We look at the cost of goods sold as the percentage of sales would've been our wins this month would've been our barriers to get these margins that we want to get or are these margins meeting our expectations based on how we've determined to price our goods and services?
Speaker 2 00:26:13 And then the last metric I would look at would be expenses and just make sure that these are as expected as well what did we spend this month that was higher or lower than last year in the same period of time? Was it expected? Did we have any unforeseen expenses or do we have anything coming up that's going to be a larger expense than what we've been trending towards? So these are all things that when you get your income statement and your balance sheet you can look at to make sure your business is in a healthy place and it's something that you can work with someone like a C F O to discuss and dive into in further detail and create a plan.
Speaker 1 00:26:57 Okay. Brittany, I'm going off script for those listing. You know I do this every time. I'm sorry. No, of course. But I am curious when you're looking at those numbers with your clients, do you ever break down or look at the income on product markup versus like design hours? Are you also breaking those numbers apart or are you recommending that we're just always looking at things in totality as far as what our profit and losses are?
Speaker 2 00:27:26 Oh, breaking it down is the best way to dig into this. And so whenever I come on as somebody's bookkeeper, that's one of the first things we discuss is what are your streams of revenue and how can we break these out to give you better visibility into your business? Those often look like design hour income sale of product income and some other people get commission income mentoring, income design day service income. So it's nice to have these separated out upfront in your chart of accounts so that when you run these reports you can see where your money's coming in from. Same with your expenses, we break out your cost of goods, some with some of my clients for furniture built-ins, lighting flooring and tile subcontractors. And so that also makes it easy to see where we've spent the most and make or predict trends for that for the for the future.
Speaker 1 00:28:30 I can imagine that is so helpful when you have clients asking how much should I expect to spend on X, Y, and Z part of my project? Or can you tell me why I need $200,000 budget because that just seems ridiculous to me. And to be able to itemize that and say, well on average this is how much a project of this scope spends on lighting specifically. So okay, let's move on to talk about financial planning for the year ahead. We're releasing this episode last week of December, so I know this is top of mind as soon as everybody's over their holiday high. So walk us through creating budgets for a design studio. What are some costs most firms fail to plan for and what are some of the often overlooked items that need to be taken into account when creating a budget?
Speaker 2 00:29:18 I think a lot of times designers in their, especially in your first year of operating and really having your financials organized, some of the items that are overlooked are returns, things that arrive damaged and we have to return and we have to eat certain costs on. We feel we shouldn't fail to plan for that, but we do before we start talking about it. And now that we've experienced it, we can build that in to the next period. Shipping delays are another thing that can cause you to recognize costs in different periods than expected or even revenue in different periods than expected rising costs of goods sold. So you know with the economy right now and inflation things just cost more. So are we marking things up appropriately? Are we missing out anywhere And cost of labor as well, we wanna make sure and we give ourselves a cushion for that. I feel like you would know things are never as expected in the design world. You should always plan for something to happen and give yourself a little cushion. So building that in upfront when you're making a budget and you can anticipate a little bit more expenses than actually happen can only be better for you as a design company.
Speaker 1 00:30:43 I also think right now is a really good time to be thinking about who do you think you're going to need to hire or onboard as a contractor this year, even if you think it's not gonna be until q3, q4. Because if you can start putting away what that payment would be into that rainy day fund that you can start paying that payroll or start paying that contractor's expense now, you'll build up that cushion to provide yourself a little leeway should something happen after you've already made that higher. And so right now I really want you thinking about what's happening long term this year and not necessarily what are your expenses right at this moment.
Speaker 2 00:31:25 And along that line as well, we're we're thinking about potentially outsourcing some of the work that we're doing and maybe hiring someone to do social media for us or hiring someone to do CAD drawings. If you are hiring people, are you also, or if you plan to hire someone even further down the line next year, are you planning to increase your costs or increase what you're charging your clients to help cover those costs? So yes, you can put money away to save for those future payroll expenses, but you also need to be thinking about how you're going to increase your revenue to cover those as well. So that's something when you're doing your budgeting and forecasting what your next year is gonna look like, you should take into account, I've talked to a lot of people who said, oh yeah, I need to raise my rates, I'll do that in the new year. And I say, why not now if you're not going to be starting a project until January or February next year, waiting until January to raise your rates isn't gonna take care of these clients that you're signing now in 2022, you're gonna be working on them them in 2023. So raise your rates now to account for additional labor costs and covering your these expenses that are going to be coming up.
Speaker 1 00:32:49 Amazing. That is so smart. We are always on team Raise your rates.
Speaker 2 00:32:53 Yes, <laugh>. It's scary though. People feel I think imposter syndrome sometimes, where do, should I be charging this? I feel bad for charging this much but I think you've mentioned it on prior podcasts before that the interior design, having someone do that for you is a luxury service and we need to be charging it as such.
Speaker 1 00:33:16 Well and when you have six, seven people on the team with their hands on this project, that is very different than when it was just you. Absolutely. I had heard a really, really good webinar from Studio Designer recently. I will actually link that webinar in the show notes here because I have always been on team charge hourly and they had a really good defense or argument to charging flat rate and I think that this forecasting is a huge component of making sure that that happens accurately. And more importantly, this bookkeeping and understanding how much it actually takes you to complete a project is imperative. So I think we'll do another episode on the concept of flat rate cuz we haven't talked about that before. But moving forward here with Britney, let's go ahead and talk about how you can make reasonable accurate forecasts and projections for the next year.
Speaker 2 00:34:15 So making a reasonable forecast, you need to think about what does your client situation look like for the next year? How many projects do you want to have? How many projects do you need to have to hit a certain revenue goal? Now once you think about that, how are you going to get there? Right? Are you going to be bringing in more people to help you? Are you going to be working more hours? So that's something that also comes into account when you're thinking about your forecasting for the next year. Your pricing structure is something that you should think about as well. And you also need to think about any big investments that are upcoming that you are going to have to pay for or big investments that you want to make in order to be able to increase that revenue to your business. So those are certain things that are on the table right now with with some of my clients that we're talking about.
Speaker 1 00:35:11 So in the past, my C P A has said, okay, this is what you filed your taxes for this year. I, I think we can expect a 10% growth next year. That's like a conservative number. And we in historically speaking have blown way past that 10% increase this year has been a much slower year for us and we're a lot closer to that 10% revenue increase. H how do you look at a super busy three year period during the pandemic when the industry was just booming and now things might be regulating or calming down a bit and how do you fit those projections as a designer when you're like, well we've grown 300% over the last three years and then it's like, well what's it gonna look like coming forward?
Speaker 2 00:36:01 So I will preface this with saying I am not a C P A, this is just off the cuff, you know, non ticket as a grain of salt for me when we talked at the very beginning of this podcast about the three different statements that you should be looking at. I feel like a lot of people focus on their income statement and that's where they get hung up. But you need to realize that there's certain expenses on your income statement like your salary or depreciation for, you know, like furniture that you're buying for your houses, computers that you're buying for you and your team. Even a business car that go against your income to lower it, right? So just because you're showing a lower net income does not mean that your business isn't thriving. You have to look at your cash flow statement too. You wanna make sure your cash flow positive and that's key. If you're cash flow positive, we're, we're in a great place. So you need to look at these things in conjunction with each other. And I kind of forgot what if there were any other questions that you got cuz I went off on that tangent so if I missed something let me know and I'll make sure to hit that.
Speaker 1 00:37:16 No, I think that is a super helpful clarification. But I was wondering if you have a sort of rule of thumb, if someone has definitely been growing over the last three years and they're anticipating the possibility of a recession or just normalizing in the industry as a whole, what is a like kind of a baseline growth percentage that we should be trying to normalize that we should be trying to reach?
Speaker 2 00:37:49 I think it's different for everybody. Everyone has a different way they do business. There's so many different sizes of businesses. There's people that work by themselves or have a team of one or the people like you who have a ton of people under them. So it looks different for everybody. And I think it all comes down to how do you see your business as being successful? If you're growing at 5% month after month, quarter after quarter, year after year, but you're still able to invest and give back to the community and keep your employees at the same pay pay rate or even increase that that's good enough. Do you have goals of growing your team, giving them bigger pay raises? Well then we would need to grow a little bit more in order to make that happen. So it's a very personal number and not a one size fits all and you kind of have to put on that, you know, your your C E O hat and work with the C F O mentality and think about where you see your business and what you define as success over each period.
Speaker 1 00:39:06 I love that so much. Thank you Brittany. So we're talking financial goals. What financial goals should an interior design studio set? Are they short, medium, long-term? And what are those?
Speaker 2 00:39:20 So short-term financial goals I would say is to get cash flow positive. Make sure you are bringing in more cash, then you're spending, that's short-term goal. After your cash flow positive, then you can focus on these midterm goals of being cashflow positive and growing right, and taking all those things that we just discussed into account by growing. Do you also wanna bring in more people? Okay, yes. So let's make sure we're growing and still able to pay additional people. Midterm goals would also be, all right, I'm wearing five hats right now. How can I outsource some of these tasks that are maybe indirectly associated with growing this business? Like bookkeeping, social media management, marketing campaigns and emails, web design so that yourself as the interior designer can focus on growing your client base, looking at your revenue streams, figuring out how to grow those and make those as lean as possible.
Speaker 2 00:40:33 Then you get to your long-term goals and you figure out, again, how do we keep growing? But then how do we use this growth to really live out the mission of our company, right? Like if your mission is to make X amount of income so that you can give back to the community, this is a long-term goal that you need to think about. Like how can you get there so that you can do that with, with ease. How do you live out the mission of your company if it's to just create an amazing workplace for the people that work for you and pay them, well figure out how to do that. So again, like our previous question, it's very personal, but that's kind of how in big picture, how I would categorize short, middle, and long-term goal setting for your company.
Speaker 1 00:41:23 Perfect. So if one of the goals, financial goals is to grow their team, and I know we've talked about that a few times now, how can we work out how much each hire is going to cost?
Speaker 2 00:41:36 So a lot of that depends on their experience, what they're doing and the market rates, right? A benefit of working with someone like myself who has a bunch of interior design clients would be, you can bounce those questions off of me and I'm able to help you and say, yes, that is a reasonable rate to pay someone and this is how much it's going to cost you for the amount of hours that they're gonna work. We're gonna set them up as a W two employee and this is what it's gonna cost you extra an employer taxes or this is somebody that we need to keep as a 10 99 contractor and these are the implications for you. So having that understanding of the market rates is very important and then being able to bounce those questions off of somebody is also important as well.
Speaker 1 00:42:27 Definitely. I think that there's a lot of value to situations like design camp where you're in a room with 60 other designers and you can ask those conversation, you can ask those questions candidly, but reach out to people on Instagram, reach out to your colleagues, ask your colleagues what they're paying. You can also always check things like Glassdoor to see what is a local market rate. I definitely take that as like a very loose guideline. We pay our team really, really well for personal beliefs. So looking at those numbers aren't really a great guideline for me. But it does help you understand, okay, living in this city or in this market, this is what people in this industry with this amount of experience are getting on average. And then you can choose to say, well we wanna pay 10% over that, or whatever that is.
Speaker 2 00:43:20 Agreed. And and like you were mentioned before, I feel like the interior design community is very tight knit and very collaborative and all of the people that I work with all constantly bouncing questions off of each other. What for any process that they're doing and we all work together to come up with the best way possible to do it. And the paying someone is one of those questions.
Speaker 1 00:43:46 So, okay, let's talk salaries for ourselves. Should a designer be paying themselves a salary? I know this goes back to our earlier question of L L C versus S corp. When you're S corp you must pay yourself a salary. So if so, how do you determine that amount? What you should actually be paying yourself and what are the benefits to doing that?
Speaker 2 00:44:08 So if you are an S corp, you, like you said, you must pay yourself a salary and just a reminder to everyone who is an S corp, you need to run payroll before the end of the year. That's, that is a requirement. If you're a sole proprietor, an L L C, you just take money out of your checking account and that's considered an owner's draw. You should be paying yourself something whether some months you might feel like, okay, I can barely pay myself a few hundred dollars. You need to be compensating yourself for your hard work and for your time. One way to determine what a reasonable amount is is by looking at your financial statements and your cash flow statement because you don't want to pay yourself at the expense of putting your company in a bad financial position. So by looking at those, those reports we, you can figure out what a reasonable number is. I have people that pay themselves based on a percentage of sales. So we look at our revenue for the month, 20% goes to taxes, another X percent goes to myself as the owner of the business. I have other clients who are more on a steady income stream that have a set number that they pay themselves on a weekly basis. And that number will look different for everybody, but at least they have it set up to compensate themselves and go directly into their bank account.
Speaker 1 00:45:34 Amazing, thank you so much. One tip from my C P A that they've always told me is that you need to be paying yourself a reasonable salary. And so looking at those p and l statements and understanding what, how much money is in the company, it should be proportionate to what your salary is. And you can't pay yourself $5 a month when your company's making 5 million. So you do wanna be careful about
Speaker 2 00:45:59 That. Yes. And that's an corp requirement. The reasonable salary is just for an escort, not for an L L C.
Speaker 1 00:46:07 Yes. Thank you. Okay, so we're entering into this. Everybody keeps talking about a recession, so I feel like it's gonna put us into a recession cause everybody just keeps talking about it. Where are some areas designers can cut back on expenses and save as they budget for next year?
Speaker 2 00:46:23 So I have a few thoughts on this and I'd love to hear your feedback too because I feel like within tier designers that I talk with on a regular basis, even though people have been saying, oh, a recession is coming, a recession is coming, I don't feel like work has slowed down for interior designers. And I believe it's because instead of clients choosing to make these big purchases of new homes, they're choosing to invest in the homes that they have and make them more functional and more livable and, which is great news for the interior design community. But if you want to be more cognizant about your expenses, there are a few places that I think that you could, you could cut back. One thing that I like to review with my clients on a regular basis are, are recurring fees like subscriptions. We wanna make sure that you're actually using what you're paying for, right? Sometimes our mind goes on autopilot and you're, you're paying a couple hundred dollars for a service that you tried and forgot to cancel. So review those and get rid of that.
Speaker 1 00:47:32 Yes, 1000%. We, after reviewing this with Brittany, I realized I had still been paying internet in our old office for six months. So definitely when, especially those things that are on auto billing or autopay, those are the ones that'll get you,
Speaker 2 00:47:46 They, they will get you. And another way to cut expenses is just to figure out how to leverage free services like Zoom. You know, while it is ideal to go to a client's house, maybe in another state and review everything, there are things that you can do for free to eliminate travel costs for yourself and meeting via Zoom or FaceTime is one of them. Also, using tools like Instagram and Pinterest are free to to market your your work. And most designers have a stockpile of images that they can use for a while if they needed to choose to cut back on advertising or photography expenses. So that's another big bucket.
Speaker 1 00:48:33 Awesome. So where do you see designers most often leaving money on the table?
Speaker 2 00:48:41 We kind of talked about this earlier and it's the fee structure is a tough one. And that's something that I've talked a lot about with with a few people and trying to figure out the whole monthly versus flat rate fee. When you bill at an hourly rate over time, as you get better at your job, you become more efficient at your job. So something that you would've billed five hours for a year ago might just take you two. So you're losing out on three hours of billable income. So how do we bridge that gap and figure out how to recover this revenue that we deserve because we worked for that. Another thing that we talked about earlier is business credit cards, right? If you're not using your points and cashback rewards to the fullest potential, I feel like you're leaving money on the table. And the third one would just be the profit or the margins between the items that we buy and then sell. So moving towards vendors that are going to give you that lower price and that deeper discount allows you to have a bigger margin, but also pass on some of that savings to your clients too, to build that relationship. But that's a very important one too, is to evaluate how much you're spending on things, how much you're marking them up and selling them to your clients for and figuring out how you can make that an even bigger spread.
Speaker 1 00:50:16 Definitely. I think another one that people are leaving on the table a lot is they're not charging for their initial consultations and that hour or two hours, however long your initial consultation is absolutely should be billed and it should be billed at two or three times your normal hourly rate because at that point, nobody is guaranteed to sign a contract with you. You've prepared for the meeting, you send off a proposal after that, all of those hours should be AC accommodated. And I feel like while it's not going to be a hundred thousand dollars a year, absolutely those hours will add up, especially if you do get a lot
Speaker 2 00:50:52 Of inquiries. Absolutely. You're totally right.
Speaker 1 00:50:54 Walk us through your recommended year-end financial checklist for interior design
Speaker 2 00:50:59 Studios. For interior designers. If you don't have someone that's already keeping up with your books, you need to make sure that all of your transactions are categorized. And if you haven't done that yet, my recommendation is to go month by month, break it out, make it more manageable. Take January, go through that, look at all your invoices, make sure those are correct, look at all of your expenses, make sure those are tagged correctly. Then the next day go through another month. So if you do every day, a different month in 12 days, you can be done. So take a look at those and then also look at all of your past due invoices and send reminders to make sure you collect on that. The same with your bills, figure out if those are expenses that you want to include in the 2022 year or put off until 2023. Right? So if you wanna PO reduce your net income for this year, pay them now, clear them out. If you want to defer that to the next year, then pay it on January 1st. Either way, get rid of 'em.
Speaker 1 00:52:01 Perfect. What about receipts? What do we do with our receipts for the year?
Speaker 2 00:52:08 Oh my gosh. Re I have a, a love-hate relationship with receipts. You, you need to keep your receipts for everything, but it's also very hard to keep track of. But yes, as many receipts as you have, whether they've gone to your inbox, paper receipts, keep them. If you ever get audited, you should have those as backup.
Speaker 1 00:52:29 Just to clarify, is a photo of your receipt sufficient?
Speaker 2 00:52:33 Yes. So in QuickBooks we take photos of receipts and upload them directly and then we match those to the transactions that come through. And that way pretty much every transaction that we have has proof of what we spent for the item for shipping. If we had to pay tax on it, it's on there as well.
Speaker 1 00:52:52 Perfect, thank you. What tax deductions should every interior designer know about?
Speaker 2 00:53:00 So this is something that would warrant a discussion with your C P A or tax strategist to verify, but a lot of deductions that my clients take would be advertising and marketing and their photography. Make sure that those are getting deducted as deduct those expenses from your net income. Also your mileage, it is a beast to keep track of your mileage, but most of you guys are driving from client to client on a regular basis and those miles can be deducted from your taxes and office space. So make sure that your office space is being calculated and that you can give those calculations to your C P A. And that's also a reduction in your taxable income. It needs to be like a separate space. It can't be like working out in the open in your house. So whatever little designated space you work in, you give those measurements to your C P A and they will deduct that as well. Let's see, cars and mileage off space, advertising, gifts, meals with your clients, travel meals, make sure you're keeping track of those. Oh my gosh, that's all I have off the top of my head right now.
Speaker 1 00:54:17 No, I think that's a great list. Other things that you wanna make sure that you're writing off are tax deductible would be education and conferences. So if you attended design camp, make sure that all of your expenses associated with design camp from ticket costs to hotel, all of that travel needs to be deducted as well as any sort of templates or courses you might have taken if you bought a website template, if you bought one of our contracts. All of those things go into your business and you wanna make sure that you're double checking that you actually did reconcile those so that your C P A can make sure and have those deducted. So Brittany, what are some things we can do now before end of year to prepare for a stress-free tax season?
Speaker 2 00:55:06 Get your numbers together and go <laugh>. You know, that's the num numbers are everything, right? And if it stresses you out, hire somebody to come in and clean all of that up for you and they can go through it with you and just take that load off of you. Aside from that, you need to make sure that you've sent out W nine s for all of your contractors so that you can get your 10 99 sent out by January 31st. I mentioned this before, but if you're an escort, you have to at least run payroll once, but make sure you run that before the end of the year for yourself. And then also think about, take a look at your net income and figure out if there are any additional deductions that you can take. Like if you know that some point in the future you want to invest in office furniture or any kind of equipment like computers, new laptops for yourself or your employees and you're, you are a net income positive right now and you wanna reduce that maybe now before the year end would be a great time to buy that.
Speaker 2 00:56:16 If you're already in the negative, maybe push those expenses off until next year. If you have bought a big purchase this year, you can talk with your C P a before year end about whether you want to expense that entire cost in the current year or depreciate that, which means you get to expense that over time. So that's something that you know a bookkeeper can help you flag when you make those purchases initially so that around this time you can send those questions to your C P A and say like, Hey look, this is what my, my statements look like right now. Do you recommend I take the full deduction immediately or depreciate it over time? And then don't forget, like we just talked about, all of your home office write up writeoffs, the space, the internet, phone bills and things like that.
Speaker 1 00:57:07 That brings us to a very good transition to say we have a little gift for everyone listening. We know as you're trying to get those expenses out the door before the end of the fiscal year that we have a promo code for you. To those listening, bonus 15. Bonus 15 will get you 15% off everything in the idco shop anytime after listening to this episode. That's top secret. But that way if you want to go ahead and go with the website template and you want to go with the implementation or copywriting, don't worry, we can defer those services until next year and you can still get it in your books for this year. So that is a great way to lower that cost. We appreciate your guys' support so much, but Brittany definitely has advised me if we have anything big that we need to get out the door, that you wanna go ahead and lower your tax implications and your bill coming up in April, that this would be the time to do so. Brittany, is there anything else you want to leave our listeners with as they start to wrap their head around what feels like a really stressful season for interior designers as we prep for taxes?
Speaker 2 00:58:18 Oh gosh. I feel like we've talked about so much and we could probably go into depth on each of these questions that you've asked, but as far as getting your ducks in a row for the end of the year and moving forward into next year, just make sure that you have a handle on your business finances and what's coming in and what's going out, or you're able to hire someone to help you understand that and relieve that stress for you. If you have any questions at all, you can reach out to a CPA now before things get busy for them, because starting in January, their workload starts to ramp up and you might not hear from them for a while. So get those questions in now. You're always welcome to email [email protected]
if you have any questions. I'm more than happy to chat with you and help answer them or guide you to someone that can.
Speaker 1 00:59:17 Amazing. Brittany, this was so helpful. As I've always said, you make this feel so much less scary. I really appreciate you scrambling to do this bonus episode with us. This was so informative and you're just such a pleasure to work with. So thank you so much for being here today and I wish you a very happy holiday.
Speaker 2 00:59:35 Thank you so much for having me. It's been so great getting to work with you and I'm excited for this next year to come.
Speaker 1 00:59:43 Well, we will talk very soon. You have a very merry Christmas.
Speaker 2 00:59:46 You as well. Bye Anastasia.
Speaker 1 00:59:52 If you are interested in Britney Services, you can reach out to her directly at [email protected]
or visit www.britneyveer.com. That's B R I T T N E Y V I E r.com. We've covered a lot today. When you're ready to dig in and implement all the things you learned on this episode of the Interior Collective, head over to ID code.studio/podcast for the full show notes, including all the links and resources referenced. As a reminder, you can use Code Bonus 15 anywhere on the ID code.studio website to make those purchases before your end and save 15% off. We hope that helps you limit your tax responsibility next year while also getting ahead on your marketing and branding services for the new year. If you loved this podcast, please leave us a review. If you have questions or topics you'd like to hear, email [email protected]
, season two drops the first Friday in January.
Speaker 1 01:00:55 Subscribe to make sure you don't miss it. Our guest line up for this season still has us pinching ourselves. Join us as we candidly chat with some of the most innovative leaders in the industry, including Heidi Clear, Bria, Hamel, Chango and Co. Kate Apt, Becca Interiors, just to name a few. In the meantime, get caught up or refresh on season one, available on Spotify, apple Podcast, and now on the Identity Collective YouTube channel. Until then, I'm your host Anesthesia Casey, and this is the Interior Collective, a podcast for the business of beautiful Living. If you are interested.