Accounting for interior designers poses its unique issues. Things like design fees, commissions, project budget tracking, and sales tax make the process much more complex (and a little bit scarier!). Whether it’s a team of just you or many in different locations, keeping track of your finances is critical to your success. 

However, for every challenge, there is a solution and, more often than not, more than one solution. We will look at some of the top accounting challenges interior designers currently have and their solutions. 

Accounting for Interior Designers: Challenges + Solutions 

Did you know that 21% of small business owners report not knowing enough about their bookkeeping? One of the biggest fears of self-employed and small businesses is making a mistake in their accounting that can cause audits and penalties from the IRS. Because you’re an interior designer, you have a more complex financial structure than a mom-and-pop store or a services business in a different industry. 

Because of these challenges, it’s important to understand accounting for interior designers so you can weed out the issues you may currently have and solve them before they become more than just a headache. 

1. Design and consultancy fees

Challenge:

Fees can vary depending on your business model. Some interior designers charge fees based on the percentage of the overall project cost. In contrast, some designers have fees that don’t change, regardless of the project budget, and some designers charge fees on a sliding scale based on their model. If you charge multiple fees or have fees that change depending on the client or the project, you must keep this information organized and easy to access. The challenge can be keeping track of all of these, especially if you’re juggling multiple projects at once or have more than one location. It’s important to remember that whatever fees you charge your clients are probably taxable. Sales tax is for tangible goods while intangible services and live consulting are service taxes. Be sure to check with your state and local tax authorities to ensure you know what is required.

Solution:

While this is pretty confusing, many accounting platforms like Quickbooks have tax expense trackers to help you stay on track. Other solutions:

  1. Be sure to store and organize your invoices. If you choose to do so in hard copies, that’s fine; just be sure you have a digital backup of them all just in case! 
  2. Have a business-specific checking account, so you have a “clean” history of your transactions. 
  3. Avoid using cash whenever possible because it doesn’t leave a trail like debit cards and online purchases do. 
  4. Organize your receipts! Keep your receipts on hand either in a project folder or through an app like FreshBooks, where you can take a photo of your receipt on your phone and digitally store it along with a description of the situation or project need. 

It’s important to keep a digital footprint, so nothing truly gets lost! 

2. Commissions

Challenge

Commissions can be an extremely important aspect of their finances for some interior designers. While an Excel or Google spreadsheet might seem like the best solution, there are several drawbacks:

  1. It only works well for very simple commission plans
  2. It’s easy to make mistakes while tracking
  3. Gathering information and data entry may be time consuming
  4. Doesn’t scale with your business growth 

Solution

Because commissions are taxable, it’s incredibly important to have a reliable tracking process. While the tried-and-true spreadsheet may still work for some, it’s not a one-size-fits-all solution.

If you’re using bookkeeping software like Quickbooks, there isn’t necessarily a commission tracking tool, but there are ways around that. Other platforms, like Spiff, are specifically built to help track commissions for your business. If you decide to use a commission-focused app, be sure that it integrates with whatever accounting tools you’re using, so you’re not adding more work!  

3. Keeping track of budgets per project

Challenge

Even with a business account, it can be hard to keep track of client budgets in real-time. Purchases are made, things are put on hold, prices for materials rise, material supply forces you to use something else, etc. There are many ways that tracking budgets for multiple projects can throw roadblocks in front of your progress. Clients can also change their minds, employee shortages can cause project delays, and supply and demand for materials can throw a budget out the window before it even gets started. If several changes are being made to a predetermined budget, the impetus is often to get the job done, not obsess over every line item. This can cause budgets to go over, resulting in loss of revenue and angry clients.

Solution

Project management goes a long way in running your business more efficiently.

  1. Invest in project management software like Asana to keep projects and tasks organized. You can use PM platforms to assign tasks to team members and follow up on questions or comments. It’s also easier to create and stick to your timeline.
  2. Use a project management app attached to your business account, like Vergo. When you use Vergo, you can create and track projects in the app, giving you up-to-date and real-time information on where your budgets are. 

Technological solutions are often a safer and easier way to help you keep track of your financial information. Keeping a digital record of your transactions makes it easier to track, analyze, and invoice. 

4. Procurement and payment for materials (sales tax)
Challenge

Sales tax is already a complex web, but the additional issues of procurement materials like furnishings, art, and textiles add an additional layer of complexity. Not only are you purchasing items to be used in projects, but you’re essentially re-selling them to your clients as part of your project costs. Each state has its own procurement taxes, and your vendors must comply with their state’s regulations, and you must work within the sales tax structure of your location. For states that don’t have sales tax ( like Oregon, New Hampshire, and Montana, for example), there is a “use tax” typically the same value as the sales tax. 

Solution

There are a couple of ways to handle keeping track of sales taxes: 

  1. Bookkeeping software or an accountant. Both of these can help keep things in order but range in price from budget-friendly to not-so-budget friendly (to be honest, no one wants an accountant or bookkeeping software that’s TOO cheap). While the upside is essentially letting someone (or something) else deal with it for you, the downsides can be costly and time-consuming for setup and maintenance, as well as the risk that information has not been aggregated correctly.

  2. Using a dedicated account and card for business expenses. While it’s very tempting to blend your business and personal finances together, it’s always best practice to keep them apart. Having a business account with a business debit card ensures that you have a detailed history of your purchases without going through and removing irrelevant line items. Because you’re using an account and a debit card, you won’t have to worry about credit checks, members fees, and interest rates as you go. 

Accounting for interior designers doesn’t have to be hard

While accounting may be the last thing you want to think about, implementing some of these solutions may get you the efficiency and the peace of mind you need to keep your business on track!

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