magazine | Mar 24, 2020 |
Money moves: Top tips from financial experts to streamline your firm

No one becomes an interior designer because they love spreadsheets. Problem is, a bad spreadsheet can tank a project just as dramatically as the wrong shade of pink. For that reason, designers who can afford the expense will often outsource the nitty-gritty details of running a business to project managers and accountants. The best of these back-office pros keep a job humming along and profitable, freeing up the name on the door to think creatively. And with a close eye on tearsheets, invoices and schedules, they tend to notice things designers don’t. We reached out to some of these behind-the-scenes heroes to collect their best advice—and most dire warnings. 

Start at the End
There’s nothing quite like the bubbly excitement at the start of a new project. All that enthusiasm, however, can lead to hasty decisions that blow up down the line. Jared Miller, former CFO at the award-winning design firms of Alessandra Branca, David Easton, Roger Ferris, David Kleinberg and Charlotte Moss, recommends working backwards. “Designers tend to over-promise on timelines and under-budget, and that’s the worst combination possible,” he says. “Start by asking what day the client wants to move in, then develop a timeline: In order to get you in by that date, we need to do installation on this date, and if you want custom carpets, we need this amount of time. Then, do the same thing with the budget.”

The advantage of working in reverse, Miller says, is as much psychological as it is practical: “Super-high-net-worth clients will try to push designers around. If you can show them right up front that you’re serious and you understand how to manage expectations, they’re going to know that you understand how to manage their money and will feel comfortable as they have to keep writing checks.”

Develop Formulas
While every job is unique, veteran project manager Danielle Kelling, who has worked for the likes of Branca, Robyn Karp and Katie Ridder, says that designers shouldn’t get hung up on finding a new source for every detail of a project—that is, if they want to make money. The most profitable designers she has worked for don’t try to reinvent the wheel every time they spec a sofa: “One designer I worked for, all of her projects cost almost exactly the same—she ran a tight ship,” recalls Kelling. While it may sound boring to always use the same vendors for certain aspects of a project, it actually frees up time to spend on the creative showstoppers that clients really notice. “Nobody is going to be like, ‘Oh, the back of that sofa is so creative,’” she says. “People pay attention to unique finishes and pieces. If you want to create a really fabulous eglomise panel that takes a long time, great. But for basics, save your energy.”

“The biggest mistake designers make is letting the client feel that they deserve a discount off of the retail price. You’re giving them an entire service and they’re not overpaying—so why give a discount?”
Jared Miller

Don’t Confuse the Client’s Money with Your Own
One of the most common accounting mistakes designers make? Treating a client’s deposit like petty cash. “The kiss of death is when a firm uses a client’s deposit to pay for overhead expenses instead of buying the product that deposit payment [was meant to cover],” says Miller. “As soon as I see that, I know the firm is destined to fail. If they felt it was more sensible to pay for a [business] expense, they’re going at it totally backwards.”

It’s just as important, however, that you don’t put up your own funds. Sabrina Hamady, an independent accountant and financial consultant, notes that designers sometimes feel pressure to act as if they are in the same socioeconomic class as their clients. Hoping to avoid an awkward conversation about money, they put purchases on their credit cards—to potentially disastrous consequences. “I had someone who worked with an overseas client and paid for a lot of things upfront, which were all delivered … then the client refused to pay and they had no legal recourse,” says Hamady. Even if it doesn’t end in disaster, it’s still a misstep. “Don’t lay [out] your own cash upfront,” she counsels. “If it takes a while for the client to make the payment, suddenly you’re paying interest on the card, which adds up.”

Miller puts it in simple terms: “Designers are not banks that finance projects for rich people.”

Double-Check
So often, budgets and timelines get out of control simply because designers want to believe that everything will go precisely according to plan—despite all prior evidence to the contrary. “Always visit the workroom while the upholstery is still in muslin,” says Laura Gerlach, an independent project manager, who mentions a litany of common snafus. “If there’s a design change, like fabric dye lots being off—show them to the client before placing an order. And if you’re speccing a large item, do a site survey, or you might run into a problem during the installation.” Being meticulous about the details takes a little more time, but it guards against expensive change orders that can balloon a project’s budget.

Avoid Creative Accounting
In an ideal world, clients would always pay the full amount on an invoice, work would cost what it’s supposed to, and sales tax would take care of itself. Design most definitely does not happen in that world, but just because numbers are changing daily doesn’t mean you can play fast and loose with invoicing. “Be clean. If you send something out to clients, don’t go back and tweak it, send them a credit or a second invoice instead” says Hamady. She advises clients to keep it simple: Set up an accounting system and stick with it. And even if it’s tempting to set up different bank accounts for each project, don’t—such siloing will only lead to confusion later. “When a job done that way has ended, it’s always $6,000 or $7,000 off,” she says. “Trust your accounting system to help you. It should just be something you do automatically, not something you think about.”

Don’t Try To Live Like Your Clients
Great clients are so much more than just people with money. But let’s not kid ourselves: Having a budget to work with is key to a truly exceptional project. So interior designers find themselves traveling in high-net-worth circles, which can be a drain on the pocketbook. “As a part of marketing yourself, you have to try to put yourself where your clients are,” says Miller. “Designers can get in trouble if they try to live at the level of their clients just to impress them. A lot of designers spend too much money just to live.”

Instead of breaking the bank, Miller advises, designers should get creative. “Go to events where target clients will be, or join charities they belong to. You have to find ways to meet your clients without living like them,” he says. Another way to net referrals? “I always tell designers, ‘If you do a great project that you’re proud of, ask the client if they’d mind throwing you a party at their house.’ Happy clients are usually thrilled to do it—they want to help—but designers just don’t think to ask.”

Be Friendly—Not Friends—With Your Client
It’s natural to become close with clients, but that intimacy can have financial consequences. “Too often, the client is a friend, and [designers] don’t want to charge their friend for little things that go wrong,” says Justin Masonek, a freelance accountant who works primarily with interior design firms. “But it’s the nature of the business that there are going to be delivery delays, or eight yards of fabric instead of six. That adds up, and really eats into profitability.” If it’s stressful to ask a client to pay for little hiccups every time they happen, Masonek advises designers to ask for a $1,000 contingency retainer upfront. If the project goes smoothly, the money gets returned to the client. If something small goes wrong, having the money on hand saves designers from having to make the awkward request.  

Get Your Tech Right
You can keep the best, most detailed plans in the world, but if they’re stashed away in a computer that only one intern knows the password to, they’re useless. It seems simple, but many firms fail to do it: Set up a shared system so that all team members can get the information they need, whenever they need it. “Tracking details is so important,” says Tina Krivoshein Holmes, the director of operations for Bradfield & Tobin. “We keep everything—every single order—on a server, so if I’m out one day, everyone can still see where the project stands.”

Think Big Picture
It can be easy to fall in love with a pricey chair and assume that the budget can withstand a few splurges—but no one buys just one chair. “Dining room chairs in particular can really get expensive if you do each one of them custom,” says Kelling. “They don’t seem that expensive individually, but all of a sudden you’ve spent as much as a Mercedes on seating for one room.” She urges designers to always think about costs in total, not by unit price.

Get Over the Hump
Projects tend to have a natural rhythm, with a lot of enthusiasm at either end and mountains and valleys in between. Over the years, Kelling has noticed that most jobs reliably go through a stressful period about two-thirds of the way through. “You’ve ordered a lot, but you have to get the final stuff done, and the client is going to start pushing back on the cost of the project,” she says. “You’re going to have to start recalibrating your vision and figuring out a way to get to the end.” This hump, Kelling says, is unavoidable. But if you’re tracking the budget from the very beginning, the more you’re communicating with your client, the more on top of it you’ll be. “If you have an honest, direct relationship with the client, then that hump doesn’t have to be a hump,” she says.  

Don’t Buy to Sell
An alluring Biedermeier armoire is calling out from the corner of a shop, just begging to be bought. You don’t have room for it, but surely someone will … right? Designers sometimes fall into the trap of buying products speculatively. The problem, says Miller, is that the cost of storing and handling the piece often eats away the profit of eventually selling it—if it ever sells. “Designers should only buy when the client has approved and paid the deposit payment requested to order the goods,” he says.

Be Transparent With Your Clients (Strategically)
Transparency is in these days, and designers are regularly bombarded with the message that clients will no longer tolerate opaque pricing. It’s true, but that doesn’t mean you can’t be smart about it. “If the markup is already agreed upon in your contract, you don’t have to break it out for every purchase and put it in your invoice,” says Hamady. “Designers can overshare, and then the client ultimately just gets confused.”

Be Transparent With Your Staff (Always)
It’s never a good idea to withhold information from your staff—especially details about scheduling, pricing and the terms of a contract. It can turn small mistakes into huge disasters. “Employees don’t care how much the designer is charging,” says Kelling. “They care about doing fun work and being compensated—it’s the designer’s prerogative to charge what makes sense … but if staff doesn’t know the details of the project scope, you’re almost guaranteed to go over budget.”

Know Your Worth
For designers who fret about not knowing how to charge for their services, we’ve got some bad news and some good news. Let’s start with the bad: Even seasoned accountants and project managers say there’s no one ideal pricing structure. Miller says he doesn’t love the idea of designers solely charging by time because it doesn’t value the deep knowledge—and inherent efficiencies—design professions have developed in their years of work. (“David Easton could do in five minutes what it would take some designers five days to do,” he says.) Masonek says the most profitable designer he works with charges hourly. Hamady says it’s up to the psychology of the client.

The good news: All of them agree that designers don’t charge enough for their services. “The biggest mistake designers make is letting the client feel that they deserve a discount off of the retail price,” says Miller. “You’re giving them an entire service and they’re not overpaying—so why give a discount? When you set yourself up as a professional [who has] a creative talent they don’t, it’s easier. There’s a reason they’re coming to you.”

Homepage photo: Shutterstock

This article originally appeared in Winter 2020 issue of Business of Home, Issue 14. Subscribe for more.

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