(Originally featured in Studio Designer.)
A New Year brings new opportunities for a fresh start. Now is the time to reflect on the last year and put systems in place to set yourself up for a successful year ahead. Below are some best practices I recommend for Studio Designer going into the new year.
1. Create a Budget in Studio Designer
A budget is a tool that can help a business manage its operations over an accounting period. It quantifies a plan for the company to reach a desired goal and provides a target for future performance. It is static and is compared to actual results throughout the accounting period and helps determine variances from expected performance.
You and/or your interior design accountant can set up a budget directly in Studio Designer, under Settings/Budget. A best practice would be to start with the historical data and adjust for any known changes & assumptions for the upcoming period. It will remain static, which will allow you and/or your interior design accountant to run comparative financial statements in Studio Designer throughout the accounting period. The budget will help you measure key performance indicators (KPI’s), which will demonstrate how effectively your company is in achieving its key objectives. It will also allow you make decisions to help achieve your target goals. Examples include: 1) cash flow management (i.e. how long can the company operate in a positive cash flow? when can the company pay its owners/shareholders?), 2) break-even analysis (i.e. at what point is the company profitable?), 3) debt payoff (i.e. what is the cost & impact of carrying debt? how quickly can the company pay off its debt?), 4) personnel (i.e. when is it time to hire more staff?), 5) expansion (i.e. when is it time to rent a larger space?), and 6) increase sales revenue (i.e. when is it time to implement a promotional marketing plan? what are the additional costs & resources needed?).
2. Manage Cash flow
The interior design industry is very capital-intensive, and typically requires up front client & vendor deposits. Without a cashflow management process in place, it can be difficult to understand “how much money is yours”, which then bears the risk of running out of project funds prior to its completion.
A best practice would be to utilize Studio Designer reporting and to implement a cash flow management process. Examples of different strategies for you and/or your interior design accountant to adopt include: 1) the use of multiple bank & credit card accounts to track funds separately for operations, projects, taxes, and profit (i.e. Profit First System), which can help you understand your cash position in real time, 2) the use of cash flow projections as part of your budget process listed above, which can help you determine when the company will receive and spend the money throughout the accounting period, and/or 3) the use of a cash flow statement, which can help illustrate the company’s overall health (your interior design accountant can customize a report in Studio Designer to assist with this process).
3. Understand Sales Tax Nexus and Update Rate Changes in Studio Designer
Sales tax compliance can be a complex but critical component to the operations of an interior design business. It’s important for you and/or your interior design bookkeeper to understand what triggers sales tax nexus to ensure your business maintains compliance. This is true for both in state and out of state projects.
A best practice would be to perform your due diligence on the state sales tax nexus requirements and sales tax laws prior to taking on a new project, as the tax laws and nexus requirements can vary by state. This will help you gain an understanding as to how the sales tax will impact the project, the business, as well all those involved (i.e. clients, vendors). You and/or your interior design bookkeeper can set up defaults & templates directly in Studio Designer (under Settings) to help ensure the project items are then taxed accordingly.
Sales tax rates can also change periodically, so it’s best to be aware of any upcoming tax rate changes prior to them going into effect. If there are changes in the tax rates, you and/or your interior design bookkeeper can make the changes directly in Studio Designer in a few different areas:
• Update the Tax Location rates for any state, local, and/or county sales tax rate changes. This is done in the Tax Locations tab found under Settings.
• Update the Tax on items and activities that are not invoiced. This is done in the Update Tax tab found under the Client Address ID.
Another best practice would be to register with the government agency’s website to receive any notifications related to sales tax rate changes, as the rates can change monthly, quarterly, or annually.
4. Implement a system for new Vendors in Studio Designer
When working with a new trade or vendor, it’s recommended to obtain the following:
• W9 (for 1099 purposes)
• Liability & Worker’s Compensation Certificate of Insurance
• License # (if applicable)
A best practice would be to obtain these documents prior to starting the work with the vendor, as they can be much more difficult to obtain once the work has been completed and the vendor has already been paid in full.
Another best practice would be for you and/or your interior design bookkeeper to enter this information in the Address ID Codes tab directly in Studio Designer. Address reports (which can be customized to include the Insurance Expiration dates) can be run periodically in Studio Designer throughout the year to help determine which certificates of insurance have since expired and need to be renewed. These reports can also highlight any missing W9s for potential 1099 vendors. Doing so will help alleviate the 1099 process as well as the Worker’s Compensation audit process.
5. Customize Reports in Studio Designer
Studio Designer offers several standard reports as well as allows for customized reports as needed.
A best practice would be for you and/or your interior design accountant to determine what reports are needed to help make sound business decisions throughout the year. If a report isn’t offered as a standard report in Studio Designer, you and/or your interior design accountant or bookkeeper can customize a standard report in Studio Designer and filter as needed.
6. Create Efficiencies in Studio Designer
There are a few ways to help save time in Studio Designer. One is to inactivate any Clients and/or Vendors that are no longer in use. All of the historical data will be maintained and will remain available in Studio Designer. This process will reduce the # of results in your dropdown lists, alleviating your search process as well as improving your reporting process.
A second way is for you and/or your interior design bookkeeper to utilize templates in Studio Designer that will auto populate cells when performing certain tasks. An example is to enter a default expense account for your office vendors that are typically coded to the same account each time (i.e. postage).
A third way is to create recurring office payments in the Money Out section of Studio Designer. This process will allow you and/or your interior design bookkeeper to save time by updating the dates and amounts as needed, versus creating the entries each time from scratch. Another best practice would be to use generic office vendor names to cut down on the address ID list (i.e. use “restaurant” vs. the restaurant’s name, and instead enter the name of the restaurant in the office payment description).
7. Know your limits and surround yourself with the right professionals
It takes a village to run a successful business, therefore surrounding yourself with a strong team of professionals can help take your interior design business to the next level.
A best practice would be to work with a team of experts that will alleviate some of the operational responsibilities, allowing you to focus on the design and growth of your business. Examples of such professionals include: attorneys, interior design bookkeepers / interior design accountants (it’s important that they have a strong understanding of Studio Designer), CPAs/Tax Preparers & Tax Planners, Insurance Agents, IT/Website Specialists, Payroll Administrators, and HR Specialists.