As the owner of an interior design firm, it is essential to set achievable financial goals for your business. Having clear and concise objectives can help you plan ahead and ensure that your design firm remains profitable in the long run. But how exactly do you set achievable financial goals for your interior design business? From reviewing the Big Financial Four to making sure every goal is SMART, here’s how to set and stay on top of financial goals as a firm owner.
Common Financial Goals for Firm Owners
As the owner of an interior design firm, financial goals for your business are also financial goals for you personally. As such, there may be a cross-over between your business and personal finances. Below are some general business goals that are naturally intertwined with a firm’s financials.
- Save for retirement.
- Purchase a studio or warehouse space to save on rent and build equity.
- Expand into a new market with a second studio location.
- Start a new product line.
- Offer a new service (i.e., architecture).
- Optimize your investment portfolio.
- Save enough to cover six months of operating expenses.
- Hire a new member of the team.
- Bring on an equity partner.
- Offer better benefits packages.
- Raise employee salaries — including your own!
Most of these come down to one or more of four primary financial goals. To achieve these general business goals, you must either increase revenue, widen project profit margins, lower expenses, or optimize investment returns. Here are a few tips for achieving each of those four goals.
The Big 4: Revenue, Profit Margins, Expenses, and Returns
How to Increase Revenue
Increasing revenue is often the key to achieving many financial goals for your interior design business. One way to do this is by expanding your client base and reaching out to new markets.
As the saying goes, “you have to spend money to make money.” Unless your marketing department is a single intern or your business developer is working on commission, you might have to spend some to bring in more revenue. Consider investing in marketing strategies to help you reach potential clients who may not have heard of your firm before.
Another small business owners can boost sales revenue is by offering additional services or products that can appeal to existing clients. For example, if your clients frequently inquire about in-house architecture services or custom furniture design, consider branching out. This will not only add another stream of revenue, but could also enhance your level of control over each project’s trajectory of final outcome.
Again, establishing a new product line or service could come with startup costs. Carefully consider how much branching out might cost you.
How to Widen Project Profit Margins
Widening profit margins is crucial for any business, including interior design firms. Firm owners widen their profit margin by decreasing how much they spend to increase their profits when selling their services or products. Firm owners often widen their profit margins by:
1. Reducing Overhead Costs:
Reducing overhead costs is one way to widen your profit margin. You can achieve this by negotiating better deals with vendors, partners, and suppliers or finding more cost-effective solutions for office space and equipment. For the latter, we suggest attending events where designers mingle with vendors. High Point is a great example.
2. Increasing Efficiency:
Improving efficiency can also help to widen your profit margin. Look for ways to streamline processes and eliminate waste. For example, consider using project management software to improve communication and collaboration among team members.
Efficiency also means effective delegating. It’s essential to focus your efforts and energy on the tasks best suited to your skill set, experience, and education. You must delegate other tasks to team members who have a better knack for and understanding of the tasks you neglect.
3. Focusing on High-Profit Services:
Not all services generate the same profit level. Identify the services that have the highest profit margins and focus on promoting them to clients if and when appropriate. If certain services or products no longer make financial sense for your firm, move on!
4. Finding Fresh Ways to Serve Existing Clients:
Offer additional services or products that complement what they’ve already purchased from you — but only if it makes sense and feels natural.
For example, you might encourage clients to invest in landscape design for their home’s patio and pool area. If indoor-outdoor living is important to your client, this could be a natural upsell from their existing interior design contract.
Just don’t try to sell clients something they neither want nor need. Offering services that benefit your clients increases revenue and strengthens relationships.
5. Increasing Commission on Wholesale:
Interior designers increase profit margins by increasing commission on wholesale products. In an article for Architectural Digest, Danine Alati notes that “’35 percent commission on the wholesale price on all products'” is fairly standard. However, you should set a commission or “finder’s fee” that makes the most sense for your firm.
In our Pricing Your Products workshop this Fall, we’ll take a look at how firm owners typically price their products — and what the commission usually looks like.
6. Switching to Hourly Billing:
Some interior designers reject hourly billing because of the time it takes to track and invoice. But project creep is so common in the interior design industry! Even a fixed sum that appears to have a healthy buffer might lose your firm money. You should be paid for the work you actually do and the time you actually spend, not how much work you think you’ll invest in the project.
“We only do hourly billing with estimates – not fixed sums because we just lose money. Some prospective clients won’t be comfortable with that, and we have to walk away from them.”Laura Umansky, CEO & Founder of Design Dash and Laura U Design Collective
If you’re not a solopreneur and work with a team, establish a professional fee schedule for the firm. A professional fee schedule in which every team member who works on a project charges for their time at an hourly wage based on their level of experience and expertise is common practice for professional service firms.
Law firms are a good example. Associates and partners bill clients at different rates – even when working on the same project. They do not charge a set business hourly that covers all contributors. At LUDC, Laura tells clients that team members bill just like any other professional service firm.
How to Minimize Expenses
When it comes to being an interior design business owner, one of the most important things you can do is keep your expenses under control. After all, every dollar you save on unnecessary costs is a dollar that can be put towards growing your business and achieving your long-term goals.
So how can you minimize your business expenses? Here are some tips to get started:
1. Create a budget:
The first step in minimizing your expenses is knowing exactly where your money is going. Take the time to create a detailed budget that outlines all of your monthly expenses, from rent and utilities to office supplies and marketing costs. This will help you identify areas where you may be overspending and make adjustments accordingly.
2. Cut back on non-essential expenses:
Once you have a clear picture of your monthly expenses, take a hard look at which ones are truly necessary for running your business. Are there any subscriptions or services you’re paying for that you don’t really need? Can you find more affordable alternatives for things like office supplies or software?
3. Negotiate with vendors:
If you work with outside vendors or suppliers, don’t be afraid to negotiate for better rates. Many companies are willing to offer discounts or special deals if they know they’ll be getting regular business from you.
4. Keep track of receipts and invoices:
It’s easy to lose track of small expenses over time, but those little purchases can add up quickly. Make sure you’re keeping careful records of all your receipts and invoices.
5. Take advantage of tax credits and deductions:
One of the easiest ways to minimize expenses is to cut your tax bill! Take advantage of as many tax credits and deductions as possible. You might also consider switching business structures from sole proprietor or LLC to S-Corp or C-Corp, as there are some tax advantages.
How to Maximize Returns
When it comes to running an interior design business, maximizing returns is a crucial aspect of achieving financial success. Returns refer to the profits earned on investments made by your firm. The higher the return, the better off your business will be financially.
To maximize returns, consider investing in stocks or mutual funds that have historically provided high returns. A high-yield savings account might serve your firm well.
You might also consider purchasing your studio space or receiving warehouse instead of renting. However, keep in mind that all investments come with some level of risk, and it’s important to do your research before making any investment decisions.
Work with a fiduciary financial advisor to craft an investment portfolio, and meet quarterly to discuss how you can maximize your returns.
How to Set and Stay on Top of Your Firm’s Financial Goals
Let’s start with a quick overview. First, take stock of your firm’s current financial situation. This means looking at your revenue streams, expenses, profit margins and cash flow. This information will give you a clearer picture of where you stand financially and what areas need improvement. From there, you can start setting specific financial goals such as increasing revenue by a certain percentage or reducing costs in particular areas.
Secondly, make sure your financial goals are realistic and achievable. While it’s great to aim high, setting unattainable targets can lead to frustration and disappointment. By setting achievable goals, you’re more likely to stay motivated and focused on achieving them. You can also break down larger goals into smaller ones that are easier to achieve over time.
Finally, track your progress regularly and adjust your goals as needed. Keep track of key performance indicators (KPIs) such as sales numbers, cash flow statements and balance sheets. Analyzing these metrics can help you identify trends and patterns that may impact your business’ financial health. If you find yourself falling short of your goals, reassess your strategies and adjust accordingly.
Establish Your Firm’s Capital Structure
When it comes to setting a business financial goal for your interior design firm, one important aspect to consider is establishing your firm’s capital structure. This refers to the way in which you finance your business and manage its finances.
There are a few key things to keep in mind when figuring out your capital structure. First, you’ll want to think about your short-term and long-term financial goals. For example, do you want to save money for an emergency fund or pay off debt? Or are you looking to invest in new equipment or hire more staff?
Once you have a clear idea of what you want to achieve financially, you can start thinking about the best way to use your income and savings. One approach is to set up a budget that outlines how much you spend each month on expenses like rent, utilities, and supplies.
Another important factor to consider is your cash flow. Assess the amount of money coming into and going out of your business each month. By keeping track of your cash flow, you can better understand where your money is going and make adjustments as needed.
Of course, saving money is also a key part of any successful capital structure. Whether you’re putting aside funds for retirement, college tuition, or just a rainy day, having a savings plan in place can help ensure that you’re prepared for unexpected expenses and emergencies.
Determine Your Maximum Allowable Debt Figure
To set your debt dollar maximum, start by looking at your current financial situation. Take into account all of your firm’s debts, including credit card balances, vehicle payments, and CRE mortgages. Then, consider your revenue and expenses. How much money do you have coming in each month? How much are you spending?
In addition, consider industry norms. Lenders and investors often consider industry norms when determining whether a borrower or applicant has too much debt. You might be able to handle more debt than your industry norm, but a higher amount might turn off investors and/or lenders.
Based on this information, determine how much debt you can realistically afford to take on. Don’t forget to include a buffer for unexpected expenses or changes in your income. You don’t want to end up in a situation where you’re unable to make your monthly payments.
Once you’ve established your debt dollar maximum, stick to it! Don’t let yourself get carried away with spending or borrowing more than you can handle. Keep track of your accounts regularly and adjust your budget as needed. We recommend using a debt schedule — like the spreadsheet included in our Managing Debt & Credit bundle.
Set an Equity Investment Percentage Maximum
In addition to a debt maximum, you should also determine how much equity you are willing to sell. Of course, this is only applicable if equity investment is part of your firm’s capital structure. While equity investment can come with mentorship and networking opportunities, it does dilute your control over major business decisions.
Given this, it’s important to set an equity financing percentage maximum. This doesn’t just mean third-party investors; it can also include a partner you bring on to expand the firm or members of your C Suite. What percentage are you willing to sell in return for cash you can reinvest in the business? How much of your firm’s equity should remain in your hands?
Maintaining 51% ownership will allow you to control most major business decisions. However, many buisness owners sell equity for capital investment and for the input of investors.
Prioritize Cash Flow Visibility
When it comes to running a successful interior design business, one of the most important things you can do is prioritize cash flow visibility. This means keeping a close eye on your finances and making sure that you always know exactly where your money is going.
Why is this so important? Having a clear understanding of your cash flow will help you make better financial decisions in both the short and long-term. It will also allow you to identify areas where you might be overspending or underspending, which allows you to adjust your budget accordingly.
But perhaps most importantly, prioritizing cash flow visibility can provide you with peace of mind. When you know exactly how much money you have coming in and going out each month, you’ll feel more in control of your finances. You’ll be less stressed about unexpected expenses or emergencies.
Tip: Consider an RLOC
You might consider applying for a revolving line of credit if your cash flow is uneven or unpredictable throughout the year. An RLOC allows you to draw out the cash you need on demand to cover employee wages and other expenses.
Of course, achieving this level of financial clarity isn’t always easy. It requires careful planning, diligent record-keeping, and a willingness to make tough choices when necessary. But by following some simple tips and staying focused on your goals, you can build a brighter financial future for yourself and your business.
Set Realistic SMART Goals
A goal is just a dream unless it is Specific, Measurable, Achievable, Relevant, and Time-Bound. Do the following to ensure your goals are indeed specific, measurable, achievable, relevant and time-bound:
- Be Precise When Setting Financial Business Goals.
- Set Goals that Actually Make Sense for Your Firm (your goals fall within the bands of your firm’s culture, core values, mission and vision).
- Establish Key Performance Indicators (we refer to KPI’s as “metrics and measurables”).
- Set Reasonable Due Dates.
- Assign Accountability (who is responsible for meeting each goal?).
- Keep YOURSELF Accountable Too! (Joining a cohort is a great way to keep yourself accountable.)
- Revisit Your Goals Regularly.
Seek Expert Advice
Last but not least, seek expert advice to set financial goals and stay on track! Work with a financial advisor to optimize your investment portfolio, a financial planner to minimize your expensesm and a business coach to widen margins or increase revenue.
Final Thoughts on Setting Realistic Financial Goals
Setting financial goals for your interior design business is key to its success. By taking stock of your finances, setting realistic objectives, and tracking your progress, you can create a roadmap for growth and profitability.