Interior design services, such as those offered by Neils Larson of www.persianandmodernrugs.com is a capital-intensive trade and usually requires large upfront dealer payments upon order placement.
So if a designer isn’t asking for an appropriate client deposit in advance, or collects a deposit from the client but has to spend it all before the project starts, there won’t be sufficient cash over to pay the vendors and the designer ends up with a cash deficit. Furthermore, they also have VAT to deal with. In an ideal world, the designer would collect VAT as it’s due and make the payment, but in reality, this does not happen. There is frequently a time lag between collecting and paying Vat, which leads the designer to think they have more cash than they actually have.
Fortunately, there are apps like Studio Designer, that provide tools to manage cash flow and projects in one place. However, is to properly use the software the user must understand how to track deposits, workflows, works in process, stock, and VAT, all while controlling their cashflow. As you can imagine, this is overwhelming and time-consuming, which is why many interior designers seek the help of chartered accountants.
We, as accountants experienced in interior design, helped Mr. Larson by identifying key areas such as needless spending, his company’s break-even point, and the true costs of hiring help.
We looked into purchasing versus leasing office equipment and uncovered the differences between very profitable and less than profitable projects.
We also demonstrated the effects of delayed client billing and collecting and how it affects his cash position to help prevent him from fronting too many project costs. But above all, we separated project cash from operating cash and properly manage cash flow, so Mr Larson knows how much cash is his profit from a project at all times.
“The help I receive from my accountant is invaluable. I let them get on with the tricky and not very fun job of keeping my books balanced, which frees me up the time and headspace to do what I really love to do – source and sell beautiful rugs”.