A Simple Guide to Accounting for Interior Design Firms
As a creative person who spends most of their time working on designs, colors, textures, and other processes in an interior design firm, you can easily get overwhelmed with lots of numbers. That is why the sound of accounting often sounds sour to most entrepreneurs.
Nevertheless, bookkeeping is critical for any business, and your interior design firm, small or large, is no exception. So you have two options:
- Outsource your bookkeeping requirements to professionals like Fincent
- Do all the accounting work by yourself
If you're considering trying out the accounting process yourself, here is a simple guide that can help you get started with the process.
Why is Bookkeeping Important for Small Businesses?
While your skills help you design interiors, bookkeeping will help you optimize the “interiors” of your business. In other words, bookkeeping, when done right,is actually going to help your interior design firm maximize its profits. Here's how -
- Grabbing Tax Deductions
When you diligently account payable for all your expenses down to the last penny by segmenting and categorizing, you get to spot the transactions that require a smaller percentage of or no tax at all. Availing these tax deductions would not be possible if you don't invest time into bookkeeping because you would simply pay taxes on all your transactions and lose out on sizable amounts in savings.
- Budgeting Your Finances
Good bookkeeping allows small businesses to budget efficiently and appropriately. You can track, segment, and organize all your incomes and expenditures, which would help youplan for the future.
By laying down awell-thought-out budget, you can set your firm for success and get rid of many unexpected hurdles that might come your way due to financial instability or poor planning.
- Analyzing the Intricacies of Your Firm
With bookkeeping, you can analyze your business better than you ever thought was possible. Doing so helps you understand where your business is headed and how it will perform overtime by looking at historical data.
By analyzing your firm’s financial statements, you can spot financial mistakes or inaccuracies easily. For example, you might have raised an invoice of a lower rate or paid somebody extra for their services.
Furthermore, you get top in point the seasonality of your business accurately. Some interior design firms might perform best in the winter, while others might be generating the most revenue in the summer months. By analyzing your strengths and weaknesses, you can make more informed decisions about your company's operations and finances.
- Getting Business Loans
For small businesses, business loans are critical for expansion. Unfortunately, banks do not readily lend money to small businesses since the risk factor is typically greater than for medium or large-scale enterprises. Bookkeeping can help with this.
Bookkeeping can help you generate accurate financial statements in a timely manner. These help you secure business loans easily and maybe even at a considerably lower interest rate than usual!
- Generating Reports
If you have someone who has invested in your company, they are likely to demand reports of transactions to check up on its financial health. -Effective bookkeeping empowers you to generate reports easily for your investors by keeping all financial actions 100% transparent.
Additionally, even if you do not have any investors, generating reports could still be beneficial for the future as new stakeholders might ask to see them to make an informed investment decision.
Categorize Your Transactions
One of the most important first steps of accounting for small interior design firm owners is to appropriately segment transactions, mainly business expenses from personal expenses.
This is essential to keep the Internal Revenue Service (IRS) informed of all the expenses, incomes, and profits of your interior design business.
Moreover, suppose your design firm is a registered C Corporation (C Corp). In that case, the ramifications of not filtering personal expenses and business expenses could be extreme and result in legal complications.
Single Entry vs.Double Entry – Which is the Best Bookkeeping Method for Your Business?
Choosing between the single-entry and double-entry methods of bookkeeping is one of the biggest dilemmas small business owners face all over the US.
Right off the bat, the single-entry method is certainly easier than the latter. However, the solution isn't entirely straightforward.
What is the Double-Entry Method?
You may have heard the phrase “Keeping your books balanced.” If this is something you practice, then what you are doing is the double-entry method.
The double-entry method of bookkeeping tracks both debit and credit, instead of just one of them.
For example, if your income is $100, your expenditure should also be $100 in your books. This means that your books are “balanced.”
The double-entry method is robust and reliable. It is ideal for businesses that are complex and have a large framework. So, if your interior design firm consists of multiple employees or if it's a partnership, the double-entry method is a good option.
What is the Single-Entry Method?
For businesses with a fairly simplified framework with little to no employees and a sole proprietorship, the single-entry method of bookkeeping is ideal.
This method essentially records all transactions only once, unlike the double-entry method that records both debit and credit.
The single-entry method is not as robust as the double-entry method, but you can choose to go for it if you have no prior bookkeeping experience and your finances are straightforward.
Get an Effective and Efficient Bookkeeping System
The ideal accounting system is one that is in the hands of professionals, like those at Fincent. However, if you're planning on carrying out your accounting yourself, you should get a bookkeeping system that is simple yet robust.
Small business owners and interior designers often use spreadsheets or plain old pen and paper. However, the best thing to do is to purchase accounting software that can handle all your accounting needs far more efficiently.
Tips to Simplify Your Interior Design Firm’s Accounting Process
Here are some useful tips you should remember when you get started with accounting for your interior design firm.
Tip 1: Take Time Off From Regular Work
As an interior designer, you're bound to enjoy your work a lot more than accounting. However, the latter is a crucial aspect of your business, as we've established earlier.
As a result, you must ensure to mark your calendar and take time off of your regular work to take care of the accounting. This is essential if you want to get your bookkeeping in order.
Tip 2: Use Reliable Software
Unless you have ample experience or you are a trained accountant yourself, do not resort to ineffective accounting methods that are prone to human errors.
If you think you'd prefer automated design firm accounting systems, purchase one to ensure that your accounting is hassle-free and doesn't take up too much of your time.
Tip 3: Consistent Reporting
Make reports diligently and consistently to spot trends, setbacks and figure out the scope for development in your business.
Using conventional accounting methods like pen and paper or spreadsheets is impractical if you want to produce timely reports consistently for several months or years! Therefore, always leverage an online tool that generates financial reports in just a few clicks.
Bonus Tip: Hire an Expert Bookkeeper
What if there was a way to leave all the heavy lifting bookkeeping with an expert to ensure your peace of mind?
With Fincent, you get to work with some of the best bookkeepers in the market. By hiring their experts, you set yourself up for incredible savings, tax deductions, and, more importantly, a lot of time to build your business.
Give yourself the chance to create while Fincent takes care of all your bookkeeping needs.
To get started with your team of expert bookkeepers, visit the Fincent website and sign up for a free one-month trial today!
Fincent: Your Business's Personal Financial Wizard - From Bookkeeping to Tax Filing