Finances-How to Build Your Financial Chops
Of all the many areas of business that demand your attention, finances is probably the one most designers like least. It’s not that designers are not accustomed to working with numbers (far from it!) or that finances bore them. In my experience, the reason usually is that they have not been properly educated as to what their finances can tell them about how their business is doing and how they can make it better.
Let’s start with the basics. If you are not financially minded, you probably have a bookkeeper or accountant who keeps track of your financial transactions, makes sure you are paying your taxes on time, and prepares documents on the financial health of your business. Get to know and become close friends with two of those documents, the Profit and Loss Statement and the Balance Sheet.
The Profit and Loss statement summarizes the revenues, expenses and costs the business has incurred during a certain period of time, usually monthly or quarterly. Among other things, it shows what your net profit is. The key here is “net.” That’s the part you get to keep after you’ve paid out everything for costs and expenses. Net profit is a more important indicator of how your business is doing than how much your are billing or selling. If you are not making a healthy net profit, chances are good you won’t stay in business for long.
The Balance Sheet is a statement summarizing your business’ net worth, that is, the balance between its assets (what it owns) and liabilities (what it owes), including owners’ equity (your stake in the business). Pay particular attention to the amount of debt your business is carrying and the status of short-term cash. Because demand for interior design services tends to be seasonal and subject to fluctuations in the economy, cash flow projections are critical to budget planning throughout the year.
In my work helping designers grow their businesses, I’ve found once they understand what those lists and columns mean and how they apply to their business’ operations and health, they want to know more about how they can improve their finances. Have your bookkeeper or accountant walk you through your financial statements and explain the various sections and what the data says about your business. You’ll have much more control over your business and improve your business planning once you do.
Just starting out with your design business? Another article of interest is How To Make The Most of Your Young Business. The article, 4 Realistic Tips for a Successful Business, will also give you some suggestions for financial success in the workplace.