Ask a Bookkeeper: What Makes Interior Design Unique? (2022)

Anup Thakkar’s broad range of leadership experience has yielded a distinct level of expertise. He has worked for over 25 years managing accounts for complex multI-national corporations, and five years ago founded Ledger Financials, a bookkeeping service with offices in Los Angeles and Mumbai.

His firm, Ledger Financials, specializes in the specific accounting needs of interior design companies, including the application of revenue, assets, expenses, and investments. With his vast experience in the industry, we wanted to learn a little more about what makes the interior design field unique, and what designers should know about bookkeeping, regardless of whether they do it on their own or they outsource those services.

Bookkeeping for Interior Design is a Specialization

To say the interior design industry is huge would be an understatement. According to market research firm IBIS World, there were more than 100,000 distinct interior design businesses in 2019. But despite the size of the industry, according to Anup there is a dearth in bookkeepers who specialize in interior design. “The right accountant or accounting system is really important in this industry. Managing cash flow and profitability is easier for interior designers when using accounting methods that properly fit rather than generalized services,” says Anup.

“There are two methods of accounting: cash accounting and accrual accounting; and indeed, designers really must use the accrual method,” he says. This is to ensure that your tracking of funds is an accurate reflection of your businesses’ income. Since funds need to be flexible throughout the project, designers often use deposits or retainers and that adds a layer of complexity to the accounting.

Mis-allocating funds, especially when it comes to items like sales tax, can have a detrimental impact on your business, but it is unfortunately common. Anup says interior designers have to have “the right chart of accounts to begin with. Putting expenses in the correct accounts is a pretty critical thing when it comes to your tax liability,” he says.

The Services a Bookkeeper Provides

Anup and his team serve their clients across all bookkeeping and accounting needs. Accounting services are typically only quarterly, whereas the relationship with a bookkeeper can be as frequent as monthly, weekly, or even daily. Most clients Anup and his team work with receive monthly services, “We customize one-to-one reporting sessions based on client preferences and the specific areas they need to review. It’s an in-depth approach that leaves nothing to chance, from accounting needs to best practices.”

Involved in this process is providing accurate, timely, and thorough financial statements. Anup suggests that not every bookkeeping service is going to be the same, which is why he and his team offer customized delivery solutions. “We deliver accurate books so our clients never have to worry about the integrity of their financial data. We also offer customized delivery solutions, because a customized plan of action ensures all of clients’ financial reports and information are not only up to date, but available when needed.”

We deliver accurate books so our clients never have to worry about the integrity of their financial data. - Anup

So as a business owner, you should really think of your relationship with an outside bookkeeper as a partnership. This service can provide peace of mind and help you understand any potential risks – so keep the conversation going instead of thinking of it as a service that is limited to key tax dates. “We provide a seamless partnership between the design firm’s financials and project leaders,” explains Anup. This gives the business “a high-level financial view with the intention of achieving that firm’s true profit potential.”

The Relationship Between a Bookkeeper and a CPA

There can be some confusion when it comes to the various roles that a bookkeeper, accountant, and CPA play. Sometimes the terms are used interchangeably, but the services are actually distinct. The bookkeeper is actively involved in the day-to-day financial reporting. A bookkeeper coordinates these reports for the CPA so taxes can be filed in a timely manner.

“We provide complete and comprehensive financial report packages at year-end -- simplifying the tax preparation process and resulting in lowering the client’s CPA fees,” says Anup.

You can use the same person or company to fill this role or you can identify distinct individuals. Bookkeeping services tend to be more affordable than the CPA services, which is why Anup points out that a comprehensive financial report from your bookkeeper can help with cost savings.

What Happens if Bookkeeping Isn’t Done Correctly

The truth is, it’s not a simple task. Bookkeeping is much more than tracking money in and money out. Incorrect allocations can be quite costly.

Anup recalls one client who mis-allocated items to the extent that her tax liability was $72,000. “This was so out of the ordinary she ended up filing an extension, which is when she hired us. We conducted an interview to better understand her skills in terms of bookkeeping and how she did the process of bills, refunds, and payments and how she tracked it,” says Anup. This interview uncovered critical mistakes that required Anup and his team to completely redo her bookkeeping for the entire year. “There were so many discrepancies we had to redo the whole thing. This ended up being easier than trying to fix the errors. When we finished, we were able to cut down her tax liability by 70%,” he says.

These errors, it turns out, are quite common. Her proposals, invoices, purchase orders, and time billing were mis-allocated, and also had her sales tax grossed in the wrong line item. She had double charged by error and categorized operational expenses incorrectly,” he says. This goes back to the misconception of what bookkeeping is.

“Most of the time people try to save money for bookkeeping, assuming it's like a cash drawer. But because tax laws are based on how you categorize your expenditures, you don't get full deductions for everything you spent in life as a business expense,” he explains.

To prevent these types of errors, you must have the right chart of accounts to begin with. In addition, you should be diligent about putting all the items in the correct account. This level of accuracy is time consuming and it’s the essential role a bookkeeper plays in your business.

Tips for Finding a Good Bookkeeper

Anup cautions against looking simply at a bookkeepers cost to determine their value for your business. “You need to do your homework in terms of whom you want to hire. When you are ready to hire a bookkeeper, you should have a set of questions ready to ask them,” he says.

Interviewing a bookkeeper doesn’t have to be an intensive process. In fact, Anup recommends you come to the table prepared to ask only a handful of questions: “Three or four questions should be around the issues you have in your own company. And ask them two or three questions where you already know the answer,” he suggests.

The way they answer these questions will be a true tell in their fit for your company. They should have a clear path for resolution to your issues, and a thorough understanding of the correct way to handle your common business concerns.

“Another thing they will need to demonstrate is an understanding of the industry. Do they understand the software you use? Do they understand the process of creating projects, and the bills and invoices and how it all affects the balance sheet and profit and loss?” he says.

Tips for Red Flags with Your Bookkeeper

As a client, never get intimidated by numbers, but instead find a bookkeeper who will work with you and answer your questions. “Ask your bookkeeper to run a reconciliation report and P&L statement monthly, and make that your mantra. You will immediately know what your company’s financial health is. Ask your bookkeeper to drill down on the numbers you do not understand.”

“We at Ledger Financials believe in giving our clients the best financial tools to them to make the best decisions on projects and overall company. We encourage our clients to make time and review the P&L – and we walk them through each line item of revenue and expenses on a monthly basis for them to understand the financial health of the company,” he explains.

Your bookkeeper should also be willing to work with the software you use for your business. Some bookkeepers only want to use the software they know, rather than taking the time to learn a new tool, Anup cautions.

Design Manager As a Tool for Bookkeeping Best Practices

“We have been using Design Manager for almost four years and the system is robust and simple to use for interior designers,” says Anup. In that time he has come to appreciate how intuitive and useful the software is for interior designers, and this goes even beyond the traditional bookkeeping elements.

Users can create user-friendly documents such as proposals, invoices, and purchase orders. “For the designer, what is great is that they are only required to input the basic item information once, and the system automatically generates reports that can be presented to clients. The software allows the designer’s clients to access their information through a portal called ClientConnect that is dedicated specifically for the client. It also allows designers to collect payments from clients via credit card as they review their proposals and invoices,” says Anup. The fact that there is a step-by-step process for the user helps protect against some of the common user errors that Anup mentioned earlier.

Anup and his team love the ability to generate purchase orders for a project that can go directly to the vendor. “It includes sales tax at the project-level and makes the reporting of sales tax easy and convenient. Designers only have to run a single sales tax report to identify the amount of Sales Tax due for the month. There are no complicated calculations required,” he says.

Design Manager is an asset to the business owner and the bookkeeper alike. “The system has very tight controls to ensure all the steps are followed to complete the design process and make sure the accounting is accurate. These controls ensure that nothing falls between the cracks. The accounting controls are designed in such a manner, that even if a process was followed incorrectly, the reports can be used to identify the errors and correct them,” Anup says.

Bookkeeping is not a skill that comes easy to everyone. As many interior designers are running it solo or with a very small team, finding the right person to fill this role is essential. Taking a lesson from Anup, make sure you find someone who knows, or is willing to learn, the intricacies of your business, provides timely and accurate reports, helps you maintain positive financial health, and ultimately helps you grow.

Ask a Bookkeeper: What Makes Interior Design Unique? (1)

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