Accounting for Interior Designers
Accounting, bookkeeping, financial management, the books, my money....how you chose to refer to it, keeping track of money in your business is integral to success. Interior Designers are unique in the problems they face with the management and organization of their finances. Today I will share with you some things to be aware of so that you can worry less and design more.
Oh my! Sales Tax. Before I started working in bookkeeping if I would hear the word tax, I would get all nervous. Taxes can do that to you. It is important to know what the tax laws are for your state, county, and city. What you need to pay tax on and how often you need to pay it. You can find information on Sales Tax Laws here.
One of the things that designers have to be careful about is to make sure they know if their vendor is charging them sales tax or not. If the vendor charges tax, then almost always the designer does not have to charge sale tax. However, if the vendor does not charge sales tax, the designer must collect sales tax and report the revenue to the state. I have seen many times where the vendor will include tax on the quote, and then not when they charge the credit card on file. What this means is that you will be responsible for reporting and paying the tax, when you may have thought it was taken care of on the vendor side. This also leads me to the next point, accounting. If your purchase orders and invoices don't match what is being charged to your account, then your accounting will be off.
It is important for Interior Designers to reconcile their accounts regularly (no less than once per month). To reconcile the account means that you compare the statement received from the bank/credit card with purchase orders, invoices and receipts for the same time period. This is where you will catch those pesky differences (like where sales tax was quoted and not charged). Reconciliation is just a fancy word for making sure everything matches.
Reconciliation is also where you will catch over and under charges and verify that the checks written match with the amount withdrawn. You would think that with the technology of today this would not be the case, but mistakes are made and they can be costly.
Separate Business and Personal
Please, please, please have a business card. Please. You should have, at a minimum, a business checking account and a business credit card. Separating your business and personal expenses is important for so many reasons. If you can't separate business and personal, or you don't have a business account set up yet, I recommend a product like QuickBooks Self Employed (QBSE). QBSE is an accounting subscription that allows you to set up bank feeds (where the information auto populates from your bank into QBSE), but it also allows you to indicate which expenses are categorized to business and which are personal. You can check out additional information on QBSE here. For a minimal price each month, you will get help with separating business and personal and in addition also get estimated quarterly taxes, a Schedule C at the end of the year, and help tracking mileage.
Shipping, ah, shipping. You can lose all of your profitability on a job if you forget to budget shipping into each job. I recommend tracking shipping expense separate from products for a few reasons.
First, tax (see, here is that pesky tax again) is and how it impacts shipping varies greatly by state. The laws often indicate how they want you to list the charge on the invoice and how this charge is listed determines if it is taxed or not. By referencing the laws in your state you are able to set up your accounting system to make this easier for you as well as determine if it is better to pass the cost directly to the client, charge a flat rate for shipping, or include shipping in the cost of the item.
Also, vendors will often quote one shipping rate and then charge another. Or, they quote shipping for one shipment and then charge for multiple shipments when items are out of stock or not ready to ship at the same time. By tracking shipping separately you can tell if the shipping costs are matching your quotes and if you are being charged more than you think.
As stated above, accounting and bookkeeping for interior designers is not a simple task. You have to watch out for improper charges, sales tax, and shipping. It is also important to separate out business and personal expenses - once you get business accounts set up managing finances will get so much easier.
If you need help navigating the financial end of your business, reach out to us at email@example.com or use the form in the "contact us" pop-up below.