285: The Top 5 Profit Drains in Your Interior Design Business      

Michele: Hello, my name is Michele and you're listening to Profit is a Choice.

Welcome to the podcast! Today, we’re diving into the five biggest profit drains that can silently sabotage your interior design business. If you’ve ever wondered where your money is going or why your profit margins aren’t where they should be, this episode is for you. Grab a pen and paper—because you’ll want to take notes on how to boost profitability and take control of your money management starting today. .

Every day, empowered entrepreneurs are taking ownership of their company, financial health, and enjoying the rewards of reduced stress and more creativity. With my background as a financial software developer, owner of multiple businesses in the interior design industry, educator and speaker, I coach women in the interior design industry to increase their profits, regain ownership of their bottom line, and to have fun again in their business. Welcome to Profit as a Choice.

Hello and welcome to the podcast. I am excited to talk to you today about the five profit drains in your interior design business. You know, so often we don't even think about maybe some of the things that are causing us to lose money as we are so focused on making it that we're not as focused sometimes on managing it and keeping it close. Previously on this podcast, we talked about strategy and the importance of strategy in your business. We've talked about good financial habits. We've talked about creating budgets and managing budgets, and we've talked about Profit First which as the money management methodology and all of these things. But today, I'm really just going to boil down the top five profit drains in your entire interior design business and I'm going to talk to you in a little more detail about each one.

The very first profit drain would be not pricing and managing your work correctly. Making money starts at the top of the profit and loss statement, and the first two items on your profit and loss statement are revenue and cost of goods. Revenue is what you're charging. Cost of goods is what you're buying, the raw material or product to be able to complete the sale and when we have bad pricing, there is no way that we can outrun that. You cannot sell more of something at a really bad price and continue to make money, a bad price is a bad price. And so, you may be asking, how do I know if it's a bad price? Well, when we are doing all of the work and selling all of the products, subtracting out all the cost of goods and the gross profit is not enough to run the company, we have two things to look at. Either our expenses are too high, or our income is too low. And that's always the first place I'm going to look is go look at income. Let's look at whether we are within industry standards, are we selling appropriately? Are we tracking all of our time? Because managing the work correctly goes with are we buying the cost of goods at the lowest price that we can buy it at? Are we truly managing the time that it takes us to get something done? Many who work in flat fees, square footage, or in more bulk pricing models tend to not track sometimes as effectively or as tightly as those who are trying to price by the hour. Because when we're pricing by the hour or by unit, we have to price everything. We really have to, but the more that we are lumping things together and collecting things together, sometimes it's easy to overlook or throw something in until we find out that we've thrown in so much that we're not making any money. And so, the profit drain is going to always show up when you are selling something lower than you could truly sell it for in a fair economy. You want to really be digging into that. I recommend that at least once a year you look at your pricing, make sure that you are increasing your pricing if the raw materials are increasing because the more that we absorb the less we're going to make. Then about every six months, I like to do a spot check. Is there an area in my company where I'm selling more? Then I want to make sure I'm checking that area, so that I can make sure that the pricing has been elevated or increased to align with whatever is happening in the industry. Okay, so number one, profit drain, not pricing and managing that work correctly.

Number two. Not having your books updated consistently and correctly so that you're working with the latest financial data. Sometimes when I start working with a new client, we start trying to put some of those financial processes into practice and we put them into play pretty quickly with just timing. So, in other words, we might look at the timing of when your credit card bill comes due so that we can manage a full month instead of a half a month. We're going to be looking at when your bookkeeper is pulling in that financial data, are they pulling it in at least weekly? So, whether it's reconciled or not, the data is in the system. How often are you updating those records and your files? We really would love in a perfect world to have your books reconciled within the first 15 days of the following month. So, what that might mean is by June 15, I have good financial data, reconciled financial data for the month of May. If I'm moving into July and August before I get May reconciled properly then I am two and three months removed from the last time I knew that my financial data was solid. And the further along you go, the longer the timeframe between reconciliation and the financial data being clean, and when you're making your decisions the longer that timeframe is the more that you have the opportunity to not really have a clear picture of what's going on in your business. The more that we can go in and work on dates and work on timing and really make sure that we are giving the bookkeeper everything that they need, that they can get back to us quickly, answer us quickly, respond to us quickly. It's a two way street. It's not all on them if we're not giving them the information to do their job. The more that we can look at our processes, the more that we can update things, make sure we're connecting vendors and invoices and purchase orders and all the things that we should be doing and giving the data to the bookkeeper, scrubbing out the expenses that are showing up on the credit card and making sure that everything's ready, the more they are able within the first two weeks of the following months to give financial data from the prior month that we can if you will, bank on or count on as good financial data for our decision making.

The third profit drain is having the wrong people on your team. What do I mean by the wrong people? This could be employees, it could be contractors or subcontractors, it could be vendors, and it can be clients. What that means is it costs us more to work with the wrong people. Whether they are people that we have on our internal team and maybe they either cannot do the work, or they can't do the work at the level and standard that you need. Maybe they're having disagreements or challenges with other team members, they're not team players, or maybe their culture just deosn't fit with the company culture, or they're just not a good fit in a lot of different ways with the company why and mission and vision or whatever it might be. But the more that we keep people on our team, or we are working with vendors where it is just a pain in the neck, and we are constantly having to fight over and over and over to get a great product or a great service and get it done. Or maybe it's that subcontractor. Maybe you have a bookkeeper or an accountant or somebody who is not doing what you need them to do. They're not filing your taxes on time. They're not filing your paperwork on time. They are always making excuses about why things don't get done, they're not available for a phone call when you need it. They're not truly the support system that you are paying them to be. We need to stop and think about the cost of what it is taking for us to work with these people. We talk about all the time working with your ideal client. Well, why do we do that? Because an ideal client is somebody who has the same value statements that we are coming in with as the company. They value our time the way we value it. They value our expertise. They value the budgets the same, the level of design that we're doing, there's a value continuance between us and that client. Well, when that's broken and when that software constantly having to give reasons and feel like we have to explain ourselves over and over, we're constantly trying to get back to this meeting of the minds. The same holds true whether it's a client, a vendor, or an employee. And so really step back and ask yourself, are the right people on our teams, on all of our people teams. Are we working with the right people in the right way so that we can make money? Is this becoming something that is enjoyable? Even in difficult times, we can find humor, or we can find a way to work together and solve a problem, or is this literally like we're rubbing up against sandpaper no matter what we do? Because if you are having sandpaper moments all the time with certain people on any aspect of your team, which is any two people, that is costing you, and that is a huge profit drain to your company.

The fourth one is not creating Key Performance Indicators or KPIs and metrics so that you know that if you're on track or off track. Now, many of you know that I have built software called Metrique Solutions and Metrique Solutions is meant to build out all of these quick data points so that you can look at things quickly. But whether you use that or whether you’re doing it on your own, it's about managing the numbers well. It's not enough, remember, at the top part of the P and L to price it right and make the money with ideal clients, but we have to manage that money well. And so that might mean indicators of do we have the income that we need to pay the bills? Do we have what we need to make payroll this month? Can we pay ourselves or profit margins where they need to be? Do we have enough leads coming in? What is the conversion rate for those leads? What is our customer satisfaction rate? All of the things that we should be managing and looking at and measuring to, as those are the things that are going to increase our profitability. Remember, the whole reason that this podcast exists isn't just to say that profit is about making the money. Profit is about how we do the work, how we communicate. The more that we do things with excellence but with ease, the more money we're going to make. The more we're fighting people, processes, or not knowing what the numbers are, the more it's going to cost us the profits and the money, but also the profitability of peace in our lives. Not creating these indicators means one of two things. Either we're constantly looking at everything because we know what to look at, we haven't narrowed it down to a subset that is going to tell us the most informative pieces of data that we need at that time, or we're not looking at anything because we don't know what to look at. So, the happy place is somewhere between the two but not being so overwhelmed with the data but not fully ignoring it either. Choosing those few things that help you understand, are we on track or are we off track. We do this when we're looking at client projects all the time. So, as I always say, take that step, that same level of care that you put into managing your client's work and manage your own business the same way.

The last big profit drain that we have is not understanding and managing cash flow effectively. You’ve heard me talk about cash flow a lot. Cash flow is important. And again, this doesn't really matter if you're doing cash or accrual accounting. We're talking about are the right dollars coming in and flowing out at the right time. Meaning, do I bring in the money when I need to bring in the money, cover the bills that I need to pay when I need to pay them, and do I have the money to go out to profits or to pay those bills when it's needed? Cash flow can be amazing when it works well, and that is saying I know exactly the dollars that I need to sell, that I need to earn, that I need to invoice for, collect for, deposit, and spend when I need to spend them. So, if we are not looking at that, it can be very easy to look at what is promised or what is coming and think that we have money and then find out that we have less than we need. The other challenge that happens again is the other side of the other swing of the pendulum where we hold so much money out of fear in our bank accounts that we don't bring money into our homes, we don't pay ourselves effectively or pay out the bonuses or do whatever it is, invest in the next big thing that we need to do because we are so afraid of not having enough money. Well, the more that we fully understand the processes of the in and the out of the money, the more that we can make decisions we know what we need to do to market, we know how many we need to close. We know what our ideal client is, we know our ideal processes and pricing and we have the whole thing mapped out then the more ease that we can have knowing when and how we can spend and invest.

If you are truly trying to wrap your arms around your business and you're looking for the profit drains, it's not all just about the money. Yeah, the money is going to be. a place that shows it, but that's really about decision making. And so how can we solve this?

Well, number one, we can decide to check our pricing and to manage that every six months at a minimum, if not more often, if we see changes in the industry. Making sure that we are pricing effectively, everything that we're pricing.

Number two, we can make sure that we have good timing. That we have our books set up to support us, that we're monitoring, that we're looking at it, that we are giving those that are supporting us in this area what they need to get their job done.

Number three, we can go in and make sure we're working with all the right people. Do we have the right people that we're hiring? Do we have the right people that we're selling to? Do we have the right people supporting us in either support positions or vendor relationships? And if not, making changes or resetting some expectations so that that works effectively for you.

Number four is setting a few KPIs in different areas of our company so that we're not overwhelmed with data, but we're not ignoring it, but we know how to tell. It's kind of like we talk about the dashboard on your car that tells you, all right, you're doing okay, the car is working the way you're expecting it to. Creating that small dashboard that just tells you, are we doing what we need to do?

And then lastly, number five, understand and manage your cash flow. Know how money comes in, know how revenues are recognized, know how profit is recognized, and know when you need those funds. So, the more that we do these things, the more profitable our businesses will be.

I'd love to invite you to try Metrique Solutions. Reach out to us and we'll give you a code to try for a free month. We would love you to do that. As a matter of fact, we'll puta code in the show notes for you to try it out for a month for free and learn how to set those KPIs and manage them. We'd be excited to help you do that. You can find out more by going to MetriqueSolutions.com.

We also support you in all of these areas in Scarlett Thread Consulting where part of our coaching is helping you create a strategy so that you know where you're going and how you're going to get there and then aligning your financials to match that strategy. Join us as we're going to be going through our strategy course again starting in August and it's not too early to start thinking about maybe you haven't done it for the first half of the year, but you can certainly do it for the second half of the year. We'd love to have you join us there or in any of our courses. You can find out more by going to ScarletThreadConsulting.com. Remember, profit does not happen by accident, it is absolutely a choice, and our goal is to help you make the choices that lead you to profitability.

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