Reviewing Your Profit First Strategy for Your Interior Design Firm

Have you created a Profit First strategy and implemented it – then left it alone?

Are you still confident in the percentages you have allocated? Is your system and process growing with the evolving financials and needs of your company? If you are not sure, then this is the blog for you. Let’s talk about how to review your profit first strategy and how to tweak it to make it work for your business today.

I built my first Profit First strategy back in 2011 before I had ever heard of Profit First. I had a simple system of saving for taxes and saving for my pay because I had previously had opportunities to miss paying both of those!  And once you feel the pain of no paycheck or the awesome opportunity to write a paycheck to the government for taxes you had not paid – you won’t forget it. With that, I planned to not be there again. 

In 2015 I joined forces with Profit First and began using and teaching their money management system. And let me tell you, the strategy I used to create my Profit First system has evolved. I am not a Profit First purist. My goal is to help each company owner I serve create the strategy to solve the issue of where money goes and should be reserved for in a way that works for them. So that means not everyone’s strategy is the same. And that is okay. 

But let me be clear on how to make Profit First work for you - - - - work Profit First.

I always suggest you start with a strategy of money management and workflow. Then create the processes to support that strategy. The biggest implementation mistake I see is people reading the book and rushing to the bank to open accounts without thinking through the money flow in their own firm. And then I hear that the process doesn’t work and that it is too hard or takes too long. 

If done correctly, rarely does it take more than 15 minutes to complete your Profit First allocations. And reconciliations are not difficult either – so don’t let your accountant or bookkeeper tell you they are. 

Strategy is what informs our decision making.

We need a blueprint to build a house. We use a design plan to trick out a space with beautiful, functional items. And we need a money management plan to tell our money where to go. 

Begin by tracing how money comes into your firm.

What types of payments do you receive – such as for labor and service versus product. How does that money flow differently? When do you recognize the revenue for product purchases? Is it at the sale? At the ordering? At the shipping? At the receiving? Or at the Delivery of the product to the client? This will inform how your product profit flows into your company to be able to spend. 

Once you have a strategy for how money flows and will be allocated, calculate the percentages of where your company currently is using the formulas in the Profit First book.

We divide by Gross Profit or Real Revenue to manage our percentages, not Total Revenue. 

These percentages are your CAPS or Current Allocation Percentages. If you desire to have other percentages or want to work towards the appropriate ones in the book, then those become your TAPs or Target Allocation Percentages. 

Here is a recipe for disaster. Look at your CAPS which are wildly different from your TAPS – and just assume you can allocate to the target. You will quickly realize you cannot and be stressed – and say this does not work. 

The key to success is to start small.

Make 1-2% changes in your allocations at a time. Build success, then tweak again. Usually, we make these small changes at the end of a quarter – and it really helps if you have supportive KPIs (key performance indicators) and goals that align with those changes. 

Your percentages are built based on what you think is important at any given time. If you are wanting to move and rent a new building or purchase a building, then you may have a capital building account and be putting percentages towards that.  

If you are looking to hire a new position, you may have a hiring account to save 3 months of the salary needed in advance. 

If you are wanting to just be able to pay yourself and cover taxes as you go – then the main 5 accounts might just work fine for you. 

Whatever you are striving to attain, you can save for. 

But Profit First is about more than saving in accounts, it is about measuring and analyzing the financial data that your company produces then learning to make sound decisions with what you discover.

Which also means that you can only allocate money you have. So, the percentages you choose to allocate must be in alignment with the processes of your firm. By knowing your business, you can leverage your business finances to work for you.

Each quarter take a look at your process, percentages and accounts. Are you finding you are short in some areas, or maybe higher in others? Can you do a 1% shift in allocations to get you closer to where you want to be? Maybe you are exactly where you need to be. 

Either way, you can make the Profit First money management system work for you. This is not a static system, it is dynamic based on your company needs. Use it to its fullest by understanding that it is not constricting, it is freeing. This process will help you scale your interior design firm to meet and exceed the goals you have set.

Time and time again I receive feedback on how the Profit First system has saved a company. But I also get feedback on how difficult it is. It really is not difficult unless you create it to be. Don’t overcomplicate it. Start small – start easy. Work to keep the process easy. 

For my tax account I put money in, in, in and only take it out once a quarter to pay taxes. This makes it super easy to reconcile and track. The same holds true for my profit account. 

The only accounts that have higher transactions are the Cost of Goods account and the Operating Expenses account. And if I did not have two – then all that would be in one. But the work would be the same. The separation of the two shows how we are managing money for the client, and how we are managing money for the business.  

Make your rules of money flow and management, then create a Profit First Strategy that supports it.

And the work isn’t done, manage to it. Analyze the numbers, tweak if necessary. Reap the rewards.

I teach the Profit First Strategy for the Interior Design industry through my course, Master Your Profit®, as well as in my coaching program. The biggest hurdle is the strategy. Spending time to get that right helps the process go smoothly. We would never build a house as we go with no plan, and we would not purchase a home without a design plan. So why would we move money around without knowing what and how our financials fit together. 

You can find out more by looking under Resources for the Master Your Profit® course. You can also find out more about my coaching when you go to the Work With Me page. I offer customized resources for interior design firms and would love to work with you.. Create profit by managing your money well because profit doesn’t happen by accident.