Understanding Your Financials: The Key to Sustainable Profitability
Understanding Your Financials: The Key to Sustainable Profitability
It wasn’t that long ago that money talk in the interior design industry was practically taboo. Discussing financial literacy, profitability, and pricing felt like bringing up politics at the dinner table—best avoided. When I first started teaching financial principles back in 2007 and 2008, I thought designers weren’t sharing their financial insights because they were holding their cards close to their chest. But over time, I realized the real reason: most designers simply didn’t know the numbers themselves.
Fast forward to today, and the word ‘profit’ is thrown around like confetti at a celebration—everywhere, and often misused. Profit is more than just “making money.” True profitability means understanding where your revenue is coming from, what expenses are eating away at your margins, and how to structure your business for financial stability and growth. This is where so many designers get stuck. They look at the money coming in and assume it’s all theirs—until tax time, payroll deadlines, or unpaid invoices remind them otherwise.
If you’ve ever opened your bank account and felt unsure about what money is actually yours to keep, you’re not alone. This is one of the biggest challenges interior designers face when trying to scale their business sustainably.
The Five Financial Anchor Points Every Designer Needs to Track
To truly understand your financials, you need to focus on five key numbers that tell the story of your business. These are what I call financial ‘anchor points’—the critical metrics that guide your decision-making. Here’s what they are:
Total Revenue – This is the total income from sales of products and services. But looking at revenue alone is misleading. It’s a vanity metric that can make your business seem more profitable than it really is.
Cost of Goods Sold (COGS) – These are the direct costs associated with delivering your services and products, including furniture purchases, subcontractor payments, and shipping costs.
Gross Profit – This is what’s left after subtracting your cost of goods from your revenue. It’s the money available to run your business—pay your team, cover rent, invest in marketing, and, most importantly, pay yourself.
Operating Expenses (OpEx) – These are the costs required to keep your business running, from payroll to software subscriptions, marketing, and office rent.
Net Profit – This is the final number after all expenses are accounted for. It’s the real profit your business generates, and it determines how much you can reinvest, save, or take home as the owner.
The Problem with Making Decisions Based on Revenue
One of the biggest mistakes interior designers make is basing their financial decisions on revenue instead of profit. You might be charging $200 per hour for design work, but that doesn’t mean you’re pocketing $200 per hour. Once you subtract business expenses, taxes, and operating costs, that number could be closer to $20 per hour.
If you’re not tracking these numbers properly, you could be making decisions based on inflated expectations, leading to cash flow issues, underpricing, and financial stress.
The Power of Cash Flow Management
Cash flow is one of the most overlooked financial aspects of running a business. Interior designers, in particular, face unique cash flow challenges due to project-based work, large product purchases, and long lead times. Managing cash flow effectively means:
Understanding how money moves in and out of your business
Separating funds into dedicated bank accounts
Tracking upcoming expenses to avoid surprises
Budgeting for taxes, payroll, and business investments
A simple but powerful way to gain control over your cash flow is implementing a Profit First system. This method involves setting up multiple bank accounts for different purposes—such as operating expenses, owner’s pay, taxes, and profit—so that you always know where your money is going. By allocating funds strategically, you prevent overspending and ensure that your business remains profitable, even during slower months.
Profitability Is More Than Just Raising Your Prices
Many designers think profitability is just about increasing rates, but there’s more to the equation. Being truly profitable means aligning your pricing with your costs, understanding your margins, and making intentional financial decisions that support long-term success. This might mean:
Adjusting your cost structure
Refining your service offerings
Implementing better financial tracking systems
Planning for taxes and retirement
At the end of the day, your business should be structured to support both your creative passion and your financial goals. You shouldn’t have to work tirelessly just to break even—you deserve to be paid well for your expertise.
Take Control of Your Financial Future
If you’re ready to take control of your financials and build a business that supports your life—not the other way around—Scarlet Thread Consulting is here to help. Our Understanding Your Financials course walks you through everything you need to know about reading and interpreting your P&L, cash flow management, and making data-driven financial decisions. And for those who want hands-on guidance, our next group coaching session starts in March.
Don’t wait until financial stress forces you to take action. The sooner you understand your numbers, the sooner you can create a business that gives you the freedom, stability, and success you deserve. Click here to learn more and enroll today!
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