#79 | 3 Bookkeeping Mistakes Interior Designers Make with Morgan Boudreaux
Welcome to the Designers Oasis podcast. I'm your host, Kate Bendewald. If you're tired of one-size-fits-all all advice to running your interior design business, you're in the right place. Join me each week as we dive into topics to help you run a thriving interior design business. Without the hustle. We'll talk about the business of design, but also mindset and mental health because I know when you thrive, so will your life and business. It wasn't that long ago that I stepped away from my corporate interior design job to build my own design business so that I could realize my own creative dreams, have more time with the people I love, and serve my clients at the highest level, while making more money than I ever could have working for someone else. It wasn't always easy, and I made my share of mistakes along the way. Fast forward to today. And I've learned a thing or two. Since then I've built multiple six-figure interior design businesses on authentic word-of-mouth referrals with many repeat clients. And I want to share it all with you the ambitious, inspired, and I get it occasionally overwhelmed interior designer who shares this dream of transforming lives through the art of interior design, You can do this. Thank you for letting me spend part of this day with you. Let's get to it.
Kate Bendewald
My guest today is Morgan Boudreau of business by the book a full service accounting firm that works directly with interior designers across the country helping them take the stress, confusion and worry out of financial related tasks off your to do list. This is by the books is started as a family run a business founded by Morgan's mother Sherry Wilson. Today they have a team of bookkeepers who are passionate about taking care of financial tasks so that their clients can do the things that they love, design, create and build successful businesses and spending time with their families. This is by the books has been my personal and trusted bookkeeper for four years. And having previously worked with two other accountants I know firsthand the difference, the difference it makes to have a trusted team who understands your finances and who speaks clearly and is dedicated to your understanding of your business finances. Please welcome my guest Morgan Boudreau. Hi, Morgan, how are you?
Morgan Boudreaux
I'm great. Hi, Kay. Thanks for having me. It's always a pleasure to join you and all of your listeners and members of designer oasis. So thanks for having me.
Kate Bendewald
Yes, I'm so glad to have you back. And we do have a have had Morgan here before. So we'll be sure to link to your previous podcast episode in the show notes. But today, we are going to talk about three of the top mistakes that you see interior designers making, that you think would be just very simple changes to make in your business. But that can make a really big difference. So I'm really excited to get into this. I know when it comes to talking about your business and finances, and specifically, the field of interior design. There's so many topics that we could cover. This is Financial Literacy Month. So we are we thought it was really important to bring you back to talk about this subject. But today, we're really wanting to kind of hit on some of those almost like quick fixes, like what are these like loose little tweaks and things that you can do in your business that can help you make some big changes. But before we get started, I want to just kind of do a little bit of bookkeeping one on one for listeners that might be just getting started. And I'll just say for the record, I've been doing this a long time. And I'm still a little unclear on these things that I'm about to SKU. So whether you're just getting started or whether you're a veteran, I hope that today's episode proves to be meaningful and helpful for you. So the first question I want to have you sort of explain to our listeners are some fundamental differences between some of their financial reports. You've said time and again, understanding your financial reports is just fundamental to a successful business. And so to have those reports that we're most likely to be looking at are your profit Loss Statement and your income statement. So can you please help our listeners just very high level understand? What is the difference between those two? And why would you maybe want to look at one versus the other those kinds of things.
Morgan Boudreaux
Right. So the, you have your balance sheet, and then your profit and loss or your income statement. And so the the profit and loss statement or the income statement is all is, I think the one that people tend to look at the most, it's, we like to send it year to date by month. And so you're seeing your income come in your cost of goods sold, and then all your expenses listed in the categories or at different accounts that you have. Office supplies, rent, payroll costs, those sorts of things. And so that one is really helpful for seeing, you know, in a specific time period, how much income is coming in, and how much is going out, and what is your profit at the end of the day. And so that one is really great for cash flow management strategies for making sure that your expenses are in line with your revenue and that you're not overspending. On certain areas, it's a great way to double check and make sure that your subscription fees are not getting out of control, or that you don't have personal Amazon also on there. And those sorts of things. The balance sheet is the more complicated financial report that that your accountant or bookkeeper should be sending you at least quarterly if not monthly, but that that report evolves and grows with your business throughout the life of your business. And so that's going to list all of your checking accounts, all of your savings accounts, any liabilities, like your sales, tax liability, any loans that you have your credit card as a liability. So it's gonna, it's broken into three sections assets, liabilities, and equity. And so that gives your CPA and you have, you know, a snapshot of the health of your business in its entirety. So it's year over year, it never, it only gets more complicated, the longer you've been in business, it rarely gets less complicated. And so those two reports you should be looking at, at least quarterly, but we would definitely recommend that you're reviewing those monthly, in order to stay on top of it, and to learn what's going on. Because the more that you look at those reports, the more familiar you are going to be with those. Got
Kate Bendewald
it. Okay, so your profit and loss is really looking at sort of a snapshot in time of where things stand, let's say for this month or for this quarter, whereas your balance sheet is really looking at the health history of the financial history of your business year over year, or however you choose to break it down. Is that my oversimplifying it?
Morgan Boudreaux
Well, so the balance sheet it is it's always will have a date on it like balance sheet as of April 9, that's today. And so it'll list the balances in all your accounts. So how much cash is in your checking account and your savings account? What is your liabilities and so it's giving you a picture of the health of your business, as of whatever date, but it lists the accounts as a whole versus the details of what type of spending you're doing.
Kate Bendewald
Got it wonderful that makes so much sense. And I know I often hear designers, they they get these reports, and I send them to you because I'm like, I don't actually know the difference. I just know that we get them and we go over them. And of course, I'm mostly looking at our p&l on a monthly basis, but we definitely get our balance sheet each month and review those but I I know that I've been looking at ours lately because we're we've been in the middle of tax season. And that's when I tend to personally pay the most attention to those. For better or worse. Do as I say not as I do in this case. But I really appreciate one of the things that you and your team do so well I think is really breaking down and explaining what are these different terminologies and best practices in a super clear way and that was not my experience previously with a pastor bookkeeper who was well meaning but really overcomplicated things. And so I just want to say to anybody listening that if you're, if you're working with a bookkeeper and you aren't, you know, pretty clear on what everything is. You might consider working with a different bookkeeper because there's just a communication style that you guys have that I find is very approachable and and I'm very refreshing in my eyes.
Morgan Boudreaux
Thank you, we're always trying to add, you know, value to an educational opportunities, like we've added videos that explain the financial reports that are coming out with each of our clients. Now because it, it is hard to understand and so just having somebody walk through the high points is such an important piece of everything. So,
Kate Bendewald
will you guys do that really, really well. Okay, the other question that I hear most often, when someone's just learning how to understand their bookkeeping is the difference between cash and accrual and reporting. So can you help us understand the difference between those two?
Morgan Boudreaux
Yeah, absolutely. Okay. So cash versus accrual are different ways that your income and your expenses that it that the time that the difference in the timing that they're recognized, okay, so, with cash, we're thinking on a cash basis accounting system, you're thinking about it, like when the money has actually left, your left or entered your bank account is when it's going to be recognized on your financial reports. So this is really a the easiest way to think about this is when you are purchasing something. So if you place a custom order, and that purchase order goes out, if you're on cash, you're not going to see that cost of goods sold expense show up until they charge your card which could be at shipping or on delivery or or whatever the case may be. If your accrual as soon as that Pio goes out, that's where the month that this is that the expenses can then be recognized. And so the flip side of that is the the income side. So if you are invoicing and on a cash basis, it's when the client pays the invoice. And if you're on accrual, it's when you send the invoice and so if they pay the invoice in May, even though you send the invoice today in April, the difference of what month the income is going to be recognized varies based off cash or accrual. And where this has the most impact is, you know, at the end of the year, obviously, when you're going to file your taxes, if you are, if you've sent a lot of invoices in your accrual in December, but maybe you haven't placed the orders yet, then you aren't going to see the discrepancy between your income will be elevated and you won't have the offsetting Cost of Goods Sold expenses yet. Or we're on a so on tax season it matters. And then it also really, really matters with sales tax. That is the the day to day impact of this is, is with your sales tax. Some states make you file sales tax on accrual basis, no matter what way you file your year end taxes. And so it's really important that you understand what the rules are with your sales tax responsibilities in your state in the state in which you do business, which could be your clients state.
Kate Bendewald
Got it. So as it relates to taxes, you really need to look at what your state requirements are for your sales tax to know what what do you find that most of them do the same one, but there's a few outliers are they like? Or is it just kind of all over the place?
Morgan Boudreaux
I think what's sales tax? I feel like everything is all over the place. It really depends on what state you're in. And yeah, I just think I'll just leave it at that. Yeah, no,
Kate Bendewald
that makes sense, right? Because you can so what I meant, let me make sure I'm understanding this correctly. So let's say you have prepared an invoice for product for a client, excuse me, not for product, we're gonna say for services, because I would actually probably be sending a retainer, if I was collecting money for product. But let's say in this case, I'm sitting in an invoice for services at the end of the year in December. And let's say I send it December 15. So if I'm on accrual basis, it's going to hit my books when I send the invoice, right. But if I'm on a cash basis, it's going to reflect that money on my income statement when I when the client pays it. So if they pay it after the first of the year, the next year, then that income becomes income for 2024 instead of 2023.
Morgan Boudreaux
Right Exactly. And so there are, you know, if you are working with a great accountant, they can help you by saying, Okay, this client isn't going, you know, we can turn it back, you know, say let's turn it back into a proposal if they're not going to pay it. And then because proposals are not accounting documents, and so it's almost like a draft invoice. And so there are things that you can do. If, if this is going to make a significant impact to, to kind of make sure that you're that everything is lined up correctly. And, you know, and why it's really important that you know, how, what all the rules are,
Kate Bendewald
right, right. And see, and I didn't realize that your sales tax location. So if I'm working on multiple projects, right, and let's say I'm working on a project out of state, I could be filing sales taxes in a different location on a cash basis, and then another one on an accrual basis in another state. All right, I didn't know that. But I think that's really important to, to understand. Yeah. So this is a story that I've told on the podcast before, but I'll share it again, because it's relevant to what we're talking about. Prior to working with you guys. I was not taught the importance of, as you mentioned earlier, sending clients either proposals or retainers to collect money for product. Instead, what I was doing was I was sending invoices. And so there was a year where I had wrapped up a client presentation in December, and the client approved a whole bunch of product, which we then sent an invoice for. And they paid prior to the holiday break. So I received all this money for product in December of whatever year it was. And so that money was then reflected as income for that year hackable income on my on my income tax return. And so that year, the next year, I had to pay income tax on all of that money. There was actually not income for me, but it was a small portion of it was but most of it was earmarked for product. So then fast forward in January, January, when we went back to start purchasing all of those set items, then it really threw our bookkeeping out of whack, because then starting in January, we looked poor, it looks like we have no money. But really, it's because I didn't have it set up correctly, I wasn't sending the I was sending invoices instead of a proposal or retainer to collect that money. And it really threw off my income reporting. And so that's one of those, I think, big takeaways for me when I hear you talking about this, that, especially looking at that end of year accounting, that if you've got it set up correctly, like I do, now, thanks to your help, that you can really find things so that you're accurately paying the right amount of sales tax, right amount of income tax, and everything is categorized, really the way that it's supposed to be and that's just such an important part of knowing your numbers and knowing where things stand.
Morgan Boudreaux
Yeah, and I think it's just so important that entrepreneurs know the these details. And so it's so easy to think that this doesn't really matter that that it's not important, somebody else is gonna take care of it, which is can be partly true it it can be somebody's responsibility, but it is important that you know enough, so that, that you are being mindful of these things when when they're happening, because at the end of the day, it is you that are that is sending the invoice versus a proposal or not collecting a retainer. And sometimes we can backtrack and clean it up. But sometimes, if you take the cash and it's in your bank account, that is what it is. So
Kate Bendewald
that makes a lot of sense. Well, so you actually this is a nice segue because I understand that you and I've talked privately before, and I know that there are a lot of designers who are just getting started who come to me at least and they say I feel like my bookkeeping is a mess, but I don't I can't afford a bookkeeper that's like this mentality or mindset that I hear so often. Do you have that same experience? Do you see people coming when they first of all it's never too late? anybody listening? Like it's never too late? But what are the reasons that you hear when people come to you and they sort of are like, got their tail between their legs and they're like yours my book You being I need help. What is keeping them from getting help sooner? What are they telling you? Yeah,
Morgan Boudreaux
I think that sharing your finances with somebody who you've had a couple of conversations with is such a vulnerable place to be in, in, it's like opening up your underwear drawer and asking, like, for people to just walk around your house. And so I, we definitely understand that there can be a lot of embarrassment, shame, you just don't even know what you don't know. And so, to that, we just have to say, like, we have seen it all, you know, you know, we have worked with hundreds of different clients over the course of the this, we've been in business for over 10 years. And so it has just been, it's been a journey, and that you're not the only one and everybody has to start somewhere. And so I think just kind of a mindset shift with the embarrassment of it is the first step, we we also work with a lot of clients. And so the details, the work is the same, but nobody can remember anything, you know, it's just at some point, it is just transactional. And it's like going to the doctor, like they're just doing what they do. And it's not personal when it comes to your actual numbers, you know. So we just, it's going to be okay, you have to get started somehow, you don't have to wait until you've cleaned up something or like, honestly, the best thing to do once you can decide that you want to afford it or that you can afford it is just to get somebody in there to start helping you because really, the messes never they never clean themselves up. Somebody that knows what they're doing has to get in there to help kind of write the ship and some people are able to take back, you know, cleaned up books and can manage it on their own more than likely once you offload this piece. You don't ever want to take it back. Right. But sure that Yeah, so I, but But it's never too late. And and it's not going to get generally unless you're also are an accounting brained person. Sure. It's just not you think you're gonna get it under control. But the best thing to do is just to get somebody involved right away.
Kate Bendewald
Yeah, absolutely. And I do think that there's also this mindset shift, that would be important to not only recognize that this isn't personal, like this is just a, these are just numbers, this is business, right? But that this is an investment and not just an expense, right? It's an investment in your time, because now you're not having to spin your wheels, trying to figure out something that's not in your wheelhouse, where you could be spending that time working on business development, or getting new clients or updating your website to better reflect your brand. There are so many things that are more in your wheelhouse, that are better ways to spend your time. And if you can focus your energy on that, sure, maybe in the early days, paying for a bookkeeper is going to be a little bit more of a higher cost to your cost of of doing business. But over time, it's the the relevant, sorry, the the relativity to how much you're making, it's going to it's not going to feel like such an impact. But it's such a smart way to get started
Morgan Boudreaux
with Right, exactly. And I think that a lot of people think that it's just categorizing transactions and reconciling your bank account are but it is way more than that. It's making sure that your invoices are going out on time and prompting you to follow up on this lingering invoice or helping you keep your purchase orders managed and, and, you know, making sure that you've invoiced for the extra freight or shipping that comes in after the fact and and at the end of the day. You know, nobody wants to pay more taxes than they have to and having your finances organized and done right when your CPA is ready and asks for them. You're gonna get the biggest tax deduction possible, which nobody wants to pay more than they have to So yeah, absolutely.
Kate Bendewald
Absolutely. I love that. Okay, well, let's get into the three mistakes, top three mistakes that you see designers making in their bookkeeping, and what do you recommend that they stop or start right away? So what's the first one that you've got for us?
Morgan Boudreaux
Yeah, so these are things that you can definitely do without hiring a bookkeeper. So these are some low hanging Free, that's going to clean things up and make your life just so much easier from a financial perspective. So the first one is to stop using p2p apps. So that's person to person like Venmo and Cash App. I feel like a broken record saying this, like we tell all of our clients like this is such bad news. Most of the time, people are using their personal Venmo account, and they've just linked their business account to it. And so right off the bat, that's violating these companies acceptable use policies, you're supposed to have a business account, if you're going to do it for business, which most people don't really do. But other than that, it just is so messy, because you take a $10,000 payment from your client. So that's sitting in your Venmo, then you pay your babysitter with that money that's sitting in your Venmo account, and then you go to drinks with your girlfriend, and you reimburse her for the check. And all of these just have emojis as the subject. And then you deposit $9,000, let's say for math sake. And then we're saying, Well, you don't have a $9,000 invoice for this client, you have a $10,000 invoice. And so then you're sending your bookkeeper screenshots of your Venmo account with a bunch of martinis as the subject for and I'm like, what is that? What do you want me to do with that, so it just is really, really messy. And so the best way to do it is, you know, if you use design files or house Pro, you can have them pay directly ACH or credit card there. You can send them a QuickBooks invoice if you want to, you know, if you're dealing with transaction fee avoidance, you know, there are other ways around it. But Venmo and Cash App are messy. And that's not the that's not the right way to do it. Got
Kate Bendewald
it. Now, that makes sense. When it comes to collecting payments. I've had vendors in the past, let's say like the receiving or the delivery guys to tip them if I forget cash. Or if I've had, I don't know, we've just had like random small vendors, people that we're maybe not using all the time who will ask to be paid through Zell or, or PayPal, or one of those. It seems to stand that that would reason that that would still be true for those same kinds of transactions, in which case, I get out my old fashioned checkbook and I write them a check. But it sure would be easier if I could use an app. From using PayPal, you're nodding. So you would agree
Morgan Boudreaux
is that Hey, pal is the better of the three, you know, Cash App Venmo, PayPal, PayPal is linkable and QuickBooks. It is better, you know, people do use Venmo in those situations for sure where they're tipping their installer or paying vendors for that matter. I think that the my concern there is that it becomes so digital, and there's not a lot like did you get an invoice? Where's the receipt for this? Where's the have you collected a completed W nine so that we can file a 1099 for this? We live in a digital age, but business is still not at that not that digital. And so I think that if you're really organized, then you definitely can still use those when you're paying people although I would limit it as much as possible. Sure.
Kate Bendewald
Got it. That makes sense. Okay. All right. So stop using p2p services such as Venmo Cash App and that sort of thing. All right, what about number two?
Morgan Boudreaux
Number two, is to stop commingling your business and personal expenses. And so get this one send
Kate Bendewald
your Nordstrom off your Yes.
Morgan Boudreaux
I've heard that before. Yes. So this is especially with our new clients or our our growing clients. This is the way that they start to do this when the way that they start to pay themselves is that they just are like well, I I'm not taking a salary yet. And so I'm just going to go shopping and I'm going to put this on on this or I'm going to use my business Amazon account but I'm going to buy diapers and I just have it sent to my house. Well, I hold on a second when you have when you're buying Amazon stuff. We don't always know what that is. So then we have to ask you quite Questions? What did you buy, we can't just assume that it's office supplies or styling goods or whatever else you buy at Amazon. And then it part of the way, like the legal creation of your business when you start an LLC, or an S corp, or all these things is that you're separating your personal and your business, and there's legal protection there. But when everything is all mixed up, it's called piercing the corporate veil. And if there was ever to be an audit on your business, if there's a lot of personal in there, they're going to say, Well, how do I know that there's not business in your personal as well, and it's going to open you up to a personal audit. So there's a lot more than just, it's annoying for your accountant to have to follow up with you all the time. But it really, it eliminates the protections that working like underneath, you know, a business entity provides. And so it's really, really important. It also is way better for you to just pay yourself with like a cheque or bank transfer, even if it's small, even if you start with like $500 a month, and you're transferring it out. You're also that's also how you can prove that you're taking an income Have you ever were to want to buy a house or buy a car. If you just have a list of Netflix and Nordstrom, the bank does not recognize that as your income.
Kate Bendewald
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Kate Bendewald
Yeah, the way that I started to do this was because I do have one Amazon account. Well, that's actually not true, but one that I use and I but you can easily keep a business credit card tied to that account just as well as your personal and you know, that you can switch that payment selection at the transaction moment and, and we've gone even a step further, which I guess would be a little bit more of an advanced bookkeeping, strategy, but super simple. But that's to have, we have separate credit cards for business operations, transactions versus client payments. So we have one credit card and we get and the nice thing is we get cashback on these credit card purchases. So even if we have the money in the bank, we're not going to use a debit card, we're gonna use a credit card, and we're gonna get that cashback or whatever sort of bonuses you get with your credit card. And of course, we pay them off each month. But one credit card is for objects. So that's all of our subscriptions. That's all of our office supplies that's paying for high point. And then the other card is exclusively used for client transaction. So all of that purchasing. So our bookkeeper knows typically that if there's an Amazon transaction, Amazon's really the only place we buy Office Supplies, but it's on X credit card, the OP X credit card, she knows that that's what that's for. And she knows if it's on the other one, she can very quickly assign that as a cost of goods sold. And that has been really helpful to even further allocate the money so that way we can look at our and then we have separate checking accounts to one four. And this is loosely based on the book Profit First, but I'm not going to get into that right now. But one one checking account is for our operating expenses and Now that all of the money that we receive for services, right, so client pays us for our time for proposals for services, the money goes into that account. And we use that to run the business and to pay ourselves. And we use the Obex credit card associated with that gets paid each month out of that checking account. And so it's like a siloed. And then we've got a separate a separate checking account for our client purchasing, and we call that a trust account. And all of the money that our clients give us to pay for product goes directly into that account, which is nice, because then you can visually see how much money do I have to run the business how much money is in the trust account, and then we can look at the related credit cards and sort of make sure that everything's matching up and not out of whack. But that's that was even like the next step of getting a separate account, it helps us mentally avoid the mental gymnastics of trying to figure out, if you put it all into one pot, well, how much of that is ours to operate from and how much of that is still leftover for client XID, we're halfway through purchasing for. So that's been a real help how that's for us.
Morgan Boudreaux
It's great, Kate, you got an A plus for that, that is so organized. And it really helps. It helps you understand where your money is going to go in the future. And so that you don't just like what you were saying. So you don't spend the money that they paid you for their furniture on, you know, marketing expenses, and it really keeps things very streamlined. So that's, you know, a great tip.
Kate Bendewald
Yeah, well, it's been very helpful for me to my little tiny brain can understand it better. And I will say we do have a separate savings account for taxes. And that's where we try to do it every time we get paid, moving over a certain percentage to that account that we use for taxes so that that money is also not sitting in there. Now, keep in mind, we do that for income tax sales tax days in our cost of goods
Morgan Boudreaux
account, that's pretty common, especially if you're a monthly sales tax filer, because it just turns over. So quickly, but if you are a quarterly or an annual sales tax filer, that is another strategy that we you know recommend to our clients is that if it's if it, especially if it's annually, it would be a great strategy to move that sales tax liability, those dollars out. So you don't spend your sales tax that you're holding on to
Kate Bendewald
Yeah, I know, it's it happens very quickly, all of a sudden, you're three months in and you're like, Oh, I actually haven't put aside any money for my sales tax, or for my income tax. And it has to be a part of the habits that you build in your business. Okay. So number two was to stop using credit cards for personal transactions. And then if you want to take it even a step further, you can further organize your business money so that you're super clear on what's for running the business and what is for managing your clients purchasing. All right. And so what is the third top mistake that you see designers make that you really would love to see them do to help improve their business?
Morgan Boudreaux
Yeah, the last thing is just to make sure that you're updating your project management system in real time. So that's your design files, your house Pro, my DOMA, whatever one it is that you like to use, you know, if they're paying ACH or credit card through the program, it's getting marked as paid. But if they're writing you a check, or sending you a wire, or paying you through Venmo that is not getting marked, you have to go in there and manually record those payments. And so that is important because otherwise what we see on the bank side is that you've gotten this deposit, sometimes it matches up great and we can easily connect the dots but sometimes it's not as that easy. And so we don't know what where this money is coming from. And so you know, it's your responsibility to record that on the the invoices or the proposals or retainers. The more complicated piece is the purchasing side. And so a lot of times you know, you go online, you have a purchase order you go online, you make the payment you put you place the order, and then you mark the purchase order as paid with whatever amount it was on the purchase order. Well then the item ships or half the order ships or it all I don't know I can't. They all have many scenarios
Kate Bendewald
that can happen off what was originally put in the purchase order to what? Ultimately how it ended up shaking out? I'm sure you've seen it all. But yes, it's frustrating because you can make a purchase order for a certain amount. And then, like I know, one, for example is sometimes a vendor will charge us 50% Right away. And then this is typically happens with custom upholstery. But then they'll charge the other 50% When it ships, or sometimes the freight changes, because they're doing real time freight charges versus a flat percentage. So how do you manage that piece?
Morgan Boudreaux
Yes, so we definitely recommend that you have an orders add or purchasing add or some sort of separate email address that you set up for all of your receipts or order confirmations that they go to that. And that somebody whose responsibility is to mine that email and make updates to your project management system. So that can be you know, you if you're a solo printer, or it could be somebody on your team, it can be your bookkeeper. But somebody needs to be managing that inbox and updating the purchase orders in the Project Management System tracking, if you had a 50% payment go through posting that only 50% of that has been paid, because it's important that the other 50% is showing on your unpaid bills, report so that you know what else you owe. Because if you mark it, if you don't update it at all, then you it looks like you have already that you owe the whole thing when you've already actually paid half of it. But if you mark that you've paid the whole thing, then you're not budgeting that you actually still have money that needs to come out of your account. Got it. And, you know, updating it seems silly, especially when we're talking like, you know, 20 $50 with the freight, but sometimes it's way more than that, and updating the like, the different that discrepancy, the changes were from the estimated freight or shipping to the actual, but those, it's like, those little amounts will eat into your profit margins. So, so much. And so it is important that you are keeping up with that, so that when you're reflecting on your project's profitability, that you have an idea, not an idea, but you have like the actual numbers of how much money you made on that project. And if you're not capturing the changes on your purchase orders, then you're missing a whole piece. And so it's it's not just the big furniture orders, but it's making sure that you are also adding in when you're styling, you know, or, or your project expenses when you're doing an install when you buy picture hanging kits in order lemons for the kitchen, like all of those things need to be reflected. Because that all eats into your profit margin. I
Kate Bendewald
love that specific example. It shows me Morgan that, you know, the interior design industry so well, because you've seen it all. Yeah, and I would say like our our business is pretty good about purchase orders, we because not every vendor requires them. In fact, most of these days don't require them. But they're still important to create. And you guys really helped us to understand this, because it's, it's doing a lot of things. But one of the things I love the most about it is it helps us to see how much profit we made on the purchasing side, because you can very quickly see well, how much did they pay you? And how much did you spend on your cost of goods sold. And the difference really is your profit on that project. And so if you don't have those purchase orders accurately reflecting what you actually spent, then that number can be out of whack for better or worse, right. And when you see, okay, when you know that you know that you know that your purchase orders are buttoned up, then I can look and I can see wow, we made $20,000 on this project in purchasing and that was very good. And then we use that to pay ourselves bonuses quarterly or annually. But if you don't have that information, or you don't have it accurately reflected, you don't know whether it's 20,000 or $0. Or whether you were in the red because you've screwed something up. So I really have come to understand the benefit of the purchase orders. Now. One thing that I am legitimately asking for myself, but I know it will help somebody here is you have speaking of updating your project management system in real time and you talk about purchase orders and payments and invoices. So The workflow that you have taught us that has worked really beautifully for the last couple of years for us is that when it's time to accept payment for products from your client, we now create a retainer. And that retainer becomes a liability, right? Wrong liability on your books, and then we use the purchase orders to go ahead and make. So the client already has approved a proposal for the amount. So that's how we know what to send for the retainer. So then fast forward, and we are in the purchasing phase, we've put together our purchase orders, and things are starting to arrive. Now that proposal and retainer are still sitting on our books. I'm unclear at what point and I know people do it at different stages. At what point do you convert the proposal to an invoice that you think is the best practice? Yeah,
Morgan Boudreaux
so some people have different there are differing opinions on this, some people do it. Like on install? That feels late to me. You know, I think that it's all I would prefer to see it. I think our clients from a in and out standpoint, like to see it when you place the order, because technically, it's theirs, they've already paid for it. And so whether or not it's coming to your warehouse, or guess if it's going directly to their house, it's there. So it needs to be invoiced because it no longer belongs to you. It's not that those dollars are not a liability anymore. Which I guess is the thought behind the doing it upon install. But I think regardless of if it's sitting in your warehouse or not it, they've paid for it, it's theirs. So once the item has been bought, that is when I like to convert them to invoices. And then if you're looking at your p&l, month to month, you see the income and the expense in the same month. And so that that helps things stay more balanced. Right? So it's not like you're not like, oh my gosh, my March was so bad. Why did that? Why am I in the red in March when there's money in my bank? Well, it's because your client paid off, you know, you you waited until March to pay to buy all the stuff that your client paid for it in January. And so things are a little bit more in line with each other.
Kate Bendewald
Got it? Yeah, that makes sense. Because you can you can all of a sudden press until have admitted the end of the year, we convert proposals to invoices, and then all of a sudden we have all this extra income. And you've got to make sure that you've got savings set aside for your your income tax for for that inflection. That makes sense in theory, and I see why there's differing ideas on when to do this. That makes sense to be to have things reflected in the same month.
Speaker 1
Logistically, though, it gets a little challenging, because then you're
Kate Bendewald
nodding. So I know you understand this. 99% of the time when something shifts, it's not a problem, and we get it and even if there's something damaged, we still handle it. And like we have a no returns policy. So it's almost never going to be an issue. Even if something does arrive damaged. We just get it replaced or repaired to move on. But ever so often there's something where an item goes out of stock, it is discontinued, or maybe it arrives in your client is like there's just something legitimately wrong, you missed the mark, and you have a responsibility to return it like there's that. In which case you wouldn't want to have turn that into an invoice anyway, the other reason why it feels hard to do it midstream is because our proposals are typically organized by either room, or product type, like here's your furnishings proposal, or lighting, or plumbing, or kitchen or bedroom or whatever, versus one big massive proposal. And those products on those proposals are all shipping at different times. Right? And so historically we've done it at install converted those two invoices because that's when we know everything's kind of good to go. So how do you kind of address that challenge of having of organizing your proposals so that you can invoice all at once? It's there Yeah.
Morgan Boudreaux
So this is where it is so specific to each business and how organized they are. I definitely am of the school of thought that the smaller the proposals like the least, you know, grouping it by like living room lighting, and putting that on a proposal, living room furnishings, living room wallpaper because it is so much easier. or to make adjustments to things if the document is smaller, the least amount of things on there as possible. But your client, and this is also where taking a retainer is so important because then the client is just like initialing or accepting all of the different proposals or just approving the room board as a whole. But you're the one or your bookkeeper is the one that's actually applying the retainer across all of these different places. Got it? Because the client, the client doesn't want to, they're like, Oh, my God, why am I having to pay 500? Proposal? Yeah, like gross exaggeration, but you know what I mean, I also think that sometimes, like, if we have a really disorganized client are out like, and I don't mean that in a bad way. But some people, this is just so hard, you know, we say, do not like get an approval on a on a proposal. But do you need to immediately collect payment on the invoice because because accepting payments on proposals is so messy, and if they can't, if they don't want to do retainers, their client doesn't want to pay them, like these big lump sums, then accepting payments on proposals is the worst thing that you can do, if you cannot remember to convert them to invoices and all of that sort of thing. And so, because proposals do not show up on your p&l, so if you have payments on proposals, then when you look at your income statement, you have no money on there. Yeah,
Kate Bendewald
got it. Okay, so that's makes so much sense. And it's super clear, I'm going to repeat it just to make sure I'm clear, and that our listeners are clear, because we're throwing around a lot of jargon here. So what I'm understanding is this, that we want to make our proposals as small as possible, because it'll be easier to convert them to invoices. So instead of sending your clients as they arrive, so instead of sending our clients proposals with the ability to pay on the proposals, the better practice would be to go ahead and calculate all of your proposals and figure out what that number is, we tend to round it to the nearest dollar, just to give our clients kind of a neat and simple proposal. And we always let them know we'll settle up at the end if there's a difference, but this is to cover these proposals that you've approved. So then we create this retainer, we send it to them, they pay one retainer, or maybe down the line, there's some changes, and we add, there's future, but generally speaking, there's one retainer, then we have these approved proposals, and we can use those to do all of our purchasing. And as items ship, once everything on that proposal has shipped, we can take that money from the retainer and apply it to the proposal, sorry, convert the proposal to the invoice and then pay that invoice using the money in the retainer. And so we can sort of do it bit by bit rather than waiting for the very end. And this is going to do two things I'm hearing is one it's got the money is appearing on your account as a liability through the retainer. But then, as you convert those proposals to invoices, and you get paid for them, now it's starting to show up as income right over time. Okay, that makes so much sense. And I'm really glad that we talked about that today.
Morgan Boudreaux
Yeah, yeah. Yeah, absolutely. Thanks for bringing it up. Yeah.
Kate Bendewald
And now I know that different software's use different language. I know, I use IV or house pro forever, and they call it proposals, but I think in design files, they call it quotes. Okay, but what's the same thing? Right? We're, we're talking about the same thing. Okay. Wonderful. I can't
Morgan Boudreaux
speak like books. It's called a proposal. And so that's my language.
Kate Bendewald
So yeah, okay. Well, I thought that was important to mention, because that's yes. I just figured out were testing out design files, which I liked so far, but it was like, Oh, wait, how do I create a proposal and I just realized that they were using a different terminology. So I hope that clarifies it. This has been super helpful. I just want to give a huge shout out to business by the book, you guys are fantastic. I highly recommend anybody who either if you're working with a bookkeeper, but you just don't have a good way of communicating or you're unhappy. Or if you're, if you're not working with a bookkeeper, there is the best time to start working with one is yesterday. So you guys are available for I believe, do you guys do a discovery call for new clients? How do you work if somebody wants to? Yeah,
Morgan Boudreaux
so we have a discovery call and that is sort of like a free consultation. When you get to know us we get to know you. And then if you are interested in moving forward, then you share your QuickBooks with us. If you have one and and we've that is a paid assessment. It's two $150 for us to do like a dive underneath the hood and see what's going on. When was the last time your banks were reconciled? What's your average transaction volume, that sort of thing? What what is your business setup look like? And we use that the findings from that to sort of diagnose what our recommendations are and develop a proposal for you. And then we would, you know, share a proposal with you. And, yeah, so we are currently taking on new clients, our next opening starts in May. Yeah, we have it, we currently work with about 150 clients, and 85% of those are interior designers. And so we really do feel like we understand the industry, we've been working with mostly interior designers, from the very beginning. So almost 10 years, and we have great relationships with the people at design firewalls, and at house Pro, and in that feels like a really important relationship that we're continuing to develop because it, you know, we get to advocate for for our clients with those softwares, because the ease of use on that is what makes everybody's life better. So
Kate Bendewald
I couldn't agree with that more. Well, if you guys call them make sure you mentioned designers, I'd cast that's where you guys heard us and again, and I love that, right, you guys listening, it's just like, the way we would work, we're gonna have a discovery call, we're gonna do a paid consultation. And from that we're gonna put together a proposal. So it's really straightforward. And I think that that deep dive under the hood, look, even if that's all somebody does, right? It's gonna give them I think, clarity and understanding about what to do next, or where to go from here. And then they can ultimately decide so that, to me, that feels like a no brainer, that somebody should take advantage of that right away.
Morgan Boudreaux
Yeah. Great. Cool.
Unknown Speaker
Thank you. And then please tell us your website.
Kate Bendewald
And we'll be sure to list everything in the show notes. Yes. So
Morgan Boudreaux
our website is business by the book dot money. Kate's gonna put it on though the link and then when there's a Contact page with, you can either book a consultation directly with our Client Services Coordinator, and or you can fill out the form and we'll contact you so perfect. Thank you
Kate Bendewald
so much, Morgan. This has been superb, okay.
Morgan Boudreaux
It's always great. Thanks for having me.
Kate Bendewald
I'll talk to you later. Talk soon. Bye, bye. Hey, friend, thank you so much for letting me spend a part of this day with you. I'm so passionate about helping designers like you. And I believe in a rising tide that when one of us does well, we all do better. So if you share this attitude of abundance with me, I want you to do just one little thing. Please share this episode with someone using might love it. And if you're feeling extra generous today, go ahead and take just 30 seconds to open your podcast app and leave us a five star rating and review. It's free for you to do and it helps me to be able to keep making more episodes and resources for you. However you choose to help please No, I appreciate you so very much. Thank you, my friend. Have a wonderful rest of your day. I'll see you soon.
