5 Common Problems in the INTERIOR DESIGN BUSINESS and How to Solve Them
Summary
TLDRIn this video, Eric Lee from Starfish Coaching and Designers Business Academy addresses the top five issues faced by interior design firms, drawing from his 25 years of experience. He covers managing costs, particularly labor and overhead; maintaining healthy cash flow; finding the right talent that aligns with company values; managing client expectations to prevent misunderstandings; and the importance of effective scheduling and time management to balance workloads. Lee offers insights for new designers and invites them to explore his training systems for further business education in the design industry.
Takeaways
- 💼 Managing Costs: Interior design firms face the challenge of managing costs, particularly labor costs, which are a significant expense in creative service businesses.
- 💰 Cash Flow: Maintaining a healthy cash flow is crucial, with receivables ideally being double the payables to ensure financial stability.
- 🔎 Finding the Right People: Talent acquisition is vital for creative firms, requiring not only design skills but also a cultural fit within the company.
- 🤝 Building a Positive Culture: Retaining good employees is key to reducing costs associated with hiring and onboarding new staff.
- 📈 Managing Client Expectations: Clear communication and setting boundaries are essential to avoid misunderstandings and conflicts with clients.
- 🏆 Importance of Referrals: Positive client experiences and referrals are paramount for the growth and reputation of a design business.
- 📅 Scheduling and Time Management: Efficient project scheduling is necessary to balance workload and meet deadlines without overwhelming the team.
- 🛠️ Project Costs and Overheads: Understanding the difference between project-related costs and overhead costs is important for cost management.
- 📝 Billing Practices: Billing frequency and terms should be set to ensure timely collection of payments to support cash flow.
- 🔄 Dealing with Client Delays: Being proactive in managing client delays is crucial to prevent negative impacts on cash flow and project scheduling.
- 🌐 Online Training Resources: For new designers, there are training systems available that focus on the business aspects of design.
Q & A
What is the main focus of the video by Eric Lee from Starfish Coaching and Designers Business Academy?
-The video focuses on discussing the top five issues that interior design firms commonly face, based on Eric Lee's 25 years of experience in the design industry.
Why is managing costs a significant issue for interior design firms?
-Managing costs is significant because the biggest expense for a creative service-based firm like an interior design firm is its people or talent. Ensuring productivity and efficiency is crucial to maintain profitability.
What are the three types of costs that design firms need to manage?
-The three types of costs are project costs (or cost of goods sold), which are related to specific projects; overhead costs, which are not project-related and include rent and utilities; and people costs, which involve labor and talent management.
How does Eric Lee suggest managing labor costs in an interior design firm?
-Eric Lee suggests monitoring time and productivity to ensure efficiency, hitting budget targets set during job pricing and budgeting, and billing by the project rather than by the hour to manage labor costs effectively.
What is the importance of cash flow management in creative businesses like interior design firms?
-Cash flow management is crucial because it ensures that the income from projects (receivables) is more than the expenses (payables), allowing the firm to cover its bills and maintain financial stability.
What ratio should a design firm aim for between billings and expenses to ensure healthy cash flow?
-A design firm should aim for a ratio where billings are at least double the expenses to ensure they have enough income to cover their costs and maintain a healthy cash flow.
Why is finding the right people a challenge for creative service-based companies?
-Finding the right people is challenging because, in addition to requiring hard skills like design and production drawings, candidates must also be a good fit for the company's values and culture, which can be subjective and vary widely.
What is the key to retaining good talent in a design firm according to Eric Lee?
-The key to retaining good talent is building a super positive culture that people want to be a part of, as high employee retention reduces the costs associated with hiring and onboarding new staff.
Why is managing client expectations important in the interior design industry?
-Managing client expectations is important to prevent miscommunication and misunderstanding, which can lead to client conflict, friction, and unhappy clients, ultimately affecting the firm's reputation and referrals.
What strategies can a design firm use to manage client expectations effectively?
-A design firm can manage client expectations by clearly communicating the vision, setting boundaries, and ensuring client satisfaction at every stage before proceeding further in a project.
How does scheduling and time management impact the profitability and efficiency of a design firm?
-Scheduling and time management impact profitability and efficiency by ensuring a balanced workload, avoiding project bottlenecks, and managing deadlines to prevent delays and maintain a steady workflow.
What is the final issue that Eric Lee discusses in the video, and why is it critical for design firms?
-The final issue discussed is scheduling and time management, which is critical for design firms to balance their workload and ensure smooth project execution, thus avoiding bottlenecks and maintaining profitability.
Outlines
🛠️ Managing Costs in Interior Design Firms
Eric Lee from Starfish Coaching and Designers Business Academy discusses the most common issues faced by interior design firms, starting with cost management. He emphasizes the importance of managing labor and overhead costs, distinguishing between project costs and overhead costs. Project costs are directly related to the work done on a specific project, while overhead costs are general business expenses. Lee advises on ensuring efficiency and productivity to hit budget targets and maintain profitability.
💧 Cash Flow Management Challenges
The second issue highlighted by Lee is cash flow management, a critical aspect often challenging for creative types. He explains the concept of cash flow as the need for receivables (billings and collections) to exceed payables (expenses). Lee suggests aiming for a ratio where billings are at least double the expenses to ensure financial stability. He also touches on the importance of quick collections to avoid cash flow issues and the risks associated with delayed payments.
🔍 Finding the Right Talent for Creative Firms
Lee identifies finding the right people as the third challenge, noting the difficulty of discovering individuals who not only possess the necessary hard skills but also align with the company's values and culture. He stresses the significance of retaining good talent to avoid the high costs associated with constant hiring and onboarding. Lee recommends building a positive company culture to attract and retain the best employees.
📈 Managing Client Expectations in Design
The fourth topic addressed is managing client expectations, a skill that new designers often need to develop through experience. As a creative business, clear communication of the design vision is vital to prevent miscommunication and misunderstandings. Lee advises setting clear boundaries and ensuring clients are satisfied at every stage to avoid conflicts and maintain a positive reputation, which is crucial for referrals in the interior design industry.
⏰ Scheduling and Time Management for Efficiency
The final issue discussed is scheduling and time management, essential for balancing workloads and meeting project deadlines. Lee warns against having all projects with close deadlines, which can overwhelm the team, and having lulls with no projects, which can lead to underutilization of resources. He emphasizes the importance of efficient workflow management to maintain profitability and client satisfaction, despite the unpredictable nature of client changes and delays.
Mindmap
Keywords
💡Interior Design Firms
💡Managing Costs
💡Creative Service-Based Firm
💡Cash Flow
💡Finding the Right People
💡Managing Client Expectations
💡Scheduling and Time Management
💡Talent
💡Project Costs
💡Overhead Costs
💡Referrals
Highlights
Eric Lee from Starfish Coaching and Designers Business Academy addresses common issues faced by interior design firms.
Managing costs is identified as the first major issue, with labor and overhead costs being critical for interior design firms.
Project costs and overhead costs are differentiated, with project costs including staff, supplies, and materials for specific projects.
Efficiency and productivity of staff are emphasized for managing project costs and hitting budget targets.
Cash flow is the second issue, with the importance of billings exceeding payables to ensure financial stability.
A ratio of billings to payables is suggested, aiming for at least double the payables for safety.
The speed of collecting payments is highlighted as a factor affecting cash flow.
Finding the right people is the third issue, emphasizing the difficulty of discovering talent that fits company culture and values.
Retention of good employees is crucial due to the high costs of hiring and training new staff.
Managing client expectations is the fourth issue, noting the challenge of communicating design visions to clients.
Miscommunication and misunderstanding can lead to client conflict and negative reviews, impacting referrals.
Scheduling and time management are the fifth issues, with the need to balance workload and project deadlines.
The importance of not having all projects with close deadlines to prevent overloading the team's capacity.
Eric Lee offers training systems for designers to learn about business aspects at www.designersbusinesscarry.net.
The video provides foresight for those considering entering the interior design industry.
Eric Lee's experience of 25 years in the design firm is leveraged to share insights on common issues.
The video promises further exploration of each issue in potential future videos.
Transcripts
hi it's eric lee with starfish coaching
and designers business academy i had a
recent question from someone who's
starting up their interior design
business and their question was what are
the five most common issues that
interior design firms face
so i want to share that with you in this
video
[Music]
okay it's been a while since i started
my own design firm about 25 years ago so
this is great that i'm getting these
questions because i forgot a lot of the
struggles that i dealt with until
someone asked me that so i really
started thinking and
i would love it if you guys actually
have questions to just throw at me leave
me comments here and i would love to
answer them with my knowledge and my
experience in the industry i'm sure i
can get you a good answer
okay in this video i'm going to share
with you what are the top five issues
that interior design firms face in
reality all creative design firms face
this it's very similar whether you're an
interior designer an architect a
photographer if you're a project based
creative service company you're gonna
face these issues so the first one is
managing costs
managing cost is a big issue and in a
creative service based firm like an
interior design firm your biggest cost
is your people your talent
so managing those costs can get very
tricky and you have to get very good at
it
an example of this is if you're a fixed
fee type of company and you have staff
that are unproductive you're paying for
that and there's less profit for you at
the end of the day so managing these
costs your labor costs your overhead
costs your rent all of those are really
important critical stuff for interior
design companies to look at
there are three types of costs in the
design firm there's the project costs or
some people call it cost of goods sold
these are project related costs so this
could be your staff working on the
project the supplies and the material
that you buy for that project and then
there's overhead costs these are costs
that are not related to
any project so these would be like for
instance your administration people your
marketing your rent your to utilities
these are general running the business
type of costs
that part is easier to control it's your
talent and it's your people cost your
cost of goods so your project costs that
is trickier you want to make sure that
you're efficient you want to make sure
that you monitor their time to make sure
that they're productive because your
fees have a set amount typically
speaking unless you're billing by the
hour so you want to make sure that
you're hitting the budget that you set
forth when you budgeted the job and
price out the job for the client so that
is an important tip for managing cost
okay so the number two big issue that
interior designers face is cash flow
cash flow is a huge thing and it's
especially
hard for creative types to
manage cash flow because they're not
thinking money creators are just not
good at thinking money but here's a
simple
explanation of cash flow
the receivables that you have coming in
which is how much you're billing and
collecting from a project needs to be
more than how much you're paying out
right that's normal and here's the ratio
you should be making sure that you
receive those is about double your
payables an example of this
if you're paying your salary to your
staff
let's say five thousand dollars a month
and you've only built out five thousand
dollars that's a one-to-one ratio
it's going to be very risky for you to
pay the bills that month you want to be
billing out at least ten thousand
dollars so that you know that you've got
it covered
so that's one thing is you've got to
make sure that you have enough billings
and the speed of collecting is also
important and affects cash flow what you
don't want to do is you're paying your
staff by the month let's say you don't
want to give your clients a 60-day term
two months right because you're not
going to collect that money in time to
pay your staff you want to leave it as
maybe 10 15 day term maximum 30 days and
if they go past that if they're delaying
your
invoices and paying your bills you want
to make sure that you call them up and
get that going otherwise your cash flow
will be an issue
all right three
finding the right people that is
probably the toughest thing for any
creative service based type of company
good talent good people are hard to find
and i'm not just talking about creative
designers i'm talking about a fit
overall to your company values the way
that your company does things do you
guys see eye to eye there are all types
of personalities out there which one
will fit you and your culture so that's
a key thing plus they're gonna have the
hard skill like designing and production
drawings and all of that stuff
so finding the right people is key and
they are probably your biggest asset my
tip here is to build a super
positive culture that everyone wants to
come to work at
because retention is super critical
attrition is very expensive you don't
want to keep on hiring people because
the onboarding time the recruiting costs
all of that is not worth it you'd rather
keep that person train them and nurture
them they grow within
all right number four is managing client
expectations
this is a tough thing and it's something
that
new designers just don't learn until
they start to
deal with a few tough client
conversations
but it is a real issue in design firms
the problem is
we're a creative type of business so in
order for us to get what's in our mind
to the client we have to be very good at
portraying that vision and clients
aren't technically sound in terms of
understanding drawings and all that
stuff so you can see that there's a lot
of possibility for miscommunication
misunderstanding so you really have to
manage their expectations have to
communicate very clearly
have to set all the boundaries otherwise
there's a huge chance for
misunderstanding which leads to
client conflict
friction
and that leads to
unhappy clients which ultimately means
that your company gets a bad review
possibly um
no referrals and that's probably the
most important thing in an interior
design business is the word most
referral so you want to manage the
client's expectations very carefully you
want to help them understand the vision
make sure that they're happy with every
stage before you go too far
so those are all key things
okay number five the final one is
scheduling and time management
in a business where project time is so
important
not just you have to be efficient with
your workflow to be profitable but the
key in this point is you want to manage
the projects very well because you don't
want all your projects to be stacked
together when all the deadlines are
together you just don't have enough
production uh bandwidth to solve that
and you don't want them to all be kind
of having a lull where you have nothing
to do of course if you control the best
that you can then you want to stack it
properly so that one milestone is done
after another and after another
unfortunately
clients do change their mind and they do
cause delay so this will happen
so your scheduling and your time
management is very critical as much as
you can to balance out your workload for
you and your team
so i hope this video gives you a good
glimpse of the five top issues that
interior designers face if you're
thinking about getting into industry at
least now you have some foresight i can
dive into each one of these topics
specifically because there's so much to
cover but i'll probably do that on
another video if you're just starting
out in the design industry you may want
to check out my training systems where i
teach designers about business you can
check it out at
www.designersbusinesscarry.net
i'm eric lee and i coach designers on
the business side of design
[Music]
you
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