5 Common Problems in the INTERIOR DESIGN BUSINESS and How to Solve Them

Summary

In 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

00:00

🛠️ 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.

05:03

💧 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.

Keywords

💡Interior Design Firms

Interior Design Firms are businesses that specialize in creating aesthetic and functional spaces for residential and commercial clients. In the video, Eric Lee discusses the common issues faced by these firms, emphasizing the unique challenges that arise from the creative and project-based nature of the industry.

💡Managing Costs

Managing Costs refers to the process of controlling and overseeing the expenses of a business to ensure profitability. In the context of the video, it is highlighted as a significant issue for interior design firms, where the primary costs are associated with labor and talent, and it is crucial to monitor productivity to maintain profit margins.

💡Creative Service-Based Firm

A Creative Service-Based Firm is a business that offers services requiring creativity and innovation, such as design, architecture, or photography. The video script mentions that these firms, including interior design businesses, face similar challenges due to their reliance on creative projects and the management of talent.

💡Cash Flow

Cash Flow is the movement of money into and out of a business, reflecting the liquidity and financial health of the company. Eric Lee points out that managing cash flow is particularly challenging for creative types, who may not be as financially oriented, and emphasizes the importance of ensuring收款（receivables）exceed payments（payables）to maintain a healthy business.

💡Finding the Right People

Finding the Right People involves the recruitment and retention of individuals who not only possess the necessary skills but also align with the company's values and culture. In the video, Lee stresses the importance of this for creative service firms, as the right talent is key to the company's success and reducing the costs associated with high staff turnover.

💡Managing Client Expectations

Managing Client Expectations is the process of setting clear boundaries and communicating effectively with clients to ensure their needs and desires are understood and met. The video discusses the challenges of this in design firms, where miscommunication can lead to conflict and dissatisfaction, ultimately affecting the firm's reputation and referrals.

💡Scheduling and Time Management

Scheduling and Time Management involve organizing and planning project timelines to optimize workflow and meet deadlines. In the context of the video, it is identified as a critical aspect of running an interior design firm, where balancing the workload is essential to avoid overloading the team or experiencing periods of inactivity.

💡Talent

Talent, in the video, refers to the skilled individuals who are vital to the operation and success of a creative service firm. Eric Lee mentions that talent is one of the biggest costs for such firms and also their most valuable asset, highlighting the importance of nurturing and retaining this talent.

💡Project Costs

Project Costs are the expenses directly associated with the execution of a specific project, including labor, materials, and supplies. The video script explains that managing these costs is essential for profitability, as they can significantly impact the firm's bottom line.

💡Overhead Costs

Overhead Costs are the ongoing expenses of running a business that are not directly tied to specific projects, such as rent, utilities, and administrative salaries. In the video, Eric Lee discusses the importance of controlling overhead costs to maintain the financial stability of an interior design firm.

💡Referrals

Referrals are recommendations from satisfied clients that can lead to new business opportunities. The video emphasizes the significance of referrals in the interior design industry, where a positive reputation and client satisfaction are crucial for attracting new projects.

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