Top financial mistakes faced by design firms

Most designers will agree that financial acumen is not their strong suit. However, when it comes to business success, financial know-how can make or break your business strategy.

Is your design business making financial mistakes?

The top 5 financial mistakes made by design businesses are listed below:

1. Failure to plan is your biggest foe. Budgeting and forecasting regularly will help to even out cash flow and by being aware of upcoming project costs, businesses can better prepare for months when money will be tight. By planning ahead, measures can be put in place to ease the financial strain of project-based workflows, allowing businesses a clear picture of individual project finances as well as the big picture business forecast.

2. Stay on top of cash flow and accounts receivables. With multiple projects running simultaneously and with different payment milestones, it can be difficult for architecture and engineering businesses to maintain a balanced cash flow throughout the year. A successful business will always be aware of current cash flow and accounts receivables to enable regular distributions and dividend payments. Invoicing systems and clear payment terms can both help to ensure prompt payment from clients. Our clients operate with 14 to 30 day payment terms

3. Lack of reliable systems. A financial management system can be a significant asset in understanding the strengths and weaknesses of your business. Strong reliable and up-to-date systems can help you to clearly see your incomings and expenses so that you can react to issues before they arise. Your business will also benefit from the ability to quickly filter financial data by revenue stream so that you can quickly see which areas of the business are and aren’t making money. Financial and business management systems can significantly ease the administrative burden through automation and efficiency.

4. Reducing costs rather than increasing revenues: the ebb and flow of a project-based workflow can mean fluctuations between financial gain and financial strain. It’s easy to rush to cut costs in times of difficulty, but be careful not to cut off valuable revenue streams and / or people at the same time. If money is being spent to stimulate growth then the revenue generated from spending could be far more valuable. Have a good look at your business development strategies and only cut once you have analysed what is and isn’t working for your business.

5. Big picture thinking. Profit for the sake of it is all good and well, but sometimes a small profit gain can get in the way of long-term business success. Always think about the big picture and long-term goals of your business — with that financial forecasting you’ve done in mind — before saying yes to projects that will bring in money in the short-term, but that may ultimately but obstructive to future progress.