What Primetrics Has Learned Working With Interior Design Purchasing Firms

This year, we started working with two clients in the commercial interior design purchasing and logistics space: Vida Design and Absolute Procurement.

It’s a specialized industry, but the financial challenges we’ve seen aren’t necessarily unique to it. In fact, a lot of them will sound familiar to any business that takes customer deposits, pays vendors well before a job is finished, and manages projects that can stretch across months.

Working with these clients has given us a chance to get much deeper into how those moving pieces affect cash flow, reporting, taxes, and ultimately the decisions owners are trying to make.

Here are a few things we’ve learned.

The bank balance doesn’t tell the whole story

Cash can be particularly tricky in this business.

A customer may pay a deposit before anything is ordered. Then the business turns around and pays deposits to manufacturers before anything is built. From there, you may have weeks or months of manufacturing, freight, receiving, storage, installation, and final project work before everything is complete.

That creates an unusual situation: there can be a lot of money sitting in the bank that isn’t really available to spend.

At the same time, a significant amount of the company’s own cash may already be tied up with vendors.

That’s why simply looking at the bank balance, or even a traditional receivables report, doesn’t always give an owner a very useful picture of what’s coming next.

For these businesses, we’ve found that cash forecasting becomes much more useful when it’s built around open purchase orders, deposits, vendor commitments, and project timelines.

It takes more work on the front end, but the end result is a forecast that looks a lot more like what actually happens in the bank account.

A deposit isn’t necessarily revenue

This sounds simple, but it can create some pretty significant reporting problems.

When a customer pays a deposit months before a project is completed, that money coming through the door doesn’t necessarily mean the business earned it that day.

Depending on how the accounting system is set up, however, that’s exactly what the financial statements can make it look like.

That can distort revenue, margins, and even taxes. More importantly, it can give the owner a misleading picture of how the business is performing.

The fix isn’t particularly exciting. It comes down to getting the accounting structure right and making sure the way transactions are recorded actually matches how the business operates.

That’s often where good financial reporting starts.

Are you buying the product or arranging the purchase?

This has been one of the more interesting issues we’ve worked through.

An interior design purchasing firm may purchase furniture and resell it to its client. Or it may be acting on behalf of the client to coordinate a purchase from a vendor.

Those can look very similar operationally, but they can look very different financially.

If a firm coordinates $20 million in purchases but only earns $2 million in fees, determining which number is actually the firm’s revenue matters. In Washington and Oregon, where certain taxes are tied to gross receipts, that distinction can also have a meaningful tax impact.

And it isn’t something that should only be figured out when the tax return is being prepared.

Contracts, vendor relationships, invoices, and the way transactions are recorded all need to tell the same story.

Long projects require a different kind of planning

A project that lasts six, twelve, or even eighteen months creates a very different cash cycle than a business that performs a service today and gets paid next week.

A project can look profitable overall while still putting significant pressure on cash at certain points along the way.

That makes timing just as important as profitability.

When will the next customer deposit arrive? When are vendor deposits due? When will the remaining balance be collected? What other projects will be drawing on cash at the same time?

Those questions are much easier to answer when the financial forecast follows the actual projects rather than relying solely on historical financial statements.

The bigger lesson isn’t really about interior design

The more time we’ve spent working in this space, the more obvious this has become.

These aren’t just interior design problems.

Any company that takes deposits, pays vendors in advance, manages long projects, or has significant amounts of cash moving through the business on behalf of customers can run into the same issues.

The financial statements may technically be correct and still not give an owner the information they need to make the next decision.

That’s where we think our job becomes more valuable.

It isn’t just producing the numbers. It’s understanding how the business actually works, then making sure the accounting, forecasting, and tax planning reflect that reality.

If any of this sounds familiar, bring it up the next time we talk. That’s exactly what those conversations are for.