CVW News 3rd Quarter | 2024

Table of Contents

Mastering Cash Management: The Profit First Approach for Interior Designers

by Amy Staves, MAcc, BBA, CFE

HOW MUCH CASH IS MINE?

Ever wonder how much money in the bank account(s) is actually yours? Have you been advancing vendor payments on behalf of your clients? Or have you been using your own personal funds to complete a project or pay for operating expenses?

You may be looking at your bank account(s) and thinking you have a hefty balance and can take a nice bonus or distribution – but wait! A large portion of that cash may be in the form of deposits and earmarked to pay vendors, sales tax, income tax, and firm overhead expenses. Therefore, it’s important to identify how much of the money collected should be set aside for these costs so you can clearly identify the remaining amount for YOU TO KEEP!

Determining the amount of available cash in the bank account can be a daunting task, but is essential for managing a design business and handling project funds.

PROFIT FIRST (developed by Mike Machalowicz)

In this system, each dollar that is deposited into your business is allocated among various bank accounts. These bank accounts represent a business’s cash inflows and outflows. The profit from each deposit is allocated to operating expenses, taxes, owner’s compensation and profit. The vendor and sales tax amounts that are collected are segregated to pay those expenses.

It is important to review items in progress (aka WIP - items that have not yet been invoiced) as well as items that have been invoiced to ensure the appropriate amounts have been deposited to the correct accounts. It is also important to review the percentage the client has paid towards an item to help ensure you are not advancing funds on behalf of your client – after all, you are not a bank.

An example of the bank accounts for a design firm are:

Benefits of Profit First:

• Allows you to easily identify how much cash is available to the business for designated expenses by glancing at the bank balance(s).
• Helps you ensure the money collected from clients for vendors and sales tax is segregated and available.
• Helps you prevent running out of money to complete the project.
• Helps you prevent funding the project or the operations of the business with personal funds.
• Helps you understand your true profitability.
• Helps you determine when and how much you can pay yourself!!!

Disadvantages of Profit First:

• Establishing multiple bank accounts can be time-consuming and complex, especially for small businesses with limited administrative resources.
• Requires a little bit of extra time to identify the amounts and transfer the cash among the various accounts.

This system may not be for everyone, and every firm may not need to set up and use all of the accounts in the example, but every designer should be conscious of the balance in each of their accounts. You should be able to easily distinguish between business funds and amounts that have been collected from clients for payment to vendors and sales tax.

Effectively managing your bank account balance is crucial for the success of your design business. By implementing a system like Profit First, you can gain a clearer understanding of your available cash and ensure that client deposits and business funds are properly allocated. This will help you make more informed financial decisions and maintain the financial health of your business. 

For more information about the Profit First method, including assistance with account set-up and ongoing management, please contact your Accounting Manager or info@cvwaccountinginc.com.

Making a Difference | CVW's Volunteer Day

We are truly touched by our team's efforts to make a positive impact within their communities during our recent volunteer day. Our employees dedicated their time and energy to clean up their neighborhoods, showing that together we can make a difference! Check out these inspiring pictures of our team in action, making our communities cleaner and brighter. Thank you to everyone who participated and contributed to this meaningful initiative.

New Financial Reporting Presentation | Trend Analysis

Starting this month, we will be implementing a new financial reporting presentation that includes several visuals to highlight significant year-over-year variances and driving factors, along with the following reference guide designed to provide clearer insights and easier navigation through your reports:

We believe these improvements will make it easier for you to understand your financial data and make more informed decisions. Your feedback is important to us, and we would love to hear any thoughts or suggestions you may have on this new reporting structure. Please feel free to share your comments with us, as we are committed to continuously enhancing our services to better meet your needs.

Team Update: Sarah Fern promoted to Operations Coordinator

We are excited to announce the promotion of Sarah Fern to Operations Coordinator! 🎉 Sarah has played a crucial role in streamlining our operations and driving efficiency across the team. Her dedication, expertise, and exceptional work ethic have made her an invaluable asset to our company. Congrats, Sarah - we appreciate you!

Reminder: BOI Reporting Requirements

This is a friendly reminder to file your Beneficial Ownership Information (BOI) report by January 1, 2025. A beneficial owner is defined as an individual who either owns at least 25% of a company or has substantial control over it. This may include a senior officer, a key decision-maker, or someone with the authority to appoint and remove officers.

Please ensure that your report is submitted by the deadline to remain in compliance. Below are the steps to file a BOI report on the FinCEN website:

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