The end of the year is fast approaching (we probably didn’t have to remind you!).  A few things to keep in mind so that you can turn over an organized file to your accountant in January:

1.      Make all of your charitable contributions before the end of the year in order to get the benefit of a tax deduction for 2009.  Itemize gifts of goods, while the information is still fresh in your mind.  Remember to also account for the professional time that you donated to that auction.

2.      Make the most of your retirement contributions.  Some contributions can be made until April 14 of 2010 for 2009.  So, now is the perfect time to plan that contribution and make the contributions over the next four months.

3.      Most of us like to defer our income, and increase our expenses in order to decrease our current year tax liability; however, you may need to rethink this strategy as tax rates are on the rise.  Tax cuts created during the Bush administration are set to expire in 2011, which may make it advantageous for you to recognize income now rather than later.  Ask your tax professional.

4.  Ensure that you are up to date on your bank reconciliations so that you have a true balance sheet and income statement on December 31st.

5.  If you do your own payroll, check with your accountant and/or the IRS to ensure that you are aware of the proper year-end forms to file.

6.  In many financial accounting software programs you can only have two fiscal years open at any one time.  That means that in 2010, you must have 2008 closed.  This is especially true if you use Studio Designer.  If 2008 is not closed, be sure to do this before December 31st or you will run into a big mess.

If you are feeling any pinch and worry about what to gather for the end-of-the-year financials, be sure to use your bookkeeper or accountant as a resource.  Feel free to contact our Accounting Services group and we will make sure to either help you or steer you in the right direction.

This is the first part of a multi-part series of lessons learned from Inc. Magazine’s GrowCo conference. These lessons have been translated and applied to the interior design industry for relevance.

Ram Charan

Dr. Ram Charan, author of Execution and Leadership in the Era of Economic Uncertainty and former Harvard Business School faculty member, gave a thorough and complete explanation of the current economic climate to kick off this year’s Inc. Magazine GrowCo conference. While one hour may not have been much time to explain a labyrinth-like fiasco, there were several important takeaways. To build a good foundation, we must answer the question “What got us here?”

Charan argues that several missteps resulted in the concoction of this downturn soup:

- The Banking Act of 1933 (also referred to as the Glass-Steagall Act), amongst other things, separated commercial and investment banks as a public interest measure. This provision in the act was repealed in November 1999. While the repeal of the Act was well-received at the time, many economists argue that the repeal contributed to the global financial crisis of 2008-2009.

- As an economy, we became overleveraged. For many years, interest rates were close to zero and there was too much liquidity.

- A major risk shift occurred when mortgage companies began bundling loans and selling them instead of keeping the loans in-house. This shifted risk from lenders to investors.

- Rating agencies did not do due diligence to uphold a high level of rating integrity.

Charan however argued that we will not see a depression. He theorized that government agencies are putting appropriate circuit breakers in place to prevent a massive plummet.

As small companies, Charan promoted the following importances:

1. CASH IS KING. Cash is the lifeblood of any business. You must have cash on hand to weather the storm. If you do not have enough cash now, seriously consider opening a line of credit or decreasing costs to increase cash.
2. Grow in the areas that you can generate cash. While long-term goals are important, think about the areas of your business that are actually currently generating revenue. Concentrate on growing these areas.
3. Focus. Don’t try to do too many things. You remember what they say about “Jack of all Trades, Master of None”. Don’t be Jack, be the Master. Focus on the core competencies of your business and grow those areas. Don’t try to do it all yourself.

After the economic refresher course, Charan turned his presentation to our psychology. He encouraged the attendees to keep the dominant psychology and to keep a positive attitude. “Inspire people”, he said.

One of the greatest takeaways from Charan’s presentation will be of utmost importance moving forward.

Don’t succumb to dropping pricing. ADD VALUE.

Think of areas that you can, for little cost, add a great amount of value for your clients. Remember that times will be better. If you have lowered your prices, it is much harder to raise them again.

The final important takeaway from Charan’s presentation was to not be myopic. Pay attention to what your clients want. Are you listening to them? Do they want more dedicated communication and a higher level of service? If so, how can you provide that for them? In your next team meeting, I encourage you to dedicate ten minutes to ask your team, “Did anybody see any change on the outside in the last week?” Look for the game changers.

With the fall of Lehman, the Merrill Lynch acquisition, and the AIG fiasco, many of us could be left scratching our heads and wondering, “What could possibly protect my business if these giants can’t even hold it together?”

I watch CNBC every morning. In the last few weeks, there has been a recurring theme that these giants toppled because of their lack of risk management strategies. Maybe it was greed, maybe it was lack of foresight, but these companies did not manage their risks and now their employees and their shareholders are feeling the brunt. Mr. Lehman, who built the company 158 years ago, is also rolling over in his grave. The question is, “How can we, as interior design firms, manage our risks in a time when the state of the economy is a day to day prognosis?”

Client deposits. I have spoken with far too many designers that only request a 50% deposit to place an order for goods. Let’s take the following example:

ABC Design Firm orders $100,000 worth of goods for Mr. and Mrs. Smith

ABC Design Firm marks up goods 30%

Total sales = $130,000

However, ABC Design also only requests a 50% deposit to place the order, even though many of ABC’s vendors require 100% up front.

Deposit that ABC receives = $65,000

That means that ABC is $35,000 in the hole on these orders. $35,000!?!? Not only is this bad for cash flow, it could potentially ruin ABC’s business in one fell swoop.

What if something happened to Mr. or Mrs. Smith? What if one of them lost his or her job and there was no longer money to pay for these orders? Mr. and Mrs. Smith may be very nice and honest people, but if the money is not there, the interior designer is going to be one of the last in line.  If Mr. and Mrs. Smith fail to pay ABC the other 50%, ABC will be forced to cover $35,000 of the manufacturers’ bills, not to mention freight charges, and will have lost $30,000 in gross profit.

COVER YOUR COSTS IN YOUR DEPOSIT. Better yet, request 100% deposit to order. At least if ABC Design Firm charged a 75% deposit ($101,250) on this order, their $100,000 cost of goods sold would be completely covered. If something happens, they will only be out their profit and some freight. (I say “only” but I know that hurts too).

Risk management is not just an important business practice for the giants. It is crucial to small businesses and especially to interior design firms.