Your project pipeline is full, your team is slammed with work, and your revenue projections look really strong. So why is your bank account constantly feeling squeezed? It’s because of your Work in Progress (WIP). Generally considered an asset by accountants, representing the value of the materials, labor, and overhead invested, it can be a massive liability to your cash flow, team capacity, and mental health. In interior design, WIP contains hours logged but not billed, deposits made to vendors but not reconciled with clients, and so much more that may prove to be a major roadblock for a busy firm.
How Can WIP Be a Liability?
Every open project your firm has ties up capital in the business. Until a project is finished and the final invoice is received, your projects might feel like offering an interest-free loan to your clients. Normally, this isn’t a problem. You know how long a project should last, and can make projections, or perhaps you get paid partially upfront, or by stage.
But with a project as long as an interior design project, things can add up over all of that time. Scope creep is a real phenomenon, and can enter into a design even without the designer or client intending it. Or, a client might delay their project due to personal or financial reasons, meaning you need to hold onto materials that you’ve already paid for. On the less tangible side of things, the more projects you have in your backlog, the harder it gets to focus. It takes time to mentally swap between projects, sift through documents, and juggle calls from that client who suddenly decided to start communicating again.
Identifying the Red Flags
We strongly recommend that interior designers step away from fixed fees and adopt time-based billing. WIP is a great example of why. The more the project scope creeps upward, or the more you have to spend time hand-holding trying to wrangle low-communication clients, the less you get paid for your working time, if you’ve opted for fixed fees.
If you have five non-ideal projects that take the same bandwidth as one ideal project, that doesn’t necessarily mean you’re succeeding. Those non-ideal projects keep you busy, but they don’t advance your business forward.
They:
- don’t create useful future connections,
- don’t meaningfully grow your portfolio,
- run the risk of being delayed.
A single good project will be much more valuable and trustworthy.
Invoicing should be easy. If something in your process or technology stack makes invoicing cumbersome or slow, that might contribute to poor cash flow. You might be doing work far in advance of actually receiving payment, which is risky depending on what other expenses come up in the interim.
Focus on Finishing
Some personality types thrive on starting projects, but struggle to finish them. Lead by example, and focus on one or two major projects, and the steps required to complete them. Sometimes external forces get in the way, yes, but you should do everything in your power to keep things moving. The goal should be to minimize the number of different projects and instead focus on a smaller number of big ones. The more stop-and-go in your business, the more time and money you spend on overhead. Plus, the minimum amount of work it takes to start a new project gets multiplied across more and more projects.
You don’t have to wait until full project completion to bill for the work that’s been done. You can bill in stages or based on milestones, keeping the cash flowing more steadily. This may also be easier on the client, who can now pay in installments rather than one big sum at the end.
How to Fix Your WIP
Don’t feel like you have to accept every project that comes your way. Saying no is empowering, and there are options other than flat-out rejection. If you’ve built a local network of fellow designers, you can refer a non-ideal client to a more appropriate designer. This means you can focus on high-margin work that advances your business goals.
Finding places to increase operational efficiency can also help plug the leaks. For example, a functional suite of software can save lots of time. If you have to hunt around for the most up-to-date vendor record or invoice template, you’re wasting valuable time. Knowing where the most recent version of a document is, and trusting that it is the most recent, is worth every penny.
Create deadlines for your clients. Let them know, firmly, but kindly, that decisions must be made within a certain timeframe in order to keep the project moving forward. If the client fails to meet the deadlines, you may need to put that project on pause and focus on a more critical one instead of waiting around for an answer.
It’s difficult to scale a successful business when you’re drowning in a backlog of work. A healthy firm isn’t measured by how many active projects they have, or even how many they’ve finished, but by the quality of their projects and how profitable they are. Keep the future of your brand in mind, not just the present moment. So review your project list today. Do you have any that are more appropriate for a hobbyist dabbler who is just getting started? Or any that have simply stretched on for too long and need a set ending date? If you need help plugging the leaks, fill out Pearl Collective’s application form today.