Episode Eleven | 5 Financial Musts to Set Your Small Business Up for Success in the New Year
Hosted by Ruth Ann Janson and Beth Bender
Welcome TO 2026
[Ruth Ann Janson]
Hi, everyone. I'm Ruth Ann Janson, and this is Beth Bender with me here today. We are bringing you another episode of TopBranch.
[Beth Bender]
Excited to be back. [laughing] Excited to be back for the new year.
[Ruth Ann Janson]
It is good to be back, and a couple things we're gonna go over today is, yes, it is February, and I don't know if that brings a little anxiety that there's already a month under everyone's belt, but it's not too late to start thinking about different ways to monitor your business and try to make your design firm as profitable as possible in 2026.
[Beth Bender]
Never too late.
[Ruth Ann Janson]
Never too late.
Employee and Owner Compensation
[Ruth Ann Janson]
One of the biggest expense of most design firms, almost every design firm, is their cost of their employees. So let's kind of kick around good ways to be monitoring your team and making sure that they're set up for success in terms of being productive, as well as profitable for you in 2026.
[Beth Bender]
I think that, you know, you said the most expensive thing for a design firm is their employees, but, I mean, that includes the owner of the firm. At the end of the day you're an employee. So even if you're just a solopreneur, you wanna take home money.
[Ruth Ann Janson]
Yes, correct.
[Beth Bender]
You wanna be able to pay yourself.
[Ruth Ann Janson]
Correct, and that's one of the things that needs to be pretty closely scrutinized, is kind of taking a look at your team, including yourself, and setting those targets. And we've alluded to this on previous episodes, which are, how many hours per week/per month can I be billing time, and then at what rate? So you need to be taking a look at that and kind of be thinking about current market conditions. You know, what are the kind of skill sets of your team, etc? And then taking a look at that compared to the cost of those employees. So it's quick calculations, but it's really something that if you're more forward-looking on it, you're gonna be able to stay on top of it in 2026.
[Beth Bender]
Yep. Absolutely.
[Ruth Ann Janson]
And then kind of let's just weave into that the idea of owner compensation, because you touched on that. I was gonna bring it up in a minute, but let's go ahead and finish that thought, which is, you know, a lot of times we're doing consulting for our designers and they're coming to us with setting their goals for '26, for example. Most of the time, they're not coming to us with a revenue number, "I need to get to 2 million, 4 million, you know, 400,000," whatever it is. What they're coming to us with is a number of how much comp they want to be receiving in any given year. So let's kind of kick around what that looks like in terms of planning.
[Beth Bender]
Yeah, absolutely. I mean, you know, when you're talking about how much do you actually wanna bring home at the end of the day, it goes back to just a simple calculation. Like, you have to know, okay, I'm gonna take on this many projects. What is the profitability of those projects going to be? And out of that profitability, how much am I gonna kind of earmark for myself? Then you can back into everything else. And so as far as thinking through what are your hourly fees need to be, or are you gonna take a set design fee, at the end of the day, that has to be established pretty early on before you even get started in a project. Because that is most likely how you're gonna be paying yourself. The product and what you make on the product really needs to be more kind of bonus, [chuckles] not necessarily what you're counting on to pay yourself.
[Ruth Ann Janson]
Yeah, and that is the way a lot of designers, I think, look at it, as those fees are always, quote, "theirs," and they kind of squirrel those away first. And then the product and that markup, they kind of keep that aside, make sure there's not kind of changes coming through on the project. Make sure the client doesn't, you know, possibly change their mind on certain goods down the road, etc. I think those are really good things to keep in mind as you're thinking about setting your own compensation for 2026.
Fee to Income Ratio
[Ruth Ann Janson]
That kind of weaves into another thought around kind of looking at your team and your own kind of profitability and how much you're gonna be charging out, i.e., that revenue number, and thinking about your fees in relation to your goods for a given year. That's something that designers come to us a lot and kind of have questions around, like, "What is a really good ratio of my fees to my total income?" Meaning, you know, like 10,000 of design fees, $100,000 of revenue, that means your design fees are sitting at about 10%. So maybe react to that and, and kind of in your experience and things you've seen at The Dove and at running your own firm, like that, where that percent should sit and what that kind of translates into.
[Beth Bender]
Yep. I think it, it's not gonna be a set number for every single person. I mean, I don't think you can say, "It's 10%, or it's 20%," or whatever. I think it's more understanding the type of clientele that you're working with. So if you're working with very, very high-end clientele, and you're working on, you know, projects that maybe, you know, the timeline of those projects is gonna be a year, two years, you really need to make sure that the majority of what you're collecting for, you know, your, if you wanna say, your fees on that project, are kind of front-loaded a little bit. Because a lot of the work that you're gonna do is on the design side, and then you're gonna be managing that project for a year to two years. And so it's very important that you get paid for that, if you wanna say, intellectual property upfront. So, taking those higher design fees, and then having more of a management fee to follow that project through. Versus if your projects are more, you know, quick hits, you're doing more, you know, e-design, or you're hopping in on a one room, and you're gonna help somebody buy just a couple pieces of furniture or whatever, yes, I mean, you can put more value in what you're gonna make on the product.
[Ruth Ann Janson]
Yeah.
[Beth Bender]
Because you're selling products quickly, you're getting that revenue quickly, and you're not being asked to then manage that project for the next, you know, year or whatever. So I think you really have to first look at what kind of projects you're doing before you can decide, "What percentage do I want of my income to be, you know, or my revenue to be product versus-
[Ruth Ann Janson]
... right. And I think just to kind of tie a bow around that, one of the things to think about, like in my example of the 10% is design fees. That's typically not sending the message of extreme value on your design work versus what you're doing in terms of selecting the items. So, while you are, of course, correct in that there's no magic ratio here, I think the higher that design fee is as a percentage of your total, what that messaging is to your client is just that like you already alluded to, the intellectual capital or intellectual value of your services is... That's higher when that percentage is 25, 30, maybe even 35% of your total. In saying that, yes, these goods are important, but you're really paying for my brain around all of this.
[Beth Bender]
Right. Because you never know. I mean, the number of clients that we've seen it happen to me, where you do all this work, and then all of a sudden, something happens for the client, you know? The client gets laid off, or the client all of a sudden they're like, "Thank you for all this work. I'm gonna hold for a year."
[Ruth Ann Janson]
Right.
[Beth Bender]
Or, "You know what?" "I don't think I'm ready to do that right now." And you're going, "I just put all that effort and all that time into that, and I only made 10%," or whatever.
[Ruth Ann Janson]
Right. Right.
[Beth Bender]
It's not gonna add up.
[Ruth Ann Janson]
Yeah, you can get burned on that.
[Beth Bender]
You get burned.
Cyclical Nature of Business
[Ruth Ann Janson]
Yeah, no, that's a, that's an excellent point. And that kind of leads into another topic in, in terms of getting burned, if you will- [chuckles]
[Beth Bender]
[laughs]
[Ruth Ann Janson]
... which is, knowing the cyclical nature of your business. One of the things... And we deal with this at The Dove Agency. I mean, you know, when designers are slower, we're slower, right? And so, just in doing your planning for 2026, keep in mind that typically the summer months are slower. A lot of the clients have kids home, and they're not wanting designers in their home, you know, doing installs, etc. And then the same goes for the holiday season. So I think just being wise about how you're gonna protect your business during those down cycles, and also having the mental wherewithal to not get completely, sucking your thumb in the corner when those downturns come. Because if you look back over the history of your business, just like we look back over the history of ours, those, they come [laughs] and they come every year.
[Beth Bender]
Right.
[Ruth Ann Janson]
And you have a good strategy for setting aside enough and planning ahead for those slower months.
[Beth Bender]
Absolutely. Absolutely. And December, it's funny, because everybody thinks, "Oh, my gosh, you know, December is the craziest time." And yes, projects need to be completed. People want their houses completed before they go into the holidays and are entertaining. But typically, that's more install. That's more, "I'm finishing the finishing touches." You're not necessarily making a lot of money [laughs] in that time where people are like, "Yeah, let me go and, you know, buy a bunch of new product in December." That's just not, that's not the-
[Ruth Ann Janson]
Very rare.
[Beth Bender]
It's very rare.
[Ruth Ann Janson]
Yeah.
[Beth Bender]
So you've gotta, like you said, look at those times and plan out what is that gonna be like-
[Ruth Ann Janson]
And be ready. Yes, for sure.
Managing Freight
[Ruth Ann Janson]
Well, we always aim to keep these little TopBranches short and sweet, and we have a bigger topic that we wanna tease out for one of our upcoming episodes, which is the idea of a freight and installation allowance. We have a lot of clients that are using allowances versus, kind of that actual on the item-by-item basis. So we wanna kind of talk about the pluses and minuses of both of those ways of managing your freight, and we think that is an episode in and of itself. [laughs]
[Beth Bender]
Yeah, we just thought, there's so many little things that you can look at in terms of, as Ruth Ann said at the very beginning of this, how can you make yourself more profitable and get yourself ready for a new year, to be thinking through, "How do I make the most money I possibly can, and how much can I take home myself?" And so, that's an issue that we'll definitely cover. But man, you can get really burned, or you can make a lot of great money on just that freight and installation business.
Wrapping Up
[Ruth Ann Janson]
Yes. Yes. Awesome. Well, we like to end with our little quote, and we found one for today, which is kind of the way we started this message, which is, "It's never too late to get started on your planning," even though it's now February, for 2026. And this is a quote by Mark Twain from my great home state of Missouri.
[Beth Bender]
Mm-hmm.
[Ruth Ann Janson]
"The secret to getting ahead is getting started!"
[Beth Bender]
Yep.
[Ruth Ann Janson]
Just to go out there and get started-
[Beth Bender]
And get it done
[Ruth Ann Janson]
... on the planning. [laughs]
[Beth Bender]
Absolutely. Absolutely. We'll see you next time.
[Ruth Ann Janson]
Bye, everyone. Thank you.