Every interior design project offers the chance to help clients realize their dreams for their home. But to ensure that you realize your own business dreams as well, it’s important to learn how to reduce your financial risk, prevent safety issues, ensure client satisfaction and prepare for other project issues.

The business case for risk mitigation in interior design

A big reason many interior design businesses fail is a lack of understanding about business operations, including all the big and small legal, financial, safety and other risks involved with each project and the business. If you want your company to thrive, it’s essential to pay just as much attention to these risks as you pay to producing beautiful designs. 

Breaking down the risk mitigation process

Here we’ll detail each risk area to pay attention to as you embark on each design project with common examples of each risk type.

Financial risks

• Budget overruns
• Client late payments or nonpayment
• Legal fees in the event of lawsuits over client disputes or worker injury
• Unexpectedly rising prices or materials or services

It’s important to have complete clarity on operating expenses, including salaries and overhead. Most businesses can drive the revenue and win new clients, but not managing expenses well is what puts them in the red and puts them at risk of not succeeding for longer than a couple of years. Ensuring that revenue exceeds expenses (at Studio 790 Interior Design, we aim for a 25% profit margin) is critical for healthy finances and business growth.

Timeline risks

• Inclement weather
• Worker illness or unreliability
• Delivery delays
• Change orders
• Project scope expansion

One of the biggest challenges an interior designer can face is balancing timelines for new clients while maintaining momentum with existing interior design projects. It’s crucial to leave room for new opportunities, but this often creates tension in managing resources and bandwidth. Overlapping project timelines can lead to the risk of burnout for both the team and clients when priorities shift unexpectedly. 

Product and vendor delays can be an issue, frequently causing bottlenecks that ripple across multiple projects. These delays disrupt carefully planned schedules, frustrating clients and putting additional pressure on the design process. Managing these risks requires constant vigilance, as the smallest delay can cascade into major setbacks for both current and future work.

Legal risks

• Professional negligence, such as failing to deliver on a project, taking the wrong measurements, and providing bad advice or false information
• Product negligence, such as allowing improper installation e.g. wallpaper or providing faulty products
• Breach of fiduciary duty, such as not being upfront about commissions, falsifying fees and not prioritizing your client’s best interests
• Contract disputes, particularly if language is unclear

To mitigate legal risks, it helps to prioritize clear communication, transparency and strong systems. To prevent professional negligence, double-check all project details, document each phase thoroughly and keep clients updated through project management software like Houzz Pro. Product risks, such as faulty installations, can be managed by partnering with trusted vendors, inspecting deliveries and including product specifications and warranties in contracts.

Communication is the cornerstone of risk management, especially when things don’t go as planned. It’s important not to just own mistakes but to present recommendations for moving forward. A proactive approach can help keep the client reassured and minimize risk.

Emphasizing transparency can help avoid breaches of fiduciary duty. Each of our clients receives a guide outlining our process, pricing and FAQs, which they sign off on as part of their contract. This guide clarifies our financial model, including that we are commissioned by vendors due to our strong, reliable relationships. By providing regular updates and ensuring that contracts clearly define scope, payment terms and responsibilities, you can  minimize the likelihood of disputes and build trust. 

Resource risks

• Mismanagement of workers (number of, specialties needed, schedules)
• Lack of vendor management
• Not purchasing the correct products or the appropriate amount
• Not accounting for delivery dates correctly
• Not having needed cash flow

It’s crucial to have the right vendors and trade partners aligned with your interior design projects, making sure they can handle the quality and scale you expect. It’s also good to be aware of how cash flow can be impacted by these moving pieces; planning and flexibility are essential to keeping projects on track and clients happy.

Regulatory Compliance Management Risks

Failure to comply with local building codes, secure the proper permits, or maintain proper documentation can lead to significant legal and financial consequences. These compliance risks can impact the progress of your project and even put your business reputation at risk. To avoid these issues:

• Stay up-to-date with local building codes and regulations
• Always obtain the necessary permits before beginning work
• Keep detailed and organized records of all permits and documentation

To minimize these risks, ensure your team is well-versed in the latest code changes and compliance requirements. Using a system like Houzz Pro can help streamline documentation, track the project details, and keep everything organized in one place—reducing the likelihood of missed deadlines or overlooked paperwork. Regular training and an efficient project management system are essential in maintaining compliance and avoiding costly mistakes. 

Design and safety risks

• Hazardous site conditions, such as structurally unsafe buildings, mold, electrical or fire hazards, and unsafe environmental conditions
• Unsafe worker policies or lack of regular safety meetings
• Unvetted or unlicensed contractors
• Defective products
• Designs that cause injury or damage to occupants
• Lack of intellectual property protection

Sites with hazards — like structural issues, mold or outdated electrical systems — can require careful coordination with experts to address safely. And it’s important for a reputable interior design business to work with licensed, vetted contractors who follow safety protocols to prevent accidents on-site. Defective products can pose both a safety and reputational risk, so it’s essential to thoroughly research and test materials before installation. You want to create spaces that are both beautiful and functional, without risking injury or damage to occupants either from products or the design. 

Stakeholder risks

• Disagreement with you about budget, timeline, work completed or other project aspects
• Lack of support or communication
• Internal conflict among stakeholders regarding financing or project details

Clear communication and alignment are critical to keeping projects running smoothly, especially when you’re working with multiple decision-makers. You want to ensure that all stakeholders are on the same page from the start, implement regular check-ins and clearly communicate progress and priorities to keep everyone aligned and informed, helping prevent conflict and keeping projects on track.

Client risks

• Misaligned client expectations
• Miscommunication, lack of communication or overcommunication
• Unpleasant attitude or personality
• Lack of respect for boundaries (e.g., around working hours)
• Overinvolvement in project

A successful project starts with having the right client fit, and that comes down to managing expectations and communication from the get-go. Misaligned expectations can lead to tension if the client has a different vision for budget, timeline or even their role in the process. An overly involved client — for instance, someone who wants daily updates and requests last-minute changes — can disrupt the schedule, leading to frustration on both sides.

Communication also should be balanced — not too much or too little — and boundaries should be present. For instance, decide how you’ll handle clients who contact you late at night and expect an immediate response. Establish clear communication guidelines early on, drive most of your communication in writing to help keep a record, and reinforce those boundaries to ensure a healthy working relationship. 

Interior design risk assessment & mitigation planning

It’s important to carefully examine each risk area both before a project begins and regularly as it’s underway. Spotting potential issues before they actually arise can make all the difference.You can prepare for the above risks with the following strategies.

Preventing financial and legal risks

• Provide a detailed scope of work and payment schedule in your design project contract
• Specify the costs of and policies for change orders, project scope creep and late payments
• Include a contingency clause for rising costs
• Specify the project cancellation policy
• Carry business insurance that includes liability coverage
• Make sure all client approval documentation is in a single, easy-to-find place
• Keep careful track of the budget, expenses and time worked using software created for interior designers like Houzz Pro

We use the Profit First method at my company, as described in the book Profit First, by Mike Michalowicz. It ensures that we are profitable, that we can afford our operating expenses and that we are saving for taxes. Second, given that one of any design firm’s biggest expenses is human resources, we ensure that our pipeline for the next 12 to 24 months can fund incremental hires. Moreover, we often bring new hires in as 1099 contractors before making them full-time employees.  

Another way to mitigate financial risk is to require a 100% deposit from clients for all products before purchasing, so you don’t assume the financial liability for that stage of the project. Leveraging Houzz Pro’s retainer, proposal and invoice features has been really helpful in doing this. 

Preventing timeline risks

While you can’t foresee every possible event that can cause a timeline change, you can:

• Include contingencies for changes and delays in the project contract
• Vet contractors for reliability
• Stay on top of product delivery dates and contact vendors as needed
• Plan project dates based on expected seasonal weather 
• Create a detailed project schedule before work gets underway, and make sure all team members and clients have access to it and are informed of any changes as they happen.

When it comes to mitigating timeline risks in an interior design business, systems that keep projects on track and clients happy are your secret weapon for consistent success. At Studio 790, we hold a “Client Power Hour” every Monday to review project timelines and address potential delays early. We also rely on ClickUp to stay organized and send out weekly client updates featuring the Houzz Pro Selections Tracker. This tracker gives clients a clear view of both the overall project status and detailed product timelines, reducing uncertainty and keeping everything running smoothly.

Preventing resource risks

For products and materials:

• Make sure your proposals are as accurate as possible
• Use trusted vendors
• Examine return policies
• Inspect items upon delivery or as soon as possible

For working with contractors:

• Vet them thoroughly for skill, reliability and company culture fit
• Actively work to attract and retain good workers

It can be helpful to have two or three key vendors per category for the major execution phases. For example, three general contractors, three tile installers, two millworkers, two wallpaper installers and so on. This not only helps with resource risk mitigation but helps to ensure that you get multiple quotes for your clients so they can make the best financial decisions for the project.

It’s also a good idea to interview both potential new internal team members as well as external contractors and vendors, and to regularly visit new showrooms or vendors to build relationships. As Houzz Pro’s legal expert Jihan Spearman suggests: “At the end of the day, the clients should vet and feel comfortable with whomever they hire. Have them talk to past clients, ensure licensing, check for lawsuits and other formal complaints before proceeding with anyone.”

Preventing regulatory compliance management risks

• Stay on top of local building codes, as they can change
• Follow all local and federal regulations and obtain proper permits
• Have appropriate inspections
• Keep thorough documentation of all work done

Preventing design and safety risks

• Have a qualified professional conduct a site inspection before work begins
• Hold regular safety meetings and provide all necessary warnings and safety equipment
• Source high-quality products from reliable vendors
• Inspect all products and materials before they’re installed
• Regularly perform quality checks of work performed

It’s important to have a policy for preventing defective products from being installed and for dealing with them in the event that they are. Two ways to prevent issues are to carefully select vendors and to thoroughly inspect products when they arrive. If a product arrives faulty or not as expected, act swiftly to resolve the issue, coordinating with vendors to secure replacements and minimize delays. 

For concerns related to installation or construction issues, it helps to be able to rely on trusted general contractors who assume full responsibility for their scope of work. This includes proper installation, site supervision and resolving any defects related to construction or product installation. By collaborating closely with GCs and maintaining transparent communication with clients, you can help ensure that each project is handled with care and professionalism, mitigating risks and leading to a high-quality final result.

Preventing stakeholder and client risks

• Interview clients to make sure the budget, the project scope and their personality are a good fit
• Make sure all stakeholders approve the contract, proposal and any subsequent changes
• Clearly and frequently communicate with all stakeholders regarding project progress and any changes
• Handle any unexpected project issues honestly and directly, and specify how you plan to fix them
• Learn how to resolve client disputes without going to court

Stakeholder risk management tips

The key to managing stakeholder risks is having solid systems and great communication. Disagreements about budget, timelines or work completed can happen, but you can stay ahead of these issues with a detailed project timeline and weekly client review meetings to catch any potential problems early and keep everyone on the same page. Make sure to talk about money and budget alignment during the discovery process and kickoff meeting, and then send updates regularly. It’s so important to be OK with talking about money!

Communication is extra important when there are multiple stakeholders involved. If there's internal conflict on the client’s side — say, disagreements about financing or project direction — you’ll want to step in to help mediate, providing clarity and options to keep things running smoothly. 

Tips for mitigating client risk

This starts with setting clear expectations, as mentioned above. Walk clients through your process, pricing, FAQs and communication expectations, and include these in the contract so everyone knows what to expect. Then stay on top of communication with regular check-ins to keep clients informed without overwhelming them.

If the project or client is not a perfect fit, respectfully reinforce boundaries and guide the client to help the project stay on track. And this starts at the top! The owner of the company has to lead by example.

If a client doesn’t respect boundaries and company values, it might be time to consider parting ways. You can’t be driven by fear of losing money if it comes at the expense of your reputation, your internal culture and the future success of your business. More clients will come — ones who align with your values.

Essential tools for avoiding common design project pitfalls

Design risk mitigation tools

Project planning software created specifically for interior designers can help mitigate many of the risks outlined above. It can help you stay on top of budgeting and expenses, create accurate proposals, keep documentation in one place, communicate easily and keep all stakeholders and team members in the loop at every step.

Legal counsel

In addition to investing in interior design software, it can be wise to consult a legal professional who specializes in interior design. A legal counselor can help you create a proper contract template and can advise on business insurance, including how much liability coverage to get, and can advise you in the event of any contract disputes. Do an internet search for someone licensed to practice in your state, as laws can vary by state. 

Keep evolving your risk mitigation strategies

Ready to learn more about risk management for your interior design business? These resources will help keep you on top of your game:

• Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine, by Mike Michalowicz
• Mastering the Business of Interior Design: Available only to Houzz Pro subscribers, this series of courses taught by two industry pros offers a wealth of knowledge on how to grow your business, create repeatable processes, work with vendors and much more.
• The American Society of Interior Designers (ASID) offers a number of courses, webinars and other tools to help members thrive in business. 
• The International Interior Design Association (IIDA) facilitates community and the advancement of its members. 
• The Interior Design Society (IDS) supports interior designers based in furniture stores.