Business Operations Flashcards
Types of business operations, financial and risk management, delivery of services
What is a sole proprietorship?
Business owned by an individual. Business may operate under the owners name or a company name.
What are the advantages and disadvantages of a sole proprietorship?
Advantage:
•Ease of set up
•Total management control
•Tax advantages- business expenses and losses •may be deducted from gross income of business
Disadvantages:
• raising capital and establishing credit depends on owner’s personal credit
• owner is responsible for company debt and losses
• can be difficult to sell to others
• if sued owner’s personal income and property can be seized to pay judgement
• when owner stops practice, firm ceases to exist
what is a General Partnership?
2 or more people sharing management, profits, and risk of business.
• income is shared among others and can report on personal tax forms
• each is liable for debts and liabilities
What is Limited Partnership?
Similar to General Partnership but has at least 1 GP and 1 LP.
• Limited partners are investors who receive a portion of the profits but who have no say in the management of the company and are liable only to the extent of their investment.
• LP has been largely suspended and been superseded by LLC.
What is a Corporation?
- sometimes known as C corp
- associate of individuals that exists as a legal entity apart from its members.
- financially and legally independent from its shareholders
what are the levels of a corporation?
- Shareholders –> owner of the corp in proportion to the number of shares they own.
- Directors –> elected by shareholders, have the fiduciary duty to act in the best interest of the shareholders and are responsible for broad policy decisions.
- Officers –> elected by Directors carry out the day to day management of the corporation.
What are advantages and disadvantages of a corporation?
Advantages:
• if sued, the personal assets of the shareholders are not at risk
•easy to raise capital through the sale of stock
• taxed at lower rates than individuals
• shareholder and corporation taxed separately
Disadvantages:
• initial cost to establish business and continuing paperwork and formal requirements to maintain it.
What is a Limited Liability Corporation and LL Partnership?
Similar in business structures that combine advantages of a partnership or sole proprietorship with limited liability of a corporation.
• those who invest are called members
• those who manage are called mangers
• it is possible for non-member to be a manager
What are advantages to owning an LLC?
- Liability is limited to a member’s investment –> a member has no personal liability.
- business is not taxed except in certain states–> each member to report profits and losses on their personal tax return.
- easier to set up and operate than a C corp
What is a Joint Venture?
A temporary associate of 2 or more persons or firms for the purpose of completing a specific project or achieving a specific goal. it is dissolved when a project/goal is reached.
•typically used by architects when a project is too large or complex for 1 firm to handle alone. other firms can offer their expertise on a particular area.
What is a team agreement?
defines the roles, responsibilities, and contractual relationships that will be established if the firms are awarded the project and joint venture is formed.
what are the 7 key financial performance indicators?
- utilization rate
- overhead rate
- break even rate
- net multiplier
- aged account receivables
- profit to earnings ratio
- net revenue per employee
what is utilization rate?
- total direct labor / (total direct labor+indirect labor)
- measures the efficiency of labor. The ratio of the work you do on a project over all the work you do.
60%-65% = staff time 75%-85% = tech and principal staff
what is overhead rate formula?
total indirect expenses/total direct labor
•target: 1.5 - 1.75 of direct labor
what is break even rate formula
overhead rate + 1.0
•Target: 2.5 - 2.75 or direct labor
