Business Structures/License/Management (IDPX) Flashcards
Professional Business Practices 10%
Business Structures
Sole Proprietorship
Company owned by ONE person
- Simple/Easy to set up
Tax advantages
Hard to raise capital
Expenses and losses are deducted from personal income
Business Management
Professional Liability Insurance
Protects the designer against acts, errors or omissions in the course of work on a design project
AKA Malpractice
Business Structures
General Partnership
TWO or more people that share equal profits + losses of the business
- Easy to setup
*Requires multiple partners and all share profit and risk. - Income is taxed at individual rate.
- If one partner withdraws, the partnership usually dissolves
- All partners are responsible and liable for the actions of others
Business Structures
Limited Partnership (LP)
Someone in addition to the working partners who have decided to INVEST in the business.
- *Partners are investors and receive a portion of the profits.
- Limited partners are liable only to the extent of their investment*
Business Structures
Limited Liability Partnership (LLP)
Limited to a certain type of partnership.
Business Structures
Limited Liability Companies (LLC)
Hybrid of the general partnership OR sole proprietory and the corporation
- *Easier to setup and operate than a corporation
- Formed like a partnership where investors are members
- Hybrid that combines the advantages of a corporation and the partnership
- Varies according to State
- Company name MUST include LLC or LLP.
- Member has no personal liability
- All liability is limited to the investment*
* Member has no personal liability
Business Structures
Corporations
An association of individuals created by statutory requirements
- Personal assets of stockholders are not at risk
- Taxed at lower tax rate than individuals
- It benefits from unlimited stockholders
- Changes in shareholders does not affect the corporation
- Easy to raise capital
- Larger initial cost to setup and continuing paperwork
* Shareholders are the major owners
Business Structures
S-Corporations
Offer all advantages of C-Corporation** except:**
- Profits and losses are paid or deducted from stockholder’s personal income tax.
- There is a maximum of 100 stockholders
- Stockholders are not at personal risk of lawsuits
- Stockholders are only liable for the amount of money invested
Business Structures
Professional Corporation
Is similar except liability for malpractice is limited to the person responsible (Doctors, Architects, Accountants, Designers, etc.)
Business Structures
Joint Ventures
Temporary arrangement between TWO or more people/firms for the purpose of completing a project
- Usually requires at least 2 persons to form.
- Temporary - formal written agreement.
- Cannot be sued as corporations
- Profits may be taxed as a partnership
- Varies per State
Business Management
Owners Insurance
Owner is required to carry liability + property insurance
Business Management
Workers Comp. Insurance
Protects employees in the event of a “work related” injury
Business Management
Automobile Insurance
Covers damage to the vehicle owned by the business
Business Management
General Liability Insurance
Protects against claims of property damage, liability and personal injury caused by desiner or anyone hired by designer
Business Management
Product Liability Insurance
Covers injuries caused by products that are designed, sold or specified by the interior designer
Business Management
Property Insurance
Protects the designers building and supplemental insurance may be needed for its contents
Business Management
Personal Injury Protection Insurance
Protects the designer against charges of slander, libel, defamation of character, etc..
Business Structures
What is Departmental organization?
Office organization
Project moves through the office from one department to another
Business Structures
What are the advantages of Departmental organization?
Office organization
- Efficient
- Take advantage of many types of specialists
Business Structures
What are the disadvantages of Departmental organization?
Office organization
- Communication can be a challenge,
- Discourages anyone from gaining a breadth of experience or share their knowledge in other aspects of project planning and completion
Business Structures
What is Studio organization?
Office organization
Each studio is responsible for completing an entire project.
Business Structures
What are the advantages of Studio organization?
Office organization
Close and immediate communication among members of the team, creating an environment for sharing ideas and group problem solving
Business Management
A designer should have the following types of insurance:
- Professional liability
- General liability
- Product Liability
- Property insurance
- Personal injury protection
- Automobile insurance
- Worker’s compensation
Business Management
The Owner must carry their own what kind of insurances?
- Liability insurance
- Property for the full insurable value of the work.
- ALL-RISK insurance must also be purchased
Business Management
What kind of license is a Contractor required to carry?
Insurance to protect against claims
Business Management
What is Exposure to Third Party Claims?
The interior designer is protected from claims by parties with whom the designer has no direct contractual relationship.
Business Management
What is mediation?
- Neutral third party facilitates an agreement between the disputing parties, but the agreement is not binding.
- Mediation is a precursor to Arbitration
Business Management
What is arbitration?
Third party hears arguments and renders a decision according to specified rules and the decision is binding
Business Management
What are the two accounting methods used?
Financial Management
Cash and Accural
Business Management
What is Cash Accounting?
Financial Management
- Actual revenue and expense recognized at the time the business receives cash or pays bills
- It’s simple and used by single-person or small firms
- Cannot be used by a corporation or if business keeps inventory
Business Management
What is Accrual accounting?
Financial Management
- Revenue and expense are recognized at the time they are earned or incurred, whether or not cash changes hands
- Mandatory for some types of businesses
- Uses double-entry bookkeeping:
Business Management
What is a balance sheet?
Accounting Statements
- Summarizes assets and liabilities.
- Owners equity is money invested in the business
Business Management
What is a Profit and lost statement (or income statement)?
Accounting Statements
Lists income and expenses for a period of time
Business Management
What is a Cash Flow statement?
Accounting Statements
- Financial health of company.
- Helps track progress for each job
Business Management
Profit Planning and Financial Management is expressed as?
Financial Management
Profit + Expenses = Revenue
Or
Revenue-Expenses = Profit
One assumes profit is the leftover, which is never a good business plan.
Business Management
Other Accounting Reports
- Project Progress Report - most important for designer
- Office earnings report
- Aged accounts receivable report
- Time analysis report
Business Management
What does Current Ratio mean?
Financial Ratios
Current assets divided by total current liabilities
Business Management
What does New Profit before Tax mean?
Financial Ratios
Percentage of profit based on net revenue
Business Management
What does Overhead Rate mean?
Financial Ratios
Ratio of total office overhead to total direct labor
Business Management
What does Quick Radio mean?
Financial Ratios
A refinement of the current ratio including only cash and equivalents
Business Management
What does Revenue per technical staff mean?
Financial Ratios
The amount of net revenue produced per technical staff charging direct time
Business Management
What does Revenue per total staff mean?
Financial Ratios
The amount of net revenue produced per staff member per year
Which office organization utilizes project teams responsible for completing an entire project?
Studio
