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NCIDQ > Business Structures/License/Management (IDPX) > Flashcards

Business Structures/License/Management (IDPX) Flashcards

Professional Business Practices 10%

1
Q

Business Structures

Sole Proprietorship

A

Company owned by ONE person

  • Simple/Easy to set up
    Tax advantages
    Hard to raise capital
    Expenses and losses are deducted from personal income
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2
Q

Business Management

Professional Liability Insurance

A

Protects the designer against acts, errors or omissions in the course of work on a design project

AKA Malpractice

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3
Q

Business Structures

General Partnership

A

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
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4
Q

Business Structures

Limited Partnership (LP)

A

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*
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5
Q

Business Structures

Limited Liability Partnership (LLP)

A

Limited to a certain type of partnership.

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6
Q

Business Structures

Limited Liability Companies (LLC)

A

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

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7
Q

Business Structures

Corporations

A

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

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8
Q

Business Structures

S-Corporations

A

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
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9
Q

Business Structures

Professional Corporation

A

Is similar except liability for malpractice is limited to the person responsible (Doctors, Architects, Accountants, Designers, etc.)

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10
Q

Business Structures

Joint Ventures

A

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
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11
Q

Business Management

Owners Insurance

A

Owner is required to carry liability + property insurance

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12
Q

Business Management

Workers Comp. Insurance

A

Protects employees in the event of a “work related” injury

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13
Q

Business Management

Automobile Insurance

A

Covers damage to the vehicle owned by the business

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14
Q

Business Management

General Liability Insurance

A

Protects against claims of property damage, liability and personal injury caused by desiner or anyone hired by designer

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15
Q

Business Management

Product Liability Insurance

A

Covers injuries caused by products that are designed, sold or specified by the interior designer

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16
Q

Business Management

Property Insurance

A

Protects the designers building and supplemental insurance may be needed for its contents

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17
Q

Business Management

Personal Injury Protection Insurance

A

Protects the designer against charges of slander, libel, defamation of character, etc..

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18
Q

Business Structures

What is Departmental organization?

Office organization

A

Project moves through the office from one department to another

19
Q

Business Structures

What are the advantages of Departmental organization?

Office organization

A
  • Efficient
  • Take advantage of many types of specialists
20
Q

Business Structures

What are the disadvantages of Departmental organization?

Office organization

A
  • 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
21
Q

Business Structures

What is Studio organization?

Office organization

A

Each studio is responsible for completing an entire project.

22
Q

Business Structures

What are the advantages of Studio organization?

Office organization

A

Close and immediate communication among members of the team, creating an environment for sharing ideas and group problem solving

23
Q

Business Management

A designer should have the following types of insurance:

A
  • Professional liability
  • General liability
  • Product Liability
  • Property insurance
  • Personal injury protection
  • Automobile insurance
  • Worker’s compensation
24
Q

Business Management

The Owner must carry their own what kind of insurances?

A
  • Liability insurance
  • Property for the full insurable value of the work.
  • ALL-RISK insurance must also be purchased
25
Q

Business Management

What kind of license is a Contractor required to carry?

A

Insurance to protect against claims

26
Q

Business Management

What is Exposure to Third Party Claims?

A

The interior designer is protected from claims by parties with whom the designer has no direct contractual relationship.

27
Q

Business Management

What is mediation?

A
  • Neutral third party facilitates an agreement between the disputing parties, but the agreement is not binding.
  • Mediation is a precursor to Arbitration
28
Q

Business Management

What is arbitration?

A

Third party hears arguments and renders a decision according to specified rules and the decision is binding

29
Q

Business Management

What are the two accounting methods used?

Financial Management

A

Cash and Accural

30
Q

Business Management

What is Cash Accounting?

Financial Management

A
  • 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
31
Q

Business Management

What is Accrual accounting?

Financial Management

A
  • 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:
32
Q

Business Management

What is a balance sheet?

Accounting Statements

A
  • Summarizes assets and liabilities.
  • Owners equity is money invested in the business
33
Q

Business Management

What is a Profit and lost statement (or income statement)?

Accounting Statements

A

Lists income and expenses for a period of time

34
Q

Business Management

What is a Cash Flow statement?

Accounting Statements

A
  • Financial health of company.
  • Helps track progress for each job
35
Q

Business Management

Profit Planning and Financial Management is expressed as?

Financial Management

A

Profit + Expenses = Revenue

Or

Revenue-Expenses = Profit

One assumes profit is the leftover, which is never a good business plan.

36
Q

Business Management

Other Accounting Reports

A
  • Project Progress Report - most important for designer
  • Office earnings report
  • Aged accounts receivable report
  • Time analysis report
37
Q

Business Management

What does Current Ratio mean?

Financial Ratios

A

Current assets divided by total current liabilities

38
Q

Business Management

What does New Profit before Tax mean?

Financial Ratios

A

Percentage of profit based on net revenue

39
Q

Business Management

What does Overhead Rate mean?

Financial Ratios

A

Ratio of total office overhead to total direct labor

40
Q

Business Management

What does Quick Radio mean?

Financial Ratios

A

A refinement of the current ratio including only cash and equivalents

41
Q

Business Management

What does Revenue per technical staff mean?

Financial Ratios

A

The amount of net revenue produced per technical staff charging direct time

43
Q

Business Management

What does Revenue per total staff mean?

Financial Ratios

A

The amount of net revenue produced per staff member per year

44
Q

Which office organization utilizes project teams responsible for completing an entire project?

A

Studio

NCIDQ (35 decks)

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