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Practice Management > Finances, Risk and Development of Practice > Flashcards

Finances, Risk and Development of Practice Flashcards

1
Q

Ledger Accounting

A

basic accounting that shows the overall financial status of the business

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2
Q

Project Cost Accounting

A

tracks the revenue, expenses and profit of specific projects

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3
Q

Accounts Payable

A

$ owed to suppliers of goods/ services

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4
Q

Accounts Recievable

A

$ owed to the business (invoices)

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5
Q

Assets

A

Tangible and Intangible resources measured monitarily

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6
Q

Chart of Accounts

A

list of various accounts with corresponding account #s

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7
Q

Current Assets

A

resources that will be converted to cash within a year

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8
Q

Direct Labor

A

labor directly chargeable to projects

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9
Q

Direct Personnel expense

A

salaries plus expenses and benefits

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10
Q

Discretionary Distribution

A

Voluntary distribution of profits (bonuses and profit sharing)

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11
Q

Fixed Assets

A

resources used and retained for a long time (i.e. computers, plotters)

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12
Q

Gross Revenue

A

all revenue within a set time period

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13
Q

Indirect Labor

A

labor that is not billable to specific project (Admin, Marketing etc)

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14
Q

Liabilities

A

claims by people outside of the business or by the owners against business assets

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15
Q

Net Operating Revenue

A

money remaining after deducting fees and expenses

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16
Q

Other assets

A

miscellaneous resources like copyrights and securities

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17
Q

Overhead

A

expenses to keep the business running, regardless of revenue (rent, power, phone etc.)

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18
Q

cash accounting

A

revenue and expenses are recognized at the time the cash is received/bill is paid. gives accurate account of cash flow.

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19
Q

accrual accounting

A

revenue and expenses are recognized at the time they are incurred/earned regardless of if the money has changed hands. gives the best long term picture. required by IRS for larger businesses

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20
Q

modified accrual

A

does not included the fees earned but not yet billed

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21
Q

balance sheet

A

summarizes all assets and liabilities

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22
Q

net worth

A

= (total assets - total liabilities)

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23
Q

owners equity

A

amount invested by owners

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24
Q

income statement

A

all income and expenses over a set time period

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25
Q

cash flow statement

A

actual inflow/outflow of cash or cash equivalents over a set time period

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26
Q

Profit

A

= revenue - expenses

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27
Q

controlling exxpenses

A

reducing overhead. highest overhead is indirect labor

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28
Q

project progress report

A

shows the hours & labor cost of each phase of project,
for the current reporting period and total,
and compares to estimated hours and cost.
also includes direct costs (consultants), overhead, and reimbursables.

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29
Q

office earnings report

A

summarizes a project in terms of revenue generated, expenses incurred, unbilled service, percentage complete, and profit/loss to date.

30
Q

aged accounts receivable report

A

shows the status of ALL invoices and their “age”,
shows time of invoice to payment/current date if unpaid.
typ: 60-75 days is collection period, 60 days needs attention, 90+ days is essentially a loan w/o interest

31
Q

time analysis report

A

analysis of each employee with time spent on direct, indirect, PTO, holiday, etc.

32
Q

utilization rate

A

= direct labor / total time
65% firm wide is roughly break even
75%-85% is a typical technical staff goal

33
Q

current ratio

A

= current assets / current liabilities

measures your ability to meet CURRENT obligations
1.5 healthy, 1.0 is barely making it

34
Q

Net profit before tax

A

= net revenue - consultant fees - reimbursables

35
Q

overhead rate

A

= total overhead / total direct labor

1.3 to 1.5 target. used for setting fees.

36
Q

quick ratio

A

current ratio, but only using the most liquid assets.

cash, cash equiv., accounts receivable, earned unbilled revenue

37
Q

revenue per technical staff

A

= net revenue/ technical staff

used to estimate required net operating revenue for future budgets

38
Q

revenue per total staff

A

= net operating revenue / total staff

39
Q

billing rate

A

hourly rate determined by cost of:

salary + benefits + overhead + profit margin

40
Q

net multiplier

A

accounts for benefits, overhead, and profit margin in billing rate calculation.
typically 2.7 -3.0

hourly pay x net multiplier = billing rate

41
Q

break even rate

A

= operating cost / direct labor cost

should be 2.3 - 2.5

42
Q

minimum billing rate

A

employee salary x break even rate

43
Q

Direct Personal Expense (DPE)

A

includes taxes and benefits with salary, so multiplier is smaller and only accounts for indirect labor and profit

44
Q

setting fees

A
  • set billing rates
  • estimate hours to complete work
  • determine staffing
  • multiply hours by billing rates
  • account for consultant fees, non-reimbursables, and a contingency if including one.
45
Q

Managing accounts recievable

A

1) contract terms:
- clear fee collection terms in contract
-basis for fee, when and how invoices are sent,
payment due, penalties for non payment
2) timely billing
- send invoices ASAP. One month max billing
period.
3) complete invoices
- client name and address, project name and
number, reference to contract, breakdown of
work and associated billing.
4) follow up on invoices

46
Q

controlling overhead

A

charge all legitimate billable time
report non labor direct expenses (travel, prints, copies, presentation supplies, model supplies)
shop around for best prices (rent/internet etc)

47
Q

Agency

A

one person (agent) acting on behalf of another (principal) with another (third party)

A is agent of O with C

48
Q

Standard Forms of Agreement

A

A101 - O&C
B101 - O&A
C401 - A&E or O&E

49
Q

Duties

A

What one person owes to another

50
Q

Establishing Architects Duties

A

1) contract terms - the B101 outlines specific duties
2) legislative enactment - codes/regulations
3) implied duties - cooperating with contractor, not interfering with contractors work, providing relevant information, assisting owner in coordination

51
Q

Liability

not finance

A

legal responsibility for harm to another person or property

52
Q

Negligence

A

failure to use due care to avoid harm to another person or property

1) legal duty exists
2) architect has breached that duty
3) breach of duty was the cause of harm
4) actual harm was done

53
Q

Defense of Claims

A

1) Betterment
2) Statute of Limitations
3) Statute of Repose

54
Q

Betterment

A

applies to claims of omission by architect

ex) client asked for tiled wall. Architect left that out of drawings. Wall was painted. Client wants architect to pay for full cost of change. Architect says that client would have paid for cost of tile anyway, so they should only pay for anything beyond what would have been original charges in design.

55
Q

Statute of Limitations

A

limits the time within which a claim can be made
typically 2-3 years, but time frame may begin within when the defect was discovered. A breach of contract may be an entirely different limit.

56
Q

Statute of Repose

A

much longer than the statute of limitations (typ 5-10 years) and begins with substantial completion

57
Q

Risk Management

A
  • know the client
  • use and follow well written contracts
  • make sure right staff is on the project
  • maintain active QC program
  • maintain thorough documentation
  • be very cautious about last minute changes
  • carry liability insurance
58
Q

Conflict resolution

A

If conflict is:

  • broad office issue = Principals job
  • project team issue = Project Managers job
  • contractor issue = PM/ Construction Admin’s job
59
Q

Privity

A

Architect’s are protected from claims by parties they have no contractual relationship with…

BUT courts won’t always enforce this, if the A’s instructions or lack there-of were the cause of harm.

60
Q

Reducing Exposure to third party claims

A
  • don’t include language that implies responsibility to provide management/supervision/coordination of construction unless you are specifically providing those services
  • don’t give means and methods directions
  • point out obvious safety concerns to the CONTRACTOR. follow up with O and C in writing.
61
Q

Architect’s Copyright

A

1) Construction Documents/ graphic representations of architect’s work
2) the building itself, if built after 1990. Architectural Works Copyright Protection Act. (for overall form, composition of spaces, design elements)
3) derivative works - buildings designed after the original that are substantially similar

Unless they specifically assign it to the owner, Architect owns the copyright. This will be stated in the O-A agreement. Though no technically required, it is best to register the work with the copyright office.

62
Q

B101 - Architect’s insurance

A

B101 requires architects to carry professional liability, general liability, automobile liability, workers compensation, and employers liability insurance.

If an owner requires more than what the architect would typically carry, they must pay the difference.

63
Q

Professional Liability Insurance

A

“errors and omissions” / “malpractice”
for injury/damages caused by architect’s actions in their professional duties
-excludes wrongful acts, claims for exceeding cost estimates, and claims from express warranties.

  • allows for continued practice during defense against claim. covers damages and legal fees, and losses for injured parties.
64
Q

Project Professional Liability Insurance

A

project specific, and paid by owner

65
Q

General Liability Insurance

A

covers architect’s actions in nonprofessional acts of practice.

66
Q

Property insurance

A

building and it’s contents against theft/fire/flood

67
Q

Personal Injury Protection Insurance

A

libel, slander, defamation of character, misrepresentation and other torts (civil law claims)

68
Q

Employement Practices Liability Insurance

A

for claims by employees (harrassment, discrimination etc)

WILL NOT PROTECT SOMEONE WORKING FROM HOME - THIS IS SEPARATE INSURANCE.

69
Q

Other Insurance

A
  • workers comp
  • contractual liability
  • intellectual property insurance
  • copyright/trademark/patent infringement
  • technology liability (for data breeches)
  • auto insurance
  • umbrella insurance (excess liability)
70
Q

A101 - Owners Insurance

A

liability and property insurance for full value of the work, must be “all risk” type

optional:

  • existing structure insurance
  • loss of use/business interuption
  • ordinance/law insurance
  • expediting cost insurance
  • civil authority insurance
  • extra cost insurance
  • ingress/egress insurance
  • soft cost insurance
  • cyber security insurance
71
Q

A101 - Contractors Insurance

A

commercial general liability
automobile liability
workers comp
employers liability

additional possibilities:
Jones Act/Longshore Harbor Workers Comp Act
professional liability
pollution liability
maritime liability
manned/unmanned aircraft
property
railroad protective liability
asbestos abatement liability
physical property damage while stored/in transit
property insurance for items owned by C used on site

Practice Management (4 decks)

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