Practice Management Flashcards
Accrual-basis accounting (modified)
Revenue earned and billed from fees and expenses, including outside project consultant fees and expenses, plus all other direct and indirect expenses incurred. This means revenue is based only on invoiced fee and expense amount sent and/or received. Most firms use this modified accrual-basis their profit-loss statement and balance sheet development.
Cash-basis accounting
Income received and all salaries abs expenses paid (a checkbook approach). This is the basis most commonly used for filing and paying quarterly and year-end taxes.
Net operating revenue (NOR; aka “net revenue”
Represents the net dollars remaining after deducting the invoiced consultant’s fees and expenses, and all reimbursable and non-reimbursable project related expenses.
Direct Labor
Same as direct salary. Represents time charged to projects, whether invoiced or not (by everyone including principals).
Indirect labor
Same as indirect salary. Time charged to non-project related activities (by everyone including principals). Note: indirect labor is included in the calculating and total of indirect expenses
Reimbursable expenses
Project-related expenses that are invoiced to the client in addition to fees. These would also include a markup percentage on those expenses. The markup dollars are a form of revenue and are included In net operating revenue.
Direct expense
Project related expenses for a firm and it’s outside consultants that are not reimbursable, plus project related expenses included in all lump sum fee contracts.
Indirect expense
General and administrative non project related operating expenses (total indirect expenses includes indirect labor).
Overhead rate
The ratio of total indirect expenses to total direct labor.
Break-even rate
The overhead rate plus the unit cost of 1.00 for an hour of salary
(example: overhead rate of 1.30+1.00= 2.30). This means for every $1.00 of salary the firm must recapture $2.30 just to break even.
Utilization rate
Direct labor expressed as a percentage of total labor. (For individual rates, use hours; for firm rate, use dollars)
Hourly billing rate
The dollar amount charged to a client relative to one hour of direct labor.
Net multiplier
The net multiplier is the ratio of net operating revenue (NOR) to total direct labor. The measure of return on every dollar of direct labor.
Net profit
The dollars remaining after deducting all direct and indirect labor and indirect expenses, before any distributions are made or tax is paid.
Current earnings
The net dollar amount after all distributions are made and all applicable taxes have been deducted.
