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.
Sole Proprietorship
Individual practitioner ownership
Individual practitioner management
No liability protection for personal assets
Does not file federal return or pay taxes — income/losses passed through to individual owner
No secretary of state filing
Typically no state registration board filing required.
General Partnership
Partners owned
Partners managed
No liability protection for personal assets
Files federal return, but does not pay taxes — income/losses passed though to individual owners
No filing with Secretary of State
Many states require certificate of authority (COA): varying requirements for licensing of partners
Limited liability partnership (LLP)
Partner owned
Partner managed
Partners may be personally liable for their own professional liable for their own professional negligence, but are typically protected against other claims (except for fraud or wrongdoing)
Files federal return, but does not pay taxes — income/losses passed though to individual owners
LLP certificate for formation state and foreign states
Many states require certificate of authority (COA): varying requirements for licensing of partners
Professional limited liability partnership (LLP)
Partner owned — all must typically be licensed
Partner managed — all must typically be licensed
Partners may be personally liable for their own professional liable for their own professional negligence, but are typically protected against other claims (except for fraud or wrongdoing)
Files federal return, but does not pay taxes — income/losses passed though to individual owners
LLP certificate for formation state and foreign states
Many states require certificate of authority (COA): all partners must typically be licensed; LLP May need to carry minimum level of professional liability insurance (PLI)
Subchapter C corporation
Stockholder Ownership
Directors, officers management
Stockholders may be personally liable for their own professional negligence, but are typically protected against other claims (except for fraud and other extreme wrongdoing)
Files federal return, pays taxes; profits passed thought as dividends to stockholders, Who pay double taxation on individual returns
Secretary of State filing: Articles of organization, for formation state and foreign states
Many states require COA: varying requirements for licensing of stakeholders, directors and officers; a few states permit only professional corporations
Subchapter S corporation
Stockholder owners (no More than 100, who must be U.S. citizens or resident aliens)
Directors, officer mgmt
Stockholders may be personally liable for their own professional negligence, but are typically protected against other claims (except for fraud and other extreme wrongdoing)
Files federal return, but does not pay taxes; income (and some losses) passed thought to individual stockholders
Secretary of State filing: Articles of organization, for formation state and foreign states
Many states require COA: varying requirements for licensing of stakeholders, directors and officers; a few states permit only professional corporations
Professional Corporation
Stockholder owners — all must typically be licensed
Directors, officers as mgmt — all must typically be licensed
Stockholders may be personally liable for their own professional negligence, but are typically protected against other claims (except for fraud and other extreme wrongdoing)
Files federal return, does not pay taxes — income (and some losses) passed through to individual stockholders
Secretary of State filing: Articles of organization, for formation state and foreign states
Many states require COA: all stockholders, directors and officers must typically be licensed; corporation may need to carry minimum level of PLI
Limited liability corporation (LLC)
Member ownership
Member management
Members may be personally liable for their own professional negligence, but are typically protected against other claims (except for fraud and other extreme wrong doing)
If LLC selects, partnership treatment, files federal return but does not pay taxes - income/losses passed through to individual owners
Secretary of state filing: LLC certificate, for formation state and foreign states
State registration board filing/requirements: many states require varying requirements for licensing of members and managers; a few states permit only professional LLCs
Professional limited liability corporation (LLC)
Member ownership- all must typically be licensed
Manager managed- all must typically be licensed
Members may be personally liable for their own professional negligence, but are typically protected against other claims (except for fraud and other extreme wrong doing)
If LLC selects, partnership treatment, files federal return but does not pay taxes - income/losses passed through to individual owners
Secretary of state filing: LLC certificate, for formation state and foreign states
State registration board filing/req: many states require a COA: all members and managers must typically be licensed. LLC may need to carry minimum level of PLI
