PX- Chapter 33: Business Practices

Question 1

Name the ways a design firm can be structured

Answer 1

Sole Proprietorship
partnership
corporation
Limited Liability Company
Limited Liability Partnerships
Joint Ventures

Question 2

what is a sole proprietorship and what are the pros and cons

Answer 2

owned by one person

pro- easy to set up, some tax advantages

con- the owner is personally liable for all debts and losses

company doesn’t exist if the owner quits or dies

Question 3

which is the simplest kind of business structure

Answer 3

sole proprietorship

Question 4

what is a general partnership business structure. pros and cons

Answer 4

two ore more people share in management, profits and risks of a business

pro- easy to form, also good to have more than one person in charge with different talents

con- all the partners are liable for the actions of the others. each partner is responsible for claims against their personal assets. Also bad cause one person might want to leave then you’re hooped

Question 5

what is a limited partnership business structure. pros and cons

Answer 5

one or more general partners and other limited partners. the limited people are just investors that receive a portion of the profit and don’t do anything with the company. their personal assets are not on the line, only their investment amount.

Question 6

what is a corporation business structure? what are the pros and cons

Answer 6

associate of individuals where the company is independent from its members- separate legal entity so that if the corporation is sued, the personal assets of the stockholders are not at risk. but their investment is.

pro- no personal risk, lower taxes generally, can continue if the principle changes or the board members change.

con- initial setup costs and the paperwork to maintain the business

Question 7

what is a limited liability company and LL partnership

Answer 7

hybrid business organizations that combine the advantages of the corporation and partnership

pro- liability is limited to a member’s investment- no personal liability. Also taxed like partnerships OR corporations- only one level of tax unlike the corporations. Generally easier to set up and operate than corporations

Question 8

what is a joint venture

Answer 8

temporary associate or two or more ppl or firms to complete a project.

used when a design firm doesn’t have the experience needed to complete a project so it hooks up with another firm

treated like a partnership

Question 9

name and describe two types of office organization within a design firm

Answer 9

departmental- project moves from one department to the other. good cause efficient but bad for communication and doesn’t let employees grown and learn

studio- various smaller groups that sees the whole project through. good to share ideas, everyone can learn.

Question 10

what types of insurance should an interior designer get

Answer 10

professional liability and general liability, property, personal injury protection and workers comp

Question 11

what is professional liability insurance

Answer 11

protects the designer in case something the designer did causes injury or property damage- aka malpractice or errors and omissions. problems from things like wrong specs or drawings

Question 12

what is general liability insurance

Answer 12

basically general insurance - protect against claims of property damage, liability and personal injury cause by the designer or employees or anyone hired by the designer (like a consultant).

Question 13

what is personal injury protection insurance

Answer 13

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

Question 14

what kind of insurance should the contractor have

Answer 14

workers comp, claims for injury/sickness/death
personal injury including slander etc
insurance for any portion of the work that is stored off the job site

Question 15

what are current assets vs just assets

Answer 15

current assets- resources of a business that are converted into cash within one year

assets- tangible or intangible resource that can be measured in monetary terms- current assets is branched under this

Question 16

what is direct labour

Answer 16

labour of all staff that can be directly charged to the client/project

Question 17

what is discretionary distribution

Answer 17

distribution of profits to owners and non owners- like bonuses

Question 18

what is fixed asset

Answer 18

resources that are used by the business and are long term like equipment and property

Question 19

what is indirect labour

Answer 19

all labour not charged to a project like admin time

Question 20

what are liabilites

Answer 20

claims made by people outside the business OR by the owners of the business against the total assets of the business

Question 21

what is overhead

Answer 21

expenses to keep the business operating regarless of if there is profict- like rent, power, internet etc

Question 22

what are the two basic accounting methods (don’t describe yet)

Answer 22

Cash Accounting

Accrual accounting

Question 23

what is cash accounting

Answer 23

revenue and expenses are recognized at the actual time the bueiness receives the cash or pays a bill. fairly simple. CANNOT be used by a corporation OR if a business has an inventory

Question 24

what is accrual accounting

Answer 24

revenue and expenses are recognized at the time they a re earned weather or not the cash changes hands. Like if you invoice someone for $100, that money is automatically listed as revenue even if you have not been paid yet

better for getting an overall picture of the financial status of a business

Question 25

which is the simplest form of accounting

Answer 25

cash accounting

Question 26

what is a net worth

Answer 26

the firm’s total assets MINUS the total liabilities (claims against the firm)

Question 27

what is owner’s equity

Answer 27

the money invested in a business by the owner or a stockholder

Question 28

how can you control expenses

Answer 28

by reducing overhead costs, especially people who do not work on project work.

Question 29

what is the most important type of accounting reports for designers and what does it do

Answer 29

project progress report- monitors the progress of individual jobs- shows the hours and labour costs for each phase with the amount to date and compares

Question 30

what is the average collection period of a ID invoice

Answer 30

60-75 days

Question 31

what is the “age” of an invoice

Answer 31

the time that has based between invoice date and payment date

Question 32

what is a time analysis report

Answer 32

shows each employee’s hours spent on project work vs non project work.

Question 33

what is a minimum percentage for the chargeable ration of an employee

Answer 33

65% for the break even point

Question 34

how do you determine an employee’s billing rate

Answer 34

is their salary, plus their benefits, office overhead plus profit

Question 35

what is a net multiplier when it comes to billing rates

Answer 35

dividing net revenue of the firm by the cost of direct labour. covers things like benefits, indirect labour, overhead & profit.

usually around 2.7 to 3. so if a designer is paid $40/hr their billing rate is $120/hr

Question 36

what must a firm do if they are going to be the reseller of goods for tax purposes

Answer 36

get a sales tax license or a resale license. allows the designer to pass on the sales tax to the client

Question 37

what is a practice act

Answer 37

anyone who wants to practice as an interior designer must meet certain requirements and obtain a license

Question 38

what is a titles act

Answer 38

regulates who can use the term “interior designer”

Question 39

what can’t a person ask someone being interviewed about

Answer 39

age, birthday, marital status, national origin, race or maiden name

Question 40

what should you review of someone you’re considering employing

Answer 40

their past work and resume, portfolio and one or more interviews

Question 41

what does it mean when an employment contract is “employment at will”

Answer 41

there is no written contract and the employee can be terminated at any time without explenation

Question 42

how does an interior designer define their “duties”- in which ways

Answer 42

1. by a contract (written or oral)
2. legistlative enactment like building codes
3. by their conduct- how the person conducts themselves (implied duties)

Question 43

what are implied duties of an interior designer

Answer 43

cooperate with the contracotr/vendor
not to interfere with the contractor or vendor’s work
inform the contractor of relevant info that affects the job’s profess ( like errors)
assist the owner in coordinating schedules and requirements of other contractors not reporting to the GContractor

Question 44

what is liability

Answer 44

legal responsibility for injury or damage to another person or property

Question 45

what is neglegence

Answer 45

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

Question 46

what can a designer do to limit liability

Answer 46

use good contracts and follow them
do good quality control
document EVERYTHING
be careful of last minute changes and subs- most of claims are from this
have sufficient liability insuracnce

Question 47

when should you NOT hire a consultant for a project

Answer 47

if your need is long term- just hire the person
inexperienced consultant
overqualified consultant
not during a crisis