Chapter 33 - Interior Design Business Practices

Question 1

In this structure the company is owned by an individual and operates under either the individual’s name or a company name

Answer 1

sole proprietorship

Question 2

What are some of the best part’s of a sole proprietorship?

Answer 2

• easy to set up
• total management control by the owner
• possible tax advantages to the owner because business expenses and losses may be deducted from the gross income of the business

Question 3

Primary disadvantage of sole proprietorship?

Answer 3

1. owner is personally liable for all debts and losses of the company
   ex: if the designer is sued, his or her personal income, property, and other assets may be seized
2. more difficult to raise capital and establish credit
3. it can also be difficult to sell this type of business

Question 4

With a _____, two or more people share in the movement, profits, and risks of the business

Answer 4

general partnership

Question 5

Primary disadvantages of general partnerships?

Answer 5

1. all partners are liable for the actions of the others
2. income is taxes at individual rates
3. partners may eventually disagree on how to run the business

Question 6

What’s a variation on a general partnership?

Answer 6

a limited partnership

Question 7

This type of organization has one or more general partners and other limited partners.

Answer 7

Limited partnership

Question 8

A ____ is an association of individuals, created by statutory requirements, having an existence independent from its members.

Answer 8

corporation

Question 9

Are stockholders financially liable for the corporation?

Answer 9

only for the amount they have invested in it.

A corporation is a separate legal entity, financially and legally independent from its stockholder

Question 10

Greatest advantage of a corporation?

Answer 10

if the corporation is sued , the personal assets of the stockholders are not at risk

Question 11

Another advantage of a corporation?

Answer 11

they’re generally taxed at a lower rate than are individuals, which can result in considerable savings

Question 12

Major disadvantages of a corporation?

Answer 12

initial setup costs and the continuing paperwork and formal requirements necessary to maintain the business

Question 13

S corp

Answer 13

profits/losses are paid/deducted from the stockholder’s personal income taxes in proportion to the shares of stock they hold. this is an advantage when there are losses

Question 14

P corp (professional corporation)

Answer 14

used by many interior designers, architects, lawyers, doctors, and accountants. similar to other corporations except that liability for malpractice is generally limited to the person responsible.

Question 15

A ______ and a _____ are two hybrid business organizations that combine the advantages of the corporation and the partnership. Each is formed like a partnership where the investors are called members and those who manage are called managers.

Answer 15

Limited Liability Company (LLC) and Limited Liability Partnership (LLP)

Question 16

Main advantage of an LLC and LLP?

Answer 16

liability is limited to a member’s investment; a member has no personal liability. taxed likes partnerships or corporations at the owner’s discretion

easier to set up and operation (than corporations)

Question 17

A ____ is a temporary association of two or more persons or firms for the purpose of completing a project.

Answer 17

joint venture

Question 18

when are joint ventures used in design?

Answer 18

when one firm does not have the experience in a particular building type and the partnering firm does

Question 19

design offices can be set up in two ways:

Answer 19

departmental organization and studio organization

Question 20

what’s the difference between departmental organization and studio organization

Answer 20

departmental: projects move through the office and people have one specific type of work they do (marketing, specs, contract docs, CA)
studio: each studio is responsible for completing an entire project . projects can be assigned to studios based on their expertise

Question 21

communication in departmental vs studio

Answer 21

communication tends to be easier in studios

Question 22

____ protects the designer in case some action by the designer causes bodily injury or property damage. Sometimes called malpractice insurance. Coverage responds to things such as incorrect specs, mistakes on drawings, etc.

Answer 22

Professional liability insurance

Question 23

_____ includes a range of insurance to protect against claims of property damage, liability, and personal injury caused by the designer or employees, consultants, or other people hired by the designer.

Answer 23

General liability insurance

Question 24

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

Answer 24

personal injury

Question 25

A ___ is a civil wrong (as contrasted with a criminal act) that causes injury to another person

Answer 25

tort

Question 26

____ is mandatory in all states and protects employees in the event of injuries caused by work-related activities

Answer 26

workers’ compensation insurance

Question 27

does the owner of a project have to carry insurance?

Answer 27

yes-liability and property insurance for the full insurable value of the work

Question 28

Claims from the suppliers of goods or services (such as consultants) but not yet paid for

Answer 28

accounts payable

Question 29

Money that others owe to the business through invoices for services

Answer 29

Accounts receivable

Question 30

Any type of tangible or intangible resource that can be measured in monetary terms.

Answer 30

Assets

Question 31

A list of the various accounts a business uses to keep track of money along with corresponding account numbers used for data processing.

Answer 31

chart of accounts

Question 32

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

Answer 32

current assets

Question 33

all labor of technical staff, principals, and support staff that is directly chargeable to projects

Answer 33

direct labor

Question 34

the expensive of employee salaries plus the cost of mandatory and discretionary expenses and benefits such as payroll taxes, health insurance, etc.

Answer 34

direct personnel expense

Question 35

Resources that are used by the business and that are long-term items such as equipment and property

Answer 35

fixed assets

Question 36

all the revenue generated by a business for a period of time stated

Answer 36

gross revenue

Question 37

all labor not charged to a project or revenue-producing account, such as administration, general office time, and marketing

Answer 37

indirect labor

Question 38

claims by people outside the business and claims by the owners of the business against the total assets of the business

Answer 38

liabilities

Question 39

expenses incurred in order to keep a business operating whether or not any revenue is being generated, such as rent, power, and telephone

Answer 39

overhead

Question 40

cash accounting vs accrual accounting

Answer 40

cash- revenue and expenses are recognized when the business receives the cash or pays a bill (used more by small firms)

accrual- revenue and expenses are recognized whether or not cash changes hands (used more by big firms)

Question 41

The ___ of a firm is the total assets less the total liabilities

Answer 41

net work

Question 42

____ is money invested in a business by the owners or stockholder

Answer 42

owner’s equity

Question 43

A _______ lists all the income and expenses of a business for a certain period of tie

Answer 43

profit and loss statement

Question 44

A _____ show actual inflows and outflows of cash or cash equivalents

Answer 44

cash flow statement

Question 45

The most fundamental equation for financial planning in any profit-oriented business should be:

___ + ____ = _____

Answer 45

profit + expenses = revenue

revenue - expenses = profit

Question 46

One of the highest percentages of overhead?

Answer 46

indirect labor (personnel that do not directly work on projects)

Question 47

What is a project progress report?

Answer 47

one of the most important types of reports for design firms.

it should the hours and labor costs for each phase of a project and compares with the estimated hours and dollar

Question 48

An _____ summarizes each project in the office in terms of the amount of revenue it has generated, expenses, unmilled services, percent complete, and profit or loss to date

Answer 48

office earnings report

Question 49

What does a time analysis report do?

Answer 49

lists each employee along with the number of hours spent on direct and indirect labor, including marketing, professional development, vacation time, sick leave, and holidays

Question 50

What is an employee’s utilization rate?

Answer 50

percentage of time or dollars spent on direct labor / total time spent on direct and indirect labor including vacations, holidays, and sick days

Question 51

How are billing rates determined?

Answer 51

amount of salary that an employee is paid (salary rate) plus the costs for employee’s fringe benefits, plus the cost of office overhead, plus an allowance for profit.

Question 52

Do billing rates use a multiplier?

Answer 52

yes- they use a net multiplier

it’s a factor derived by dividing net revenue of the design firm (no consultants or reimbursable) by the cost of direct labor. for most firms this value is vernally 2.7 to 3
ex: if a designer is paid $40/hour, then the billing rate to the client would be $120/hour

Question 53

What does the National Labor Relations Act (also called the Wagner Act) do?

Answer 53

protects employees, mostly union employees, from unfair labor practices

Question 54

What does the Equal Pay Act do?

Answer 54

requires equal pay for all employees who have the same work duties, responsibilities, and experiences

Question 55

What does the Family and Medical Leave Act (FMLA) do?

Answer 55

requires that companies with 50 or more employees give an employee up to 12 weeks of leave for child, spousal, or parental care, without initiating retribution or jeopardizing the employee’s job

Question 56

What does “employment at will” mean?

Answer 56

there is no written contract and the employee can be terminated at any time without explanation. likewise, the employee can quit at any time without giving a reason.

employee is still protected from being terminated because of age, sex, religion, or other conditions mentioned previously

Question 57

___ is the legal responsibility for injury damage to another person or property

Answer 57

liability

Question 58

____ is the failure to use due care to avoid harming another person or property

Answer 58

negligence

Question 59

______ clauses attempt to hold harmless both the owner and interior designer for any damages, claims, or losses resulting from the performance of any work on the project, whether by th contractor or others with whom the interior designer has no contractual relationship

Answer 59

indemnification clauses

Question 60

_____ are buildings or interiors designed after the original building or interior that are either substantially similar to or modifications of the original building or interior

Answer 60

derivative works

Question 61

difference between marketing and PR

Answer 61

marketing: set of activities related to facilitating an honest exchange of something one party has for something another needs

PR: different from marketing bc it’s not tied to a particular potential job or single potential client. it establishes and communicates the firm’s presence to various groups of “publics: on many different levels

Question 62

5 Major Ethical Guidelines from the ASID Code of Ethics

Answer 62

• Responsibility to the Public
• Responsibility to the Client
• Responsibility to Other Interior Designers and Colleagues
• Responsibility to the Profession
• Responsibility to the Employer