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Flashcards in Module 2 - AE Prep Deck (72)
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What are usually the two largest expenses as a business?

Office rent and employee payroll


What is an issue that can create cash flow issues?

Not getting invoices out in time for the client is late on a payment.

Staff is late on filing their timesheets.

Contract requires payment in a lump sum at the end of the project or contract is a fixed fee and the time spent on the project was underestimated.

Client puts the project on hold


What amount should a firm have handy to cover expenses? (In a line of credit)

A months worth of expenses


The most important document and tracking the health of a business is what?

Balance sheet


Who/what generates the profit loss statement (P&L)

The accountant/accounting software calculates how much money came in (revenue) and how much money went out (expenses)


In order to ensure next months expenses are covered, a business owner should ensure the staff is producing enough ____ to produce the necessary revenue?

Billable hours


What is the reason for using a multiplier for determining a staffs billable rate?

Insurance you have enough money to pay the staff and cover overhead and produce a profit


What is the typical fee structure for a project?

Set maximum price per each stage of the work that is billed hourly up to a maximum amount, or billed by percentage complete


What is a fee structure that is really used for a project?

Project project billed hourly with no maximum


What is an example of a reimbursable expense?

Plotting, photocopying or faxes.

Long distance phone calls.

Car travel, build by the mile, to the project site.

Travel expenses for the project, including airfare or hotel.

Courier, shipping and postage.

Meals, parking or rental cars related to trips for the project


Who is responsible to pay the reimbursable expenses?

I spelled out in the owner architect agreement the owner must pay these and the architect can charge overhead on it as well.

The owner pays these, if the architect had to pay these it would take away from the profitability and would incentivize the architect to spend less on the project and therefore the quality of the work might suffer


How do you determine the gross profit on a profit and loss statement?

Subtract the expenses from the income, healthy profit margin should be around 20%


With a maintained healthy profit margin, what kind of financially strong for them take on after a few years of consistent workload?

Hire new staff.

Build out a new office.

Experiment with a reduced fee on a new type of project.


A profit loss statement helps to track what?

Utilization rates by employee.

Overhead rate.

Breakeven rate.

Net multiplier.

Profit margin.

Net revenue per employee


How is a balance statement different from a profit and loss statement?

A profit and loss statement compares income to expenses, and the balance statement tells a story behind those numbers.

The balance statement defines assets liabilities and capital at a particular point in time.

The balance statement will define the difference between current liabilities (things due this year) and long-term liabilities



Any valuable property that is owned by the firm, such as real estate or vehicles



Any depth or financial obligations related to the Business that needs to be paid back overtime.

This could be credit cards, business loans, car leases, or even future stock options offered to staff



Financial assets needed to run the company operations


Cash on hand

The total amount of any accessible cash, also referred to as liquidity, includes things I can be sold quickly like stocks.


Accounts receivable

The money that is owed to a company by its clients, whether they have been invoiced yet or not


Accounts payable

The money of the company owes to its creditors, such as rent, leases, loans or credit cards



The ownership interest of a firm, including the percentage of ownership of each principle of the firm


Firms need to keep a close eye on what two business items, even if they are too busy?

Sending out invoices in a timely manner and watch the amount of expenses spent


Why is it important to educate employees on a firms value and goals?

Overall, a knowledge of an organization‘s culture has been linked to increased satisfaction and commitment by the employees as well as a decreased turnover rate


Collaborative/clan culture organization

Extended family as employees that are hard to replace.

Strong sense of loyalty and tradition with a strong focus on teamwork, participation, and consensus


Creative culture firm organization

Dynamic, entrepreneurial and creative group, known for taking risks and being innovative.

Individual initiative and freedom are encouraged. The environment can be competitive


Control or hierarchical culture

Highly structured and formal feeling. Management aims for security and predictability


Market culture

Results-driven organization focused on job completion. Employees are competitive and goal-oriented.

Emphasis on winning unifies the organization. Success to this type of firm culture is market share and penetration


Professional liability insurance

Insurance coverage that provides protection against damages by claims caused by negligence by the architect including errors and omissions in the drawings that might cause damage to the owner, contractor or other party


General liability insurance

This insurance provides protection against damages from an architects office operations and non-professional activities at a job site.

Owner and the general contractor should carry this type of insurance as well