PX- Chapter 33: Business Practices Flashcards by Johnathan Kircus

Name the ways a design firm can be structured

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

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

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
Difficult to raise capital

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which is the simplest kind of business structure

sole proprietorship

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what is a general partnership business structure. pros and cons

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.

Incoe is taxed at individual rates
Also bad cause one person might want to leave then you’re hooped

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what is a limited partnership business structure. pros and cons

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.

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

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

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what is a limited liability company and LL partnership

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

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what is a joint venture

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

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

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

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

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what types of insurance should an interior designer get

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

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what is professional liability insurance

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

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what is general liability insurance

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). Product liability

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Product Liability

Provides protection in case a product completed by ID does injury

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what is personal injury protection insurance

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

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what kind of insurance should the contractor have

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

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what are current assets vs just assets

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

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what is direct labour

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

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what is discretionary distribution

distribution of profits to owners and non owners- like bonuses

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what is fixed asset

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

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what is indirect labour

all labour not charged to a project like admin time

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what are liabilites

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

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what is overhead

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

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

Cash Accounting/ Accrual

Accrual accounting

what is cash accounting

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
Used by single person or small firm
Can not be used if business by corp or if bus has invintory (Boutique)

what is accrual accounting

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 uses double entry bookkeeping

Bookkeeping double entry

all transactions are listed chronologically

which is the simplest form of accounting

cash accounting

what is a net worth

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

what is owner's equity

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

Profit and loss statement

Lists all income and expenses of a business for a certain period of time

Cash floe statment

Shoes actual inflows and outflowes of cash

Most fundamental equation

Profit + expenses= revenue

how can you control expenses

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

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

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

Aged account receivable report

status of all invoices for all projects

what is the average collection period of a ID invoice

60-75 days

what is the "age" of an invoice

the time that has based between invoice date and payment date

what is a time analysis report

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

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

65% for the break even point

how do you determine an employee's billing rate

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

what is a net multiplier when it comes to billing rates

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

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

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

what is a practice act

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

what is a titles act

regulates who can use the term "interior designer"

what can't a person ask someone being interviewed about

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

what should you review of someone you're considering employing

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

what does it mean when an employment contract is "employment at will"

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

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

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

what are implied duties of an interior designer

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

what is liability

legal responsibility for injury or damage to another person or property

what is neglegence

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

what can a designer do to limit liability

``` 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 ```

when should you NOT hire a consultant for a project

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

Privity

the interior design is theoretically protected from claims

Indemnification clauses

attempt to hold harmless both the owner and ID for any damages, claims, or losses resulting from performance of any work ID has no contractual relationship

Corporate Identity

Fundamental requirement for a professional firm and something that is applicable to other marketing aspects. A distinct graphic imige that connects the imige with the design firm.