ID also needs business knowledge to be succseefull.
BUSSINESS STRUCTURES
-Type of Orginization
Sole Proprietorship-
Simplest Business Type
-Company is owned by an individual and operated under the individuals name or a company name.
ADVANTAGES-
Ease of Setting it up
Total Management Control By the Owner
Possible Tax Advantages to the Owner
DISADVANTAGE
-Owner is personal libal for all debts and losses to the company.
Example- If Designer is sued by client, his/her personal assets are at risk of being seized.
-More difficult to raise capital and establish credit
-May be difficult to sell the business, company usually dies when the owner retires or dies.
Partnerships-
General Partnership- two or more people share in the management, profis and risks to the business.
ADVANTAGES:
Easy to form
DISADVANTAGE:
All of the partners are responsible and liable for the actions of others.
-Income is taxed at individual rates.
-If one partner wants to quit, usually the partnership dissolves.
***Different from the general partnership is the limited partnership.
This type of organization has one or more general partners and the rest are limited partners.
General Partners invest and manage the company
Limited Partners- are simply invested in the comapny and recieve portions of the profits.
Corporations:
Corporation is sometimes called a C corporation.
this is an association of individuals created by statutory requirments having an existence independent from its members.
This form of business needs to be drawn up by an attorney.
-A Corporation is a seperate legal entity. This is financialy and legally independent from its stockholders. Stockholders are only responsible for the money invested.
-If the corporation is sued the personal assets of the stockholders are not at risk.
-A corporation is generally taxed at a lower rate then individuals. .
However a corporation is taxed at 2 different levels.
- taxed on their profits
-Shareholders are taxed on their dividends.
DISADVANTAGE
-Initial Setup costs
-Continuing of paperwork and formal requirments.
Variations of a Corporation are:
S corporation (Subchapter S corporations)
-These have certain eligibility requirments.
Differencer from c corporation is that s corporation the profits or losses are paid or deducted from the stockholders personal income taxes.
(this can be an advantage when there are loses)
Professional Corporation
-for profesionals such as interior designers, architects, lawyers doctors, and accountants.
Limitied Liability Companies and Limited Liability Partnerships
LLC and LLP are hybrid business organizations.
Investors are called members.
Those who manage are called managers.
Unlike Partnerships it is posible to have non members as managers.
*NOTE: Company name must include and LLC or LLP at the end of it.
ADVANTAGE:
Liability is limited to members investment. A member has no personal liability.
This type of business is easier to set up and operate then a C corporation.
This business is taxed like a corporation or a partnership. (only one level of taxing for the members)
Joint Ventures
- A temp. association between two or more people or firms for the purpose of completing a project.
-This is usually used by and ID when a project is to large or complex.
-A formal written agreement is needed.
ACCOUNTING METHODS
Accrual Accounting- revenue and expenses are recoginized at the time they are earned, whether or not cash has been passed.
Double Entry Book Keeping- all transactions are listed chronologicaly in a journal.
ACCOUNTING STATEMENTS
Balance Sheet - summarizes all assets and liabilities. Shows the financial position of the business.
All assets listed must equal all liabilities listed.
Owners Equity is the money invested into the business.
Profit and Loss statement - lists all the income and expenses of a business over a certain amount of time.
cash Flow Statement- shows actual inflows and outflows of cash or cash equivalents.
Cash is Money
Cash Equivalent is a short term investment that can quickly be turned into money.
NOTE: Revenue - Expenses = Profit
Project Progress report- Monitor progress of individual jobs.
For Architecture and ID services and average collection period for an invoice is between 60 and 75 days.
CHARGABLE RATIO- Typ 65%.
This is the percentage of time or dollar spent on direct labor divided by the total time or dollars spent on direct or indirect labor.
FINANCIAL RATIOS
Current Ratio- Current assets
Net Profit Before Tax - Percentage of Profit based on Net revenue
Overhead Rate- The ratio of total office overhead.
Quick Ratio- A reinforcment of the current ratio. (more conservative then the current ratio)
Revenue per technical staff. - The amount of net revenue produced per technical staff.
Revenue Per total staff-
SETTING FEES-
Most Common Method - hourly rate
Hourly rate- this is known as the billing rate. This is based on the amount of money the employee is being paid + cost of the fringe benefits + overhead + allowance for profit.
Net multiplier is a factor derived by dividing net revenue of the design firm by the cost of the direct labor. for most firms the value is between 2.7 and 3.0.
EXAMPLE:
If designer is paid $40 per hour and is times by 3.0 the billing rate would be $120.
BUSINESS ISSUE
Any ID firm selling furniture needs a sales tax license (also known as resale liscense, or transaction privilege tax license.
TAX Requirments -
Businesses with employees must file FORM SS-4 with the IRS.
Should also have an employee identification number. EIN.
Must also complete a W-4 FORM (Employees withholding Allowance Certificate).
W-2: Employers Wage and Tax Statement.
FICA - Federal Insurance Contribution Act. (Social Security Tax)
W-2 must be sent to each employee no later then Jan. 31 of each year.
NOTE: For single propritorships and some partnerships - federal and state income tax must be filed as estimated taxed every quarter.
HIRING-
Employer can not ask:
date of birth, marital status, natioanl origin, race, or maiden name. (Civil Rights Act of 1964, Equal Employment Opportunity Act of 1972, and Civil Rights Act of 1991) it is also illieagal to discriminate against sex, color, race, religion or national orgin.
NOTE- In most cases these laws only apply to firms with 15 or more employees.
TERMINATION- Employees cannot be terminated for age, activities outside of work hours, missing work for military obligations, or jury duty, or reporting a company for health or safety violations.
LEGAL REQUIRMENTS
National Labor Relations Act (Wagner Act) - Protects employees from unfair labor acts.
Equal Pay Act-
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