ARE 5.0 - PcM - Financial Terms, ARE
5.0 - Practice Management - GIbbs
Plus Questions All Solved.
Financial Plan - Answer Set of financial projections and operational plans that guide
principals in managing firm.
Four Projections of a Financial Plan - Answer -Revenue Projection
-Staffing Plan
-Overhead Expense Budget
-Profit Plan
Revenue Projection - Answer Outlines anticipated revenues from projects under contract,
those in negotiation, and those from projects not yet obtained.
Staffing Plan - Answer defines size and cost of staff.
Overhead - Answer Expenses incurred to keep a business running whether or not any
revenue is being generated.
Overhead Expense Budget - Answer Identifies indirect costs of supporting staff in providing
services in revenue projection.
Profit Plan - Answer Establishes budgets and profit required to sustain firm.
Two Paths to Financial Planning - Answer Path 'A': Start with the expected workload and
determine the resources needed to accomplish it.
Path 'B': Start with the resources you have and determine the revenues needed to support
them.
or
Start w/ an achievable profit margin and find a combo of revenue and expenses necessary to
achieve it.
Path 'A' Financial Planning Steps - Answer A{1. Project the firm's revenues
2. Establish Staffing needs.
3. Determine Overhead Expenses.
,4. Develop Profit Plan}
5. Establish billing rates
6.set project profit goals
7.Monitor the Firm's Financial Performance.
8. Make the adjustments needed to keep firm on course.
Path 'B' Financial Planning Steps - Answer B{1. Calculate staff expenses.
2. Calculate overhead expenses.
3. set a profit target.
4. Develop a revenue goal.}
5. Establish billing rates
6.set project profit goals
7.Monitor the Firm's Financial Performance.
8. Make the adjustments needed to keep firm on course.
Backlog - Answer Work that extends beyond the plan year, and is budgeted in total for the
following year.
Direct Labor - Answer All labor that is directly chargeable to projects.
Indirect Labor - Answer Labor not charged to a project.
Utilization Rate (Estimated Percentage of Billable Time or Percent Chargeable) - Answer
Direct Labor TIme/Total Time
Billing Rate Calculation - Answer Hourly Salary +
Payroll Taxes & Fringe Benefits+
General Expenses +
Target Profit
Net Multiplier - Answer =Net Revenue/Cost of Direct labor
Break Even Rate - Answer =Total Cost of Operations/Total Money Spent on Direct Labor
Hourly Rate for Direct Labor - Answer =Salary/Hours Available in a Year
, Direct Salary Expense - Answer =Chargeable Hours X Hourly Rate.
Billable Revenue - Answer =Direct Salary Expense X Firm's Multiplier
Indirect Salary - Answer = (Available hours - Chargeable hours)X Hourly Rate
Chargeable VS Billable - Answer Chargeable is time spent on projects (may not be billed).
Billable is the percentage of fee for work completed on hourly fee projects.
Expected Overhead Rate - Answer = Total Overhead Budget/Total Direct Salary Expense
Overhead Rate - Answer = Overhead/Direct Labor
Most Common way to Estimate Profit - Answer Percentage of Net Revenue
Direct Personnel Expense Approach - Answer A method of setting the overhead rate. Payroll
burden on direct salaries is removed from overhead and added to direct salaries before before
the overhead rate is calculated
Direct Salary Expense Approach - Answer Most common method for calculating the
overhead rate. Total overhead budget is divided by the total budgeted direct salary expense.
Chart of Accounts - Answer A list of various accounts used by the firm. Classifies accounts
under 6 headings: assets; liabilities; net worth; revenues; expenses; profit or loss
Assets - Answer Any type of tangible or intangible resources that can be measured in
monetary terms.
Liabilities - Answer Claims by people outside the business and claims by the owners of the
business against the total assets of the business.
Net Worth - Answer Claims of the firm owners against it's assets; what the firm owes it's
owners; or (= TOTAL ASSETS - TOTAL LIABILITIES)
Revenues - Answer Amount earned by a firm during an accounting period; or Fees received
for providing professional services.
5.0 - Practice Management - GIbbs
Plus Questions All Solved.
Financial Plan - Answer Set of financial projections and operational plans that guide
principals in managing firm.
Four Projections of a Financial Plan - Answer -Revenue Projection
-Staffing Plan
-Overhead Expense Budget
-Profit Plan
Revenue Projection - Answer Outlines anticipated revenues from projects under contract,
those in negotiation, and those from projects not yet obtained.
Staffing Plan - Answer defines size and cost of staff.
Overhead - Answer Expenses incurred to keep a business running whether or not any
revenue is being generated.
Overhead Expense Budget - Answer Identifies indirect costs of supporting staff in providing
services in revenue projection.
Profit Plan - Answer Establishes budgets and profit required to sustain firm.
Two Paths to Financial Planning - Answer Path 'A': Start with the expected workload and
determine the resources needed to accomplish it.
Path 'B': Start with the resources you have and determine the revenues needed to support
them.
or
Start w/ an achievable profit margin and find a combo of revenue and expenses necessary to
achieve it.
Path 'A' Financial Planning Steps - Answer A{1. Project the firm's revenues
2. Establish Staffing needs.
3. Determine Overhead Expenses.
,4. Develop Profit Plan}
5. Establish billing rates
6.set project profit goals
7.Monitor the Firm's Financial Performance.
8. Make the adjustments needed to keep firm on course.
Path 'B' Financial Planning Steps - Answer B{1. Calculate staff expenses.
2. Calculate overhead expenses.
3. set a profit target.
4. Develop a revenue goal.}
5. Establish billing rates
6.set project profit goals
7.Monitor the Firm's Financial Performance.
8. Make the adjustments needed to keep firm on course.
Backlog - Answer Work that extends beyond the plan year, and is budgeted in total for the
following year.
Direct Labor - Answer All labor that is directly chargeable to projects.
Indirect Labor - Answer Labor not charged to a project.
Utilization Rate (Estimated Percentage of Billable Time or Percent Chargeable) - Answer
Direct Labor TIme/Total Time
Billing Rate Calculation - Answer Hourly Salary +
Payroll Taxes & Fringe Benefits+
General Expenses +
Target Profit
Net Multiplier - Answer =Net Revenue/Cost of Direct labor
Break Even Rate - Answer =Total Cost of Operations/Total Money Spent on Direct Labor
Hourly Rate for Direct Labor - Answer =Salary/Hours Available in a Year
, Direct Salary Expense - Answer =Chargeable Hours X Hourly Rate.
Billable Revenue - Answer =Direct Salary Expense X Firm's Multiplier
Indirect Salary - Answer = (Available hours - Chargeable hours)X Hourly Rate
Chargeable VS Billable - Answer Chargeable is time spent on projects (may not be billed).
Billable is the percentage of fee for work completed on hourly fee projects.
Expected Overhead Rate - Answer = Total Overhead Budget/Total Direct Salary Expense
Overhead Rate - Answer = Overhead/Direct Labor
Most Common way to Estimate Profit - Answer Percentage of Net Revenue
Direct Personnel Expense Approach - Answer A method of setting the overhead rate. Payroll
burden on direct salaries is removed from overhead and added to direct salaries before before
the overhead rate is calculated
Direct Salary Expense Approach - Answer Most common method for calculating the
overhead rate. Total overhead budget is divided by the total budgeted direct salary expense.
Chart of Accounts - Answer A list of various accounts used by the firm. Classifies accounts
under 6 headings: assets; liabilities; net worth; revenues; expenses; profit or loss
Assets - Answer Any type of tangible or intangible resources that can be measured in
monetary terms.
Liabilities - Answer Claims by people outside the business and claims by the owners of the
business against the total assets of the business.
Net Worth - Answer Claims of the firm owners against it's assets; what the firm owes it's
owners; or (= TOTAL ASSETS - TOTAL LIABILITIES)
Revenues - Answer Amount earned by a firm during an accounting period; or Fees received
for providing professional services.
