Business Organization & Estimating Basics
12% of this examHow construction businesses are structured and managed: entity types and their liability/tax trade-offs, overhead recovery, and the records and cash-flow discipline that keep a contractor solvent between draws.
Core concepts
Entity choice is a liability and tax decision
Sole proprietors have unlimited personal liability. Corporations and LLCs shield owners. S corporations pass income through to shareholders (no entity-level federal tax) but cap at 100 shareholders; C corporations face double taxation.
Overhead must come back through markup
Recovery rate = annual general overhead ÷ annual direct costs. A contractor who marks up only for profit and forgets overhead is losing money on every 'profitable' job.
Cash flow kills more contractors than losses
Profitable companies die waiting on receivables. Projections, prompt billing, retainage tracking, and collections discipline are tested as management practice.
Key facts to know cold
Where it lives in your books
The real exam is open book. Knowing which book — and which tab — answers this domain is worth as much as memorizing it.
Contractor's Manual
This is your home base on exam day. Learn its table of contents — most candidates lose time flipping because they never learned which chapter holds which statute.
8 recommended tabs
Builder's Guide to Accounting
Calculation questions come straight from this book's methods. Tab the ratio formulas and the percentage-of-completion chapter, and bring a calculator you know.
8 recommended tabs
Lookup strategy
- · Entity comparisons sit in one table in the Contractor's Manual business chapters — tab it and answer comparison questions from the table.
Reading isn't learning — retrieval is.
22 questions in this domain, each with an explanation and source.