Certified Roofing Contractor/Business & Finance

Business Organization & Estimating Basics

12% of this exam

How 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

Sole proprietorshipUnlimited personal liability, no entity shield
S corporationPass-through taxation, ≤100 shareholders, one stock class
Overhead recovery rateAnnual overhead ÷ annual direct costs
Limited partnerLiability capped at investment — unless they take control of the business

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.

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.