Contractor business glossary.
Short, plain-English definitions of the money, legal, sales and trade terms that come up when you run a home-service business. Each term has its own page with an example, the common mistakes, and links to the guides that go deeper.
A
Accounts receivableAccounts receivable (AR) is the total your customers owe you for work you've done and invoiced but haven't been paid for yet. It's money you've earned but can't spend, which is why a busy month can still leave you short on cash.Actual cash value (ACV)Actual cash value (ACV) is the value an insurer puts on damaged property at the time of the loss, usually figured as the cost to replace it minus depreciation for age and wear. On a roof claim, the first insurance check is typically based on it.
B
Backflow preventerA backflow preventer is a plumbing device or assembly that stops water from flowing backward out of a building's piping, equipment or containers into the drinking water supply. The plumbing code and water authority where the work is done decide which type a connection needs and how often testable ones are tested.BidA bid is a firm price a contractor submits to win a job, usually in competition with other contractors and priced to plans, specs or a scope someone else wrote. If it's accepted, you're expected to do the work for that price on the terms of the bid.Break-even pointThe break-even point is the revenue at which your business makes zero profit: gross profit from jobs exactly covers overhead. For a contractor, break-even revenue equals fixed overhead divided by gross margin, written as a decimal.Building permitA building permit is written approval from the local building department to do regulated construction, plumbing, electrical or mechanical work. It comes with inspections at set stages, and the job isn't finished until the inspector signs off on the final.
C
CallbackA callback is a return visit to fix a problem with work you already finished, usually at no charge because something about the original job didn't hold up. Each one costs labor, drive time and often parts, plus the paying job that time slot could have held.Cash flowCash flow is the money moving into and out of your business, and when it moves. Profit tells you whether your work makes money; cash flow tells you whether the money is in the bank when payroll, suppliers and taxes come due.Ceramic coatingA ceramic coating is a liquid polymer coating that bonds to a vehicle's paint, and often its wheels and glass, and cures into a thin, hard, glossy layer. It makes the finish slicker and easier to keep clean, but it won't stop rock chips or hide defects already in the paint.Change orderA change order is a written amendment to your contract that changes the scope of work, the price or the schedule, approved by the customer before the changed work starts. It records what changed, the added cost or credit, the new contract total and any new completion date.Close rateClose rate is the share of quotes or leads that turn into booked jobs over a set period. It's jobs won divided by quotes given (or leads received), times 100, and it's most useful split by lead source, job type and who quoted.Contractor license bondA contractor license bond is a surety bond that a state or local licensing authority may require before it licenses or registers a contractor. It protects your customers and the public, not you: if the surety pays a claim against your bond, you generally have to pay it back.Cooling-off ruleThe FTC Cooling-Off Rule gives buyers until midnight of the third business day to cancel certain sales made at their home, workplace or a seller's temporary location, for a full refund. It covers home sales of $25 or more and requires the seller to tell the buyer about the right to cancel.Cost of goods soldCost of goods sold (COGS) is what the work you sold in a period cost to deliver. For a contractor, that means direct job costs: materials, field labor with its payroll costs, subcontractors, permits and equipment rented for jobs. Revenue minus COGS is gross profit.Customer acquisition costCustomer acquisition cost (CAC) is what you spend on marketing and selling in a period divided by the number of new customers you won in that period. It tells you what each new customer actually cost to win.Customer lifetime valueCustomer lifetime value (CLV) is the total gross profit a customer brings your business over the whole relationship, from the first job through every repeat visit, repair and replacement. It tells you what a new customer is worth and how much you can afford to spend to win one.
D
DBA (doing business as)A DBA (doing business as) is a filing that lets a person or company operate under a name other than its legal name. Depending on the state, it may be called an assumed name, fictitious business name or trade name. It doesn't create a separate legal entity.DepositA deposit is a payment the customer makes before work starts, credited toward the final price. Contractors use it to cover materials bought for the job and to hold a place on the schedule. Some states limit how much a contractor can collect up front on home improvement work.DispatchDispatch is assigning each job to the right technician or crew, putting each tech's stops in a sensible order, and changing that plan during the day as emergencies come in, jobs run long or someone finishes early.
E
EIN (Employer Identification Number)An Employer Identification Number (EIN) is a nine-digit federal tax ID the IRS assigns to a business. You need one once you have employees or operate as a partnership, corporation or certain LLCs, and you can get it from the IRS for free.EPA Section 608 certificationEPA Section 608 certification is the federal credential technicians need to maintain, service, repair or dispose of equipment that could release refrigerant. It's earned by passing an EPA-approved test, comes in four types (I, II, III and Universal), and controls who can buy refrigerant.EstimateAn estimate is a contractor's expected price for a job, based on the scope as it's understood before work starts. It tells the customer the price could change if the work turns out different, but whether it binds you depends on its wording, the customer's acceptance and your state's law.
F
Fall protectionFall protection is the equipment, setup and training that keep workers from falling, or stop a fall safely, when they work at height. In residential construction, OSHA requires employers to protect each employee working 6 feet or more above a lower level, usually with a guardrail, safety net or personal fall arrest system.Flat-rate pricingFlat-rate pricing charges a fixed price for a defined task, no matter how long it takes on the day. The price is built ahead of time from your average time for the task, your cost per billable hour, parts and profit, and kept in a price book.
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General liability insuranceGeneral liability insurance covers claims that your business injured someone who doesn't work for you or damaged their property, including the cost of defending the claim. It doesn't cover your own employees' injuries, your tools or vehicles, or redoing your own faulty work.Good-better-best pricingGood-better-best pricing means presenting a customer with three options for the same job, each a complete solution at a different price, instead of a single take-it-or-leave-it number. The tiers differ in materials, features or warranty, never in whether the job is done right.Google Business ProfileA Google Business Profile is the listing that shows your business on Google Search and Google Maps: name, category, phone, hours, service area, photos and reviews. Contractors who work at the customer's home can hide their address and show a service area instead.Google Local Services AdsGoogle Local Services Ads are ads for local service businesses that appear in Google search results. Instead of paying per click, you pay for valid leads, such as calls and messages, after your business and field workers pass Google's screening and verification.Gross marginGross margin is gross profit as a percentage of revenue: what's left of each sales dollar after direct job costs (materials, field labor, subcontractors, permits), before overhead. A $10,000 job that costs $6,000 to deliver has a 40% gross margin.
H
I
Independent contractorAn independent contractor is a self-employed worker who controls how they do the work and runs their own business. For federal taxes, the IRS decides using common-law rules on control, not the label or the tax form you use. State tests can differ.Insurance supplementAn insurance supplement is a request, made on the homeowner's claim, asking the insurer to add work or quantities its original estimate missed. On a roof, it usually covers items found at tear-off or measured short, backed by photos, measurements and line-item prices.
J
K
L
Lien waiverA lien waiver is a signed document in which a contractor, subcontractor or supplier gives up some or all of its lien rights on a property in exchange for payment. A waiver is either conditional or unconditional, and covers either a progress payment or the final payment.LLC (limited liability company)A limited liability company (LLC) is a business entity formed by filing with a state. It generally keeps the company's debts and legal obligations separate from its owners' personal assets, but it doesn't cover debts you personally guarantee, and it doesn't replace insurance.
M
Manual J load calculationA Manual J load calculation is the Air Conditioning Contractors of America (ACCA) procedure for working out how much heating and cooling a home needs, in Btu per hour. Its result is the starting point for choosing equipment size under Manual S and designing ducts under Manual D.MarkupMarkup is the amount you add on top of a cost to arrive at a selling price, expressed as a percentage of that cost. A $100 part sold for $150 carries a 50% markup.Mechanic's lienA mechanic's lien is a legal claim against real property, filed by a contractor, subcontractor or supplier who wasn't paid for work or materials that improved it. Who qualifies, the notices required and the deadlines to record and enforce it are set by each state's law.
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NABCEP certificationNABCEP certification is a voluntary professional credential from the North American Board of Certified Energy Practitioners for solar and energy storage workers. It shows tested knowledge and documented experience, but it is not a government license and doesn't replace state licensing requirements.National Electrical Code (NEC)The National Electrical Code (NEC) is NFPA 70, the model code for electrical installations published by the National Fire Protection Association. It isn't law on its own: it applies where a state or local government adopts it, by edition and often with amendments, and inspectors check permitted work against that adopted version.Net meteringNet metering is a utility billing arrangement that credits customers with onsite generation, such as rooftop solar, for electricity they send to the grid, so it offsets power they buy at other times. Whether it's offered, and what an exported kilowatt-hour is worth, varies by state and utility.
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P
Paint correctionPaint correction is machine polishing that removes defects such as swirl marks, light scratches, water spots and haze by leveling a thin layer of the clear coat. Because it removes paint that never grows back, every correction uses up some of the finish.Payment termsPayment terms are the conditions on your estimate, contract and invoice that say when payment is due, how the customer can pay and what happens if they pay late. Common terms include due at completion, due on receipt, net 15 and net 30.Permission to operate (PTO)Permission to operate (PTO) is a utility's written approval to turn on a grid-tied solar system. It's the last step of the utility's interconnection process, separate from the building department's inspection, and the system should stay off until it arrives.Profit and loss statementA profit and loss statement (P&L), also called an income statement, reports a business's revenue, costs and profit over a period such as a month, quarter or year. It shows whether the work you did made money, not how much cash you have.Progress billingProgress billing is invoicing a job in stages as the work is completed, instead of sending one invoice at the end. Each invoice bills the part of the contract earned so far, either for reaching agreed milestones or by percent complete against a schedule of values.Punch listA punch list is the written list of small items still to finish or fix at the end of a job, such as touch-ups, missing trim or adjustments, that the contractor completes before the customer signs off on the work and pays the final balance.
R
Recoverable depreciationRecoverable depreciation is the part of a replacement cost insurance claim that the insurer holds back from the first payment and pays once the repairs are finished and documented. It's the difference between the replacement cost and the actual cash value.RetainageRetainage is a set percentage of each progress payment that the customer or general contractor holds back until the work is complete, as security that the job gets finished and corrected. It's money you've earned but get paid later, usually at closeout.Review gatingReview gating is screening customers before asking for a review, usually with a quick rating question or a guess about who seems happy, then sending only the satisfied ones to a public review site and steering the rest to private feedback.Roof pitchRoof pitch is how steep a roof is, written as the inches it rises for every 12 inches of horizontal run, such as 6/12. Pitch decides how much real surface sits over a footprint, how fast crews can work and what safety setup and materials the roof needs.Roofing squareA roofing square is 100 square feet of roof surface. Roofers measure roofs, order materials, price labor and compare jobs in squares, so a roof with 2,400 square feet of surface is a 24-square roof.
S
Schedule CSchedule C (Form 1040), Profit or Loss From Business, is the IRS form a sole proprietor uses to report the business's income and expenses. The net profit or loss flows onto the owner's personal Form 1040, and a single-member LLC generally files it too unless it elected corporate treatment.Scope of workA scope of work is the written description of exactly what a job includes and what it excludes: the tasks, materials, quantities, locations and standards of finish. It's the part of an estimate or contract that defines what the price buys, so anything outside it needs a change order.SEER2SEER2 (Seasonal Energy Efficiency Ratio 2) is the rating for how efficiently a central air conditioner or heat pump cools over a season. Since January 1, 2023, DOE efficiency standards for this equipment have been stated in SEER2, measured under an updated test procedure. Higher means less electricity.Service agreementA service agreement is a recurring maintenance plan a customer pays for, monthly or yearly, that includes scheduled visits and set perks such as priority booking or repair discounts. For a contractor it turns one-time customers into steady, predictable work.Soft washingSoft washing is cleaning a surface with a cleaning solution applied at low pressure, left to work, then rinsed gently. The chemistry does the cleaning instead of water pressure, which is why it's used on siding, roofs and other surfaces high pressure can damage.
T
Time and materialsTime and materials (T&M) is a way of pricing work where the customer pays for the actual labor hours at an agreed hourly rate plus the materials used, at an agreed price. It fits work whose size you can't know until you start.Trip chargeA trip charge is a flat fee a contractor charges for traveling to a job, separate from the price of the work itself. It covers drive time, vehicle cost and dispatch, and it's owed whether or not the customer approves a repair, so it must be disclosed before the visit.
W
Workers' compensation insuranceWorkers' compensation insurance pays for medical care and part of lost wages when an employee is hurt or made sick by their job. Each state sets its own rules on which employers must carry it, who counts as an employee and how owners are treated.Workmanship warrantyA workmanship warranty is your promise to fix, at no charge for a set period, problems caused by how you installed or did the work. It stands behind your labor; defects in the equipment or materials themselves fall under the manufacturer's warranty.
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