Business and Financial Management
Business and Financial Management tests the money and licensing side of contracting: business organization and qualifying-agent rules under Chapter 489, Part I, Florida Statutes, financial responsibility, insurance, job costing, pricing, cash flow, pay applications, and retainage. Expect calculation items as well as statutory recall.
Licensing and financial responsibility
- Certified contractors hold a state certificate issued through DBPR/CILB (CGC, CBC, CRC and trade categories); registered contractors hold a local certificate registered with the CILB and may contract only in the jurisdictions where they are registered unless reciprocity applies.
- A business organization must have a qualifying agent. One person generally may not qualify more than one business organization without CILB approval.
- Certification requires evidence of financial responsibility, including a financial statement demonstrating minimum net worth and current assets exceeding current liabilities, plus a credit report; bond alternatives exist for some applicants.
- A contract entered into by an unlicensed contractor is unenforceable in law or equity (s. 489.128). Misapplying construction funds (s. 489.126) is criminal, not merely a civil breach.
- Construction employers with one or more employees need Florida workers' compensation coverage under Chapter 440; non-construction employers have a higher employee threshold.
Cost, price, and profit
Job cost is direct cost plus indirect cost (overhead, general conditions) plus contingency. Markup is a percentage added to cost; margin is profit as a percentage of the selling price. They produce different numbers, and the exam exploits that gap.
Cash flow discipline
Bill against cost actually incurred, carry retainage in receivables aging, and never fund one project's payroll from another project's deposits or retention. Bonding capacity follows working capital and net worth, not backlog alone.
Worked example
A job has direct cost of $180,000. Company overhead runs 12 percent of direct cost, so total cost is $180,000 x 1.12 = $201,600. The owner requires a 15 percent margin. Price = cost / (1 - margin) = $201,600 / 0.85 = $237,176. If you instead added 15 percent markup to cost, you would bid $231,840 and give away $5,336 of profit. Reasoning: margin is a fraction of price, so divide by (1 - margin) rather than multiply by (1 + markup).
Traps that cost marks
- Treating markup percent as if it were margin.
- Omitting general conditions and contingency from the bid buildup.
- Assuming a license, certificate, or qualifier is a business asset that transfers when the company is sold.
- Booking retainage as collected revenue.
- Stating net worth while ignoring current liabilities, or forgetting that the credit report is part of the certification file.