The Construction Finance Dictionary: 60+ Terms That Affect Your Profit

In construction, what you don’t know will cost you money. This isn’t a theoretical dictionary—it’s your Financial Arsenal. If you cannot define these 60+ terms, you aren’t running a business; you’re just a highly-paid employee for your own company. To escape the Fake Profit Trap, you must master the language of the scoreboard.

A - Accounts and Accounting

Accounts Payable (AP)

Money your company owes to suppliers and subcontractors. Tracking this against your cash flow is critical to avoid “growth-driven bankruptcy.”

Accrual vs. Cash Accounting

Cash accounting tracks money as it hits the bank. Accrual accounting tracks it as it’s earned or owed. Most successful contractors use Accrual to see their true profitability before the check clears.

AIA Billing

A standardized billing method (G702/G703) used in commercial construction. It relies on a “Schedule of Values” to track progress.

B - Bidding and Budgets

Bid Bond

A guarantee that a contractor will enter into a contract if awarded the project.

Break-Even Point

The exact dollar amount where your revenue covers both your job costs and your company overhead. Knowing this number is the difference between a business and a hobby.

C - Contracts and Change

Change Order

A formal amendment to the contract that changes the scope of work. Unrecorded change orders are the #1 profit leak in remodeling.

Cost-Plus Contract

A contract where the contractor is paid for actual project costs plus a pre-set fee or percentage. Good for uncertain scopes, but requires meticulous job costing.

L - Labor and Legal

Labor Burden

The total cost of an employee beyond their gross wages. Includes FICA, SUTA, Workers Comp, benefits, and union dues. (See our Labor Burden Calculator)

Lien Waiver

A document signed by a contractor or sub in exchange for payment, waiving their right to file a mechanic’s lien against the property.

M - Margins and Markup

Markup vs. Margin

Markup is what you add to your cost (e.g., 50%). Margin is the percentage of the final price that is profit (e.g., 33%). Confusion here leads to “Accidental Discounts.”

O - Overhead and Operations

Overhead

The indirect costs of running your business (office, marketing, software, insurance) that cannot be assigned to a specific job.

P - Profit and Progress

The Uncomfortable Truth: Revenue vs. Profit

The Costly Mistake: Celebrating a $1M year when your net profit is $20k. You didn’t run a million-dollar business; you ran a massive charity for your subs and suppliers.

Net Profit

What you keep after everything is paid. If this is <10% in remodeling, your pricing is broken.

Progress Billing

Invoicing the client in stages as milestones are reached. Essential for maintaining positive cash flow.

The Financial Arsenal: Decision-Making Priority