The Restoration Job Costing & Accounting Terminology Reference

Accounts receivable aging is a report that organizes outstanding customer balances by the length of time they have been unpaid — typically in buckets of 0–30 days, 31–60 days, 61–90 days, and 90+ days. For restoration companies, the aging report is the primary tool for identifying overdue insurance claims, pending supplements, and uncollected RCV holdbacks. A well-structured restoration AR aging report stages balances by type (ACV pending, supplement pending, holdback pending, genuinely overdue) rather than just by days outstanding — because the management action for each stage is different.

Accrual accounting recognizes revenue when earned (when the contractor has performed the work and is entitled to payment) and expenses when incurred (when the cost is obligated, not when paid). Under accrual accounting, a restoration company recognizes revenue when the ACV is earned (when work is complete and the carrier's obligation is confirmed), not when the check arrives. Accrual accounting provides a more accurate picture of financial performance than cash accounting for restoration companies with multi-month jobs and payment cycles — but requires more sophisticated bookkeeping to implement correctly.

Add-backs are expenses deducted from revenue in the reported income statement that are added back to net income when calculating adjusted or normalized EBITDA for business valuation purposes. Common restoration company add-backs: personal vehicle expenses run through the business, above-market owner compensation (the excess over what a market-rate GM would earn), travel expenses that are personal in nature, one-time legal costs, and non-recurring losses. Buyers and business appraisers normalize earnings by adding these back — the resulting "normalized EBITDA" represents what the business would earn under owner-independent, market-rate management.

Accounts receivable turnover measures how many times per year a company collects its average outstanding receivables balance — calculated as Revenue ÷ Average Accounts Receivable. A higher AR turnover indicates faster collection; lower turnover indicates slower collection or growing uncollected balances. For restoration companies, annual AR turnover of 5–8× is typical (consistent with 45–65 day DSO). AR turnover below 4× (over 90-day DSO) suggests systematic collection problems. Unlike raw DSO, AR turnover is useful for year-over-year trend comparison.

Break-even is the revenue level at which a business's total revenue exactly covers its total costs — producing neither profit nor loss. Break-even analysis is critical for restoration companies because the high fixed overhead relative to revenue (vehicles, insurance, management, software) creates a meaningful revenue threshold below which the business loses money. Break-even revenue = Fixed Costs ÷ Gross Margin Percentage. For a restoration company with $400,000 in fixed overhead and 40% gross margins, break-even revenue is $1,000,000. Every dollar of revenue above break-even generates 40 cents of contribution to profit.

Cash accounting recognizes revenue when cash is received and expenses when cash is paid. Cash accounting is simpler to maintain than accrual accounting and is commonly used by smaller restoration companies. The limitation in restoration: cash accounting distorts period-to-period performance when large jobs span multiple periods. A $300,000 job started in December with ACV received in February shows no revenue in December (when the work was performed) and all revenue in February (when the check arrived). Cash-basis income statements for restoration companies are difficult to compare period-to-period because of timing differences.

A cash flow forecast is a projection of expected cash receipts and disbursements over a future period — typically 4–13 weeks for operational management. For restoration companies, cash flow forecasting requires modeling the timing of insurance carrier payments (ACV, supplement, holdback), the timing of direct cost disbursements (weekly payroll, sub invoices at 30 days, materials immediately), and the effect of TPA program billing cycles. The 13-week rolling cash flow forecast is the standard tool for restoration companies managing the inherent lag between incurred costs and collected revenue.

A change order is a formal contract modification documenting changes to the original scope of work, price, or schedule — signed by both the contractor and the owner. In insurance restoration, the equivalent of a change order is an insurance supplement (for carrier-covered work) or a direct client change order (for work outside the insurance claim, such as betterments). Change orders protect the contractor against scope creep — work performed beyond the original contract scope without documented authorization and pricing. Restoration contractors doing reconstruction work should treat every scope expansion as a formal change order, not a verbal agreement.

The chart of accounts (COA) is the complete, numbered list of all accounts used in an accounting system — organized by account type (assets, liabilities, equity, income, and expenses). A restoration-specific chart of accounts differs from a generic service-business COA in several ways: income accounts must separate ACV revenue, supplement revenue, equipment revenue, and (for full-service companies) reconstruction revenue; expense accounts must include TPA fees by named program, equipment depreciation, and labor burden as separate lines. The chart of accounts structure determines what financial information the system can produce — a poorly structured COA makes restoration-specific reporting impossible.

Class tracking in QuickBooks Online (and Desktop) allows transactions to be tagged with a user-defined "class" dimension, enabling P&L reporting filtered or grouped by class. For restoration companies, classes are typically configured as: job types (mitigation only, fire, mold, reconstruction, contents) and/or TPA programs (Code Blue, Contractor Connection, Alacrity, direct). Class tracking enables the critical comparison of gross margin by service type and gross margin by TPA program — the two most actionable financial analyses for a restoration company. Classes must be applied consistently to every transaction to produce useful reports.

Cost of Goods Sold (COGS) in a service business like restoration represents all direct costs incurred to deliver the services that generated revenue during the period — direct field labor (with burden), materials used on jobs, subcontractor payments, and equipment costs allocated to jobs. COGS does not include overhead (management salaries, insurance, facilities, vehicles, software). The distinction between COGS and overhead is the most important structural decision in a restoration company's chart of accounts — it determines what gross margin percentage the company reports and whether job-level profitability is visible.

The completed contract method is a revenue recognition approach in which all revenue and costs for a job are deferred to the accounting period when the job is considered complete. This method is simple but can produce volatile period-to-period income statements for restoration companies with multiple large jobs of varying durations. Under completed contract, a $200,000 job that spans November–January appears as $200,000 of revenue in January (when closed), with nothing in November or December. For tax purposes, the completed contract method defers revenue recognition — which can be advantageous for cash-basis taxpayers with large year-end open jobs.

A conditional lien waiver is a document waiving the contractor's mechanic's lien rights conditioned on the actual receipt of a specified payment. Unlike an unconditional waiver, a conditional lien waiver does not take effect until the payment has actually cleared — protecting the contractor if a check bounces or a wire fails. Restoration contractors should insist on signing conditional (not unconditional) lien waivers on any partial payments or progress draws, and should sign unconditional waivers only when final payment is confirmed cleared.

Contribution margin is revenue minus the variable costs directly associated with that revenue — the amount remaining to cover fixed overhead expenses and generate profit. In restoration, contribution margin differs from gross margin when some overhead costs are allocated to jobs as direct costs. Contribution margin analysis is particularly useful for evaluating whether to take a marginal job: if a job generates positive contribution margin (covers its own variable costs), it makes a positive contribution to overhead coverage even if it doesn't generate strong gross margin.

Days Sales Outstanding (DSO) measures the average time between when revenue is earned and when the corresponding cash is collected. Calculated as (Accounts Receivable ÷ Annual Revenue) × 365. For restoration companies, target DSO is 45–65 days — reflecting the insurance carrier payment cycle. DSO above 65 days indicates AR management problems. DSO calculation requires using accrual-basis revenue — using cash-basis revenue in the DSO calculation produces a misleading result because cash-basis revenue is already "collected."

Deferred revenue is cash received or billed for services not yet performed — representing a liability (the obligation to perform the work or refund the payment). In restoration, deferred revenue arises when ACV is received before the corresponding work is fully completed. Under accrual accounting, the received ACV that exceeds work performed to date is deferred and recognized as revenue only as the work is completed. Deferred revenue on the balance sheet is a liability that reduces to zero as the job progresses. Tracking deferred revenue by job is essential for accurate period-to-period income statement reporting.

Direct costs are costs that can be specifically and directly attributed to a particular job — field labor (including full burden), materials used on the job, subcontractor payments for that job, and equipment costs allocated to that job. Direct costs are the numerator in the COGS calculation and the denominator in the gross margin calculation. Accurately classifying costs as direct (job-specific) versus indirect (overhead) is the foundational task of restoration cost accounting. Misclassifying overhead costs as direct costs overstates job profitability; misclassifying direct costs as overhead understates it.

Debt Service Coverage Ratio (DSCR) measures a company's ability to cover its debt payments (principal + interest) from its operating income. Calculated as Net Operating Income ÷ Total Debt Service. Lenders typically require a DSCR of 1.25× or higher for equipment loans and lines of credit — meaning the business generates 25% more cash flow than its debt obligations. For restoration companies seeking equipment financing or lines of credit, DSCR is the primary underwriting metric after credit history. Companies with DSCRs below 1.0× are cash-flow insolvent on their current debt load.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is the standard metric for valuing and comparing restoration businesses in M&A transactions. It approximates a company's cash earnings from operations before the effects of capital structure (interest), tax jurisdiction (taxes), and non-cash accounting charges (depreciation and amortization). EBITDA is calculated as: Net Income + Interest + Taxes + Depreciation + Amortization. For restoration company valuations, EBITDA is further adjusted (normalized) to add back personal expenses, above-market owner compensation, and non-recurring items — producing normalized EBITDA that represents sustainable economic earnings.

Gross margin is the difference between revenue and direct costs (COGS), expressed as a percentage of revenue: (Revenue - Direct Costs) / Revenue × 100. Gross margin measures how efficiently a company generates profit from its direct revenue-producing activities before overhead costs are applied. Industry benchmarks for restoration: mitigation-only (35–50%), fire restoration (30–45%), mold remediation (35–55%), reconstruction (18–28%). Gross margin improvement — through better pricing, lower subcontractor costs, or improved equipment billing capture — is typically more impactful than overhead reduction for improving overall profitability.

Gross profit is revenue minus direct costs (COGS) expressed as a dollar amount — the absolute dollars generated from production before overhead costs are applied. At a 40% gross margin on $2M in revenue, gross profit is $800,000. This $800,000 must cover overhead (fixed costs, management, vehicles, insurance, software) and generate net profit. Monitoring gross profit dollars (not just gross margin percentage) is important because changes in revenue mix or volume affect gross profit in absolute terms even if the percentage stays constant.

Job costing is an accounting methodology that assigns all revenue and costs to individual jobs or projects, enabling job-level profit and loss analysis. In restoration, job costing requires: tracking revenue per job (ACV, supplement, equipment, and reconstruction revenue separately), allocating direct costs per job (field labor with burden, materials, subcontractors, equipment), and producing a job P&L showing gross margin per job, by job type, and by TPA program. Job costing is implemented in QBO using sub-customers (job records under the client) or Projects, combined with class tracking for job type/program segmentation.

Labor burden is the sum of all employment-related costs above and beyond the base wage — payroll taxes (FICA, FUTA, SUTA), workers' compensation insurance, health and benefits, paid time off, and any other employment overhead. For restoration companies, labor burden typically runs 30–40% of base wages, driven by elevated workers' comp rates for technician classifications ($8–$18 per $100 of payroll). Burden rates must be calculated accurately and applied to all job-allocated labor to produce correct gross margins. Using unloaded labor rates (base wages only) overstates gross margin by the full burden percentage.

A lien waiver is a legal document in which a contractor, subcontractor, or material supplier formally releases their mechanic's lien rights against a property — typically in exchange for specified payment. Lien waivers may be conditional (taking effect only upon actual receipt of payment) or unconditional (taking effect regardless of whether payment is received). Restoration contractors routinely execute lien waivers as part of insurance claim closings and should always use conditional waivers unless payment has been confirmed received. Collecting lien waivers from subcontractors and material suppliers is equally important — unpaid subs can lien the property even after the GC has been paid.

Lien rights (mechanic's lien rights) are the statutory rights of contractors, subcontractors, and material suppliers to assert a security interest in a property for the value of unpaid work or materials incorporated into the property. Lien rights vary significantly by state — notice requirements (preliminary notice, notice to owner), timing deadlines, and enforcement procedures differ. In insurance restoration, lien rights protect contractors when carriers slow-pay or when property owners redirect insurance proceeds. Restoration contractors should understand their state's lien law requirements, including any preliminary notice requirements that must be served before the right to lien attaches.

A line of credit (LOC) is a revolving credit facility that allows a company to borrow up to a maximum amount, repay any amount at any time, and re-borrow — functioning as a working capital buffer. For restoration companies, a line of credit bridges the gap between when direct costs are paid (weekly for labor, 30 days for subs) and when insurance carrier payments arrive (45–90 days). LOC sizing for restoration should be based on peak working capital requirements — the maximum net cash outflow before collections arrive on the largest foreseeable job or job portfolio. Lenders underwrite restoration LOCs primarily on DSCR, revenue history, and AR quality.

The loaded labor rate is the total hourly cost of employing a field technician, incorporating the base wage plus all burden costs: loaded labor rate = base wage × (1 + burden rate). For a technician earning $24/hr with a 35% burden rate, the loaded labor rate is $24 × 1.35 = $32.40/hr. Job cost allocations must use the loaded rate to produce accurate gross margins. Using the base wage in job cost calculations understates the true cost of labor by the full burden rate, systematically overstating job profitability.

Location tracking in QuickBooks Online (available in Plus and Advanced tiers) allows transactions to be tagged by physical location — enabling P&L reports by office, service area, or division. For restoration companies operating multiple locations, location tracking provides the location-level financial visibility equivalent to what class tracking provides for service-type segmentation. Location tracking and class tracking can be used simultaneously in QBO — a single transaction can have both a class (e.g., "Mitigation") and a location (e.g., "Phoenix Office"). This combination enables four-dimensional reporting: location × service type × TPA program × time period.

Markup is the percentage added to cost to produce the selling price — calculated as (Revenue - Cost) / Cost × 100. A $100,000 job with $70,000 in direct costs has a markup of 42.9% ($30,000 / $70,000). The critical distinction: a 42.9% markup produces a 30% gross margin ($30,000 / $100,000). Restoration owners frequently confuse markup and margin, leading to pricing errors. Setting a 30% target for "margin" and using it as a markup percentage (adding 30% to cost) actually produces only a 23% gross margin. Always verify which metric your pricing model uses.

Normalized earnings are financial results adjusted to remove non-recurring items, personal expenses, and owner compensation that is above or below market rate — producing a sustainable, comparable measure of the business's economic earning power. Normalization is required in M&A because owner-operated businesses routinely show lower earnings than their true economic performance (due to below-market owner salaries) or higher earnings than sustainable (due to non-recurring revenue or one-time expense reductions). A restoration company with $100,000 in reported net income that is paying the owner $80,000 (market rate for the role is $140,000) actually has normalized earnings of $40,000 — not $100,000.

Overhead allocation is the method by which indirect (overhead) costs are distributed across jobs or service lines for internal management analysis. Common allocation methods: as a percentage of direct labor hours, as a percentage of direct costs, or as a flat dollar rate per job. Overhead allocation is distinct from the accounting treatment (overhead is not allocated to COGS in standard financial statements) — it's a management accounting tool for understanding the fully-loaded cost of a job. For restoration decisions (pricing, program participation, service line mix), overhead-allocated job costs tell the story of which work is truly profitable after all costs are considered.

Over/under billing describes the relationship between the amount billed on a job to date and the revenue earned to date based on work completed. Over-billing: billed more than earned — creates a liability (deferred revenue or billings in excess of costs). Under-billing: earned more than billed — creates an asset (costs in excess of billings or unbilled revenue). In restoration, under-billing is extremely common: supplements pending approval represent completed work that hasn't been billed; drying logs may document equipment days that haven't been invoiced. Tracking WIP and billing status by job identifies under-billing that can be converted to cash.

The percentage of completion method recognizes revenue and costs proportionally as work is completed on a job — rather than deferring everything to job close (as under the completed contract method). Revenue recognized in a period = (Work Completed to Date ÷ Total Estimated Contract Value) × Total Contract Revenue. The percentage of completion method provides a smoother, more accurate picture of period-to-period performance for restoration companies with multiple concurrent jobs. It requires reliable estimates of total job cost at completion — which must be updated as the job progresses.

Retainage (also called retention) is a portion of each payment under a construction or restoration contract withheld by the property owner or GC until the project reaches substantial completion or certain milestones. Standard retainage rates are 5–10% of each progress payment. Retainage accumulates throughout the project and is released in a final payment upon satisfactory completion. For restoration contractors, retainage creates a working capital consideration: significant receivables are held back for the duration of the project. State prompt payment laws govern when retainage must be released after substantial completion.

Revenue recognition is the accounting principle governing when a company records revenue as earned in its financial statements. Under GAAP (ASC 606), revenue is recognized when the performance obligation is satisfied — when the promised service has been delivered to the customer. For restoration, the relevant question is: when is the ACV "earned"? When is a supplement "earned"? Is RCV holdback recognized when the work is complete or when the holdback is released? Inconsistent revenue recognition — mixing cash and accrual approaches across different revenue types — is a common and significant accounting problem in restoration companies that creates tax exposure and unreliable financial statements.

Seller's Discretionary Earnings (SDE) is the total economic benefit available to a single, full-time owner-operator from the business — calculated as net income + owner compensation (salary + benefits + personal expenses run through the business) + interest + taxes + depreciation + amortization. SDE is the standard valuation metric for small, owner-operated businesses (typically below $1–2M in EBITDA). SDE assumes the buyer is also a working owner who will receive the same economic benefits. For restoration companies marketed to individual buyer-operators, SDE multiples (typically 2–4×) are the relevant valuation framework; for PE-backed acquisitions, EBITDA multiples (4–8×) apply.

A sub-customer in QuickBooks Online is a customer record that is a child of a parent customer, enabling job-level tracking within the same customer relationship. In restoration, the typical structure is: parent customer = property owner or carrier, sub-customer = specific loss or claim. This hierarchy allows all invoices, payments, and costs for a specific loss to be tracked under the sub-customer, enabling job-level P&L reporting. Sub-customers in QBO can be used across all transaction types — invoices, bills, purchase orders, time entries — and appear in job profitability reports.

A subcontractor is a specialty trade contractor hired by the primary (general) contractor to perform specific portions of the work — plumbing, electrical, flooring, HVAC, specialty cleaning. For tax purposes, subcontractors are independent contractors (not employees), reported on Form 1099-NEC rather than W-2 when paid $600+ in a year. Restoration companies working with subcontractors must: collect certificates of insurance from each sub before work begins, issue 1099-NECs annually, and collect lien waivers from subs upon payment to protect the property owner from mechanic's liens. Misclassifying employees as subcontractors creates significant tax and workers' comp liability.

An unconditional lien waiver releases the contractor's mechanic's lien rights immediately upon signing — regardless of whether the specified payment is actually received. Unconditional waivers should only be signed after payment has been confirmed received (check cleared, wire confirmed). Signing an unconditional waiver before payment clears permanently eliminates the contractor's security interest in the property — leaving them as a general unsecured creditor if the payment fails. In practice, many property owners and carriers request unconditional waivers as a condition of issuing payment. The correct sequence: confirm receipt of cleared funds, then sign the unconditional waiver.

Work in Process (WIP) is the total value of all jobs that have been started but not yet completed at a given point in time. WIP appears on the balance sheet — either as an asset (costs in excess of billings, or unbilled revenue, when under-billed) or as a liability (billings in excess of costs, or deferred revenue, when over-billed). For restoration companies using percentage of completion accounting, WIP tracking reconciles what has been billed on each job against what has been earned (based on work completed). WIP reports help identify: jobs that are under-billed (and need billing catch-up), jobs that are over-billed (and represent future revenue obligations), and jobs at risk of running over budget.

Working capital is the difference between current assets (cash, accounts receivable, inventory) and current liabilities (accounts payable, short-term debt, accrued liabilities) — a measure of a company's short-term financial health and ability to meet near-term obligations. For restoration companies, working capital management is critical because the cash conversion cycle (incur costs on day 1, collect 45–90 days later) creates persistent working capital stress. A restoration company with $500,000 in outstanding AR and $250,000 in outstanding AP has $250,000 in working capital — but must manage the timing mismatch between when AP is due (30 days) and when AR is collected (45–90 days).