Business FinancesQuestion 1209 of 1632

The main financial risk of taking on a job much larger than a contractor's usual size is:

a.Depreciation on the equipment stops completely
b.The CSLB upgrades the licence class held
c.Sales tax on those materials is waived
d.Too little working capital to carry the costs

Explanation

A job several times the usual size demands payroll and material money weeks before the first progress payment lands, and retention holds part of it back longer still, so the contractor can run dry mid-project on a job that is profitable on paper. Depreciation follows the asset's schedule and is unaffected by job size. Classification follows the trade the contractor is qualified in and is never upgraded automatically. And material tax is owed on every job whatever its size.

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Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)
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