Introduction
Bookkeeping for contractors and construction businesses is not like bookkeeping for a typical retail or service business. You are dealing with multiple projects at once, subcontractors, job costs, equipment, and payments that come in at irregular intervals.
If your books are not set up to handle the unique demands of the construction industry, you will constantly struggle to know whether each project is actually profitable.
Here are the most important bookkeeping tips every contractor and construction business owner needs to know.
1. Use Job Costing
Job costing is the process of tracking income and expenses for each individual project or job. Instead of lumping all your revenue and expenses together, you assign them to specific jobs.
This tells you exactly how much each project cost to complete and how much profit you made on it. Without job costing, you might think your business is profitable overall while actually losing money on certain jobs.
QuickBooks Online has built-in job costing features that make this process much easier. Setting it up correctly from the start is essential.
2. Track Subcontractor Payments Carefully
If you hire subcontractors, you need to track every payment you make to them throughout the year. At the end of the year, you are required to issue 1099 forms to any subcontractor you paid more than $600.
Keep a record of each subcontractor’s name, address, and tax ID number before you pay them. Collect a W-9 form from every subcontractor before issuing their first payment. This saves significant headaches at tax time.
3. Separate Direct Costs From Overhead
Direct costs are expenses that can be tied directly to a specific job: materials, subcontractor labor, equipment rental for a specific project.
Overhead costs are general business expenses that cannot be tied to a specific job: office rent, insurance, administrative salaries, software subscriptions.
Keeping these two categories separate in your chart of accounts gives you a much clearer picture of your true job profitability and helps you price future projects more accurately.
4. Invoice Promptly and Follow Up on Payments
Cash flow is one of the biggest challenges in construction. You often have to pay for materials and labor before your client pays you.
Invoice as soon as each project milestone is complete. Do not wait until the job is fully done to send your first invoice. Set up payment terms clearly on every invoice and follow up promptly on anything that goes past due.
5. Keep Personal and Business Finances Completely Separate
This is important for every business owner, but especially for contractors. Mixing personal and business expenses makes job costing impossible and creates a nightmare at tax time.
Use a dedicated business checking account and business credit card for all business expenses. Pay yourself a regular owner draw from the business account.
6. Reconcile Monthly Without Fail
Construction businesses often have complex financial activity: multiple bank accounts, credit cards, equipment loans, and lines of credit. Reconciling all of these accounts every month ensures your books are accurate and that nothing slips through the cracks.
Work With a Bookkeeper Who Understands Construction
General bookkeepers can handle basic records, but working with someone who understands the construction industry makes a significant difference. At Benallal Bookkeeping, we specialize in bookkeeping for contractors and construction businesses across the USA.
We understand job costing, subcontractor management, and the unique financial challenges of your industry. Schedule a free consultation today to learn how we can help you run a more profitable business.