Bookkeeping for construction contractors

Construction bookkeeping works differently from bookkeeping for a store or an office. Money comes in by job, often in stages, and money goes out every week to crews, subcontractors, and suppliers. A contractor can be busy all year and still not know which jobs made money. Good monthly books answer that question. This page explains what makes bookkeeping for contractors different and how Choice Business Advisors can help, in English or Spanish.

Job costing: what each project really earned

Job costing means tracking income and costs for each project, not just for the business as a whole. When every invoice, material purchase, and subcontractor bill is tied to a job, you can see:

• What you bid and what the job actually cost
• Which kinds of jobs leave the best margin
• Where costs ran over, such as extra labor or materials that weren't in the estimate

Without job costing, all the jobs blend together. Profit on one project can hide a loss on another. With it, your next bid is based on real numbers instead of memory.

It doesn't need to be complicated. For many small contractors, it starts with a simple habit: put the job name on every receipt, bill, and invoice.

Materials, tools, and equipment

After labor, materials are usually the biggest cost on a job. Supply house accounts, card purchases, and returns add up fast. A few things help:

• Keep receipts and supplier statements, and match them to jobs
• Record returns and credits, so job costs aren't overstated
• Separate materials for a specific job from general supplies used everywhere

Larger purchases, like a trailer, a work truck, or heavy equipment, are usually handled differently from everyday supplies, both in your books and on your tax return. Recording them correctly when you buy them saves questions later.

Subcontractors and the records to keep

Many contractors hire other trades for part of the work. Each payment to a subcontractor is a business cost, and it should be recorded to the right job. It also helps to keep a file for each subcontractor with:

• Their legal name or business name and address
• Their taxpayer information, usually collected on a W-9 form before the first payment
• Copies of their invoices and a record of every payment
• Any insurance certificates you ask them for

At the end of the year, you may need to report what you paid some subcontractors. When the information is collected up front and payments are recorded as they happen, that step is much easier. Chasing a W-9 in January from someone who worked for you in April is no fun.

Deposits, progress payments, and the cash flow gap

Contractors rarely get paid all at once. There's a deposit to start, progress payments along the way, and a final payment at the end. Some customers hold back part of the payment until the job is finished, which is often called retainage.

Meanwhile, crews and subcontractors expect to be paid every week or every two weeks, and suppliers send bills on their own schedule. That timing creates a gap. A job can be profitable on paper while the bank account is tight.

Monthly bookkeeping helps you see that gap before it surprises you. Up-to-date books show:

• Who owes you money, and how long it has been outstanding
• What you owe suppliers and subcontractors
• How much of a deposit has already been earned, and how much is for work you haven't done yet

With that view, you can plan payroll, decide when to buy materials, and follow up on late payments with more confidence.

How taxes and payroll fit in

Taxes and payroll both depend on the books. When income and expenses are recorded each month, tax preparation goes more smoothly and there are fewer surprises when the year ends. You can also plan for taxes during the year based on real numbers instead of waiting until the end.

If you have employees, payroll connects to your job costs too. Labor is a major part of what each job costs, so payroll should flow into your books in a way you can understand. Choice also offers payroll support if you want help setting it up or keeping it on track.

How Choice works with contractors

Choice Business Advisors is based in Utah and works remotely with small businesses across the United States. We work in English and Spanish, so you and whoever runs your office can ask questions in whichever language is more comfortable. Kirby works with clients on bookkeeping, reports, and business questions. Noah focuses on tax preparation and review.

Monthly bookkeeping starts at $200 per month, and the QuickBooks subscription is separate. Your quote depends on the work involved, such as how many accounts and jobs you have. If your books are behind, catch-up bookkeeping starts at $200.

Let's talk about your business

If you want to know which jobs are making money and where the cash is going, we'd be glad to talk. Tell us how your business works today and what has been hard to keep track of. Contact us in English or Spanish, and we'll talk through what would help.

Written by the team at Choice Business Advisors, a bookkeeping, tax, and advisory firm based in Utah serving small businesses across the United States in English and Spanish.