What bookkeeping does a contractor need to track?
Contractors need more detailed bookkeeping than most service businesses. Standard expense categories don’t tell you anything useful when you’re running multiple projects at different stages with different margins.
Job costing is the foundation. Every dollar you spend on a project needs to get tracked against that specific job. Materials, labor hours, subcontractor invoices, equipment rentals, permit fees. When expenses get lumped into general categories, you have no idea which jobs made money and which ones ate your profit. Construction job costing requires breaking down costs by project and by cost type so you can compare actual spending to your estimates.
Track income by job, not just by month. You need to see how much you’ve billed, how much has been collected, and what’s still outstanding on each project. Progress billing gets complicated when you’re working on five projects at once with different payment terms.
Subcontractor expenses deserve special attention. Subs often represent 40-60% of a project’s total cost. Track every invoice by job, withhold where required, and keep records for 1099 reporting at year end. Getting this wrong creates problems with the IRS and with your job cost accuracy.
Retainage tracking matters if you work on commercial projects or larger residential work. When a GC holds back 10% until final completion, that money needs to show as receivable even though it’s not collectible yet. Same applies if you’re holding retainage from your subs.
Labor costs need allocation by job, not just recorded as general payroll expense. If your crew works on three different projects in a week, those hours need coding to the right jobs. Without this, your job cost reports are guesswork.
Change orders require separate tracking. The original contract said $45,000 but the homeowner added scope and now it’s $58,000. You need to see performance against the original estimate separately from approved additions.
Equipment costs including depreciation, maintenance, and fuel should get tracked and allocated to jobs where practical. Overhead costs like insurance, office expenses, and marketing need monitoring too. Knowing your true overhead rate helps you bid more accurately.
Accounts receivable tracking keeps you from floating too much money. Construction cash flow is tricky because you’re buying materials and paying subs before you collect from customers. Knowing exactly who owes what keeps cash moving.
The point of all this tracking isn’t paperwork for its own sake. It’s knowing your numbers well enough to bid profitably and finish the year with actual profit instead of just a busy schedule. Most contractors who struggle financially aren’t tracking at this level, and generic small business bookkeeping won’t get you there. You need systems built around how construction work actually flows.
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