Bookkeeper for Flooring Contractors

A lot of flooring owners handle their own books and still feel like they are getting blind sided. That usually comes from a few habits that look harmless but destroy the clarity of the books. These habits are easy to fix once you know what to look for.

How do I handle a deposit from messing up the books?

A deposit is not your income until you finish the work. So you record it as a liability, often a customer deposits account, on your balance sheet. You move it into revenue when you complete the job.

For example, a typical flooring job might come with a 50% deposit upfront to order material. If you book that $5,000 as revenue the day you get it, it looks like profit. But you have not earned it yet. You still owe the customer the floor. If you take that money out of the business or use it for your own costs, you spend cash that belongs to the job. A job ends up costing more than the deposit and you have a loss. Keeping deposits as liabilities shows you what your customers actually owe you, not what you have already made.

When you finish the install and the customer is satisfied, you move the deposit into revenue. That matches the income to the month you did the work, and it gives you a true profit margin for each job.

What should I include in the cost of a job?

The cost of a job includes every dollar you spend directly on that install: material, freight to deliver it, labor hours of your crew, payments to subcontractors, equipment rental, any job specific insurance, and a small share of your overhead that goes to that job.

The mistake that costs the most is forgetting freight. If you order flooring and pay $200 to have it brought to the site, that $200 is part of your material cost. If you price your material margin at 32%, that margin gets cut by the freight charge. The margin evaporates faster than you expect if you do not include it.

Labor is another trap. Research from the trade publication Wood Floor Business showed labor costs run around $96,000 a year at the low end for a hardwood flooring business, while equipment costs run only around $2,700. So if you are not tracking how many hours your team actually spends on each job, you are guessing at your most expensive line item.

When you quote a job, you need a full cost per square foot. If labor is $4 per square foot and material with freight comes to $3, then your direct cost is $7. Your bid must add your overhead and profit above that. If you miss even one item, you are quoting blind.

Why should I do job costing?

Job costing is the process of attaching every cost to a specific project, so you can see the profit of each job instead of just the total for the month.

Without job costing, you might know that all your jobs together brought in $200,000 and cost $170,000, but you do not know which jobs are the profitable ones. Maybe the small kitchen with a premium layout and subfloor prep is actually losing money, while the big office install is what keeps you alive. That kind of insight comes only when you record each hour, each material invoice, and each freight bill against the job it belongs to.

That lets you make smarter decisions. You can raise your price on the kitchens, you can estimate a job from last year's actual costs, and you can see if a new sub is driving up your costs. You can even tell which of your crews is more efficient. Without this, you will keep pricing jobs you think are fine, and be surprised at the end of the year.

What are the most common mistakes in flooring books?

• Booking the deposit as revenue the day you receive it, instead of keeping it as a liability until the work is done.
• Forgetting to include freight in the material cost when you calculate job costs.
• Not tracking labor hours or subcontractor payments to the specific job they belong to.
• Missing owner's draw and personal spending so you cannot see the real profitability of your work.
• Not separating callbacks and warranty repairs from normal job overhead, so you miss that a specific install method or crew is costing you profit.

These all lead to the same result: the books show a proper record that is expecting a client and doing this. That is why the money runs out even on a busy month.

What numbers should I look at in my financial reports every month?

Look at gross margin, the percentage of material cost to revenue, the percentage of labor cost to revenue, and your cash flow.

Gross margin is what is left from a job after your direct costs. For an owner, a good margin might be between 15% and 35% for residential work. If your numbers come in lower, you need to look at where the cost is leaking. If your margin climbs, you have better pricing and control over your costs.

Your material cost as a percent of revenue tells you if your bids fairly cover what you spend on materials. If that number goes up, maybe you are not passing on freight or you are taking a discount in the price. The same goes for labor cost: if labor is taking a bigger share of your revenue each month, your crew is spending more hours for the same dollar or you have not adjusted your bid. You want that number back in line.

And then there is cash. Since you are collecting deposits, you might have a healthy looking bank balance that includes money you owe the client. Track how much of your cash is an actual liability. If your cash flow is consistently negative even with jobs in the books, you have a delay between when you spend on materials and labor and when the client pays. That is a financing problem that shows up in the books as a cash flow problem, not a profit problem.