Bookkeeper for General Contractors

How does money flow through a general contracting business?

Most revenue comes in as milestone payments, not as a steady monthly check. You win a contract, start work, and get paid when you hit certain points in the project.

Each draw often has a holdback, called retainage, that the owner keeps until the job is complete. That means you can have earned money you have not been paid yet. The bank account does not show that.

Your books need to separate what you have billed from what you have actually earned. Work in place that you have not billed yet is an asset called underbilled work. And money you have billed but not yet earned is a liability called overbilled work. When you do not track these two, the income statement and the bank balance tell different stories.

What does the contractor's fee actually cover?

The 10 to 20 percent fee you add to a project is not profit. It has to carry the overhead of running the company, the risk you take on, and the profit you hope to leave with.

A lot of owners treat that range as a plug number, but it has to pay for things like insurance, vehicles, office expenses, and the cost of a job that goes wrong. Your net margin after all that is often in the 5 to 6 percent range, sometimes less. So a job that comes in at 10 percent over estimate can wipe out the profit on that job.

What costs need their own lines in the books?

Direct job costs, like labor, materials, equipment, and permits, belong on the job's cost sheet. Subcontractor payments are also direct costs, because they are part of building that specific project.

Overhead, like general liability insurance, workers' compensation, tools, vehicles, and office expenses, should be tracked separately. If you mix overhead into job costs, you will overstate what a job costs and understate what running the company really costs. Those two categories answer different questions, so keep them apart.

What is job costing, and why does it matter?

Job costing is tracking every dollar you spend on a specific project against the revenue that project brings in. Without it, you only know the total company profit, not which jobs are paying you well.

To do it right, every invoice you receive and every expense you pay needs to be tagged with the job it belongs to. That includes materials, subcontractor invoices, equipment rentals, and any other direct cost. Then you can run a report that shows each job's revenue, costs, and profit.

This is the number that tells you whether to take more work like a certain type of project, or whether to raise your prices. It is also the only way to catch a job that is bleeding money before it is too late.

What common bookkeeping mistakes should a general contractor watch for?

The biggest mistake is treating the bank account balance as your profit. Because retainage and timing differences exist, a healthy bank balance can hide a job that is losing money, and a low balance can hide one that is doing fine.

Other common problems include not tracking change orders, mixing personal and business expenses, and waiting until tax time to organize the books. When the books only get touched in April, you have no way to manage cash flow or job costs during the year.

The fix is to update the books at least monthly, and to reconcile each job's actual costs against what you estimated. That is the only way to catch problems while you can still do something about them.

Which reports should you look at every month?

The job profitability report is the one that tells you whether each project is making money. It shows revenue, direct costs, and overhead for each job, so you can see your margin per job.

You also need a cash flow statement, because profit and cash are not the same. A work in progress schedule shows you the money tied up in jobs that are not yet billed, and a simple balance sheet tells you what you actually own and owe.

Look at these together each month. If you do not have time, that is exactly the kind of thing a bookkeeper handles for you.

Related reading: the guide for remodeling contractors covers job costing from a different angle, and the electrician guide talks about tracking invoices by crew. Both go deeper into the same fundamentals.