Bookkeeping 101 for General Contractors: A Practical Guide to Profit and Peace of Mind
As a general contractor, you’re likely focused on getting jobs done right, on time, and on budget. But behind the scenes of successful construction projects is an organized financial system that supports it all. Bookkeeping isn't just about staying compliant with taxes—it's the backbone of a profitable business. When done properly, it empowers you to bid smarter, track job costs, and sleep easier knowing where your money is going. Let’s walk through what bookkeeping really means for general contractors and how to make it work for you.
Why Bookkeeping Matters More Than You Think
Bookkeeping might seem like a tedious chore, especially when your day is filled with site visits, crew management, and supply runs. But here’s the truth: if you don’t know your numbers, you don’t know your business. For general contractors, accurate bookkeeping is crucial because of the complex mix of labor, materials, subs, and overhead that go into each job. Profit margins can evaporate quickly if expenses go untracked or if income and costs aren’t tied to specific projects.
Proper bookkeeping helps you:
Monitor cash flow so you’re not caught off guard by payroll or materials bills
Understand which jobs are profitable (and which are not)
Prepare accurate bids and estimates based on historical data
Stay compliant with tax laws and avoid fines
Provide documentation for lenders, bonding agents, or clients
Choosing the Right Accounting Method
The first major bookkeeping decision you’ll need to make is whether to use cash or accrual accounting. Most contractors start with the cash method because it's straightforward—income is recorded when you receive payment, and expenses are recorded when you pay them.
But as your business grows, especially if you're taking on larger jobs or working with developers, accrual accounting might offer more insight. Accrual accounting records income when earned and expenses when incurred, giving a clearer picture of profitability over time. It's also essential if you need to track accounts receivable and payable or want more accurate job costing.
Many contractors use a hybrid model—cash accounting for taxes and accrual for internal tracking. Talk to your bookkeeper or accountant to determine what’s best for your goals.
Need help getting started or cleaning up your books? Let’s chat. I specialize in helping general contractors like you build businesses that last—on a solid financial foundation.
Need help getting started or cleaning up your books? Let’s chat. I specialize in helping general contractors like you build businesses that last—on a solid financial foundation.
Understanding the Chart of Accounts for Contractors
The chart of accounts is the foundation of your bookkeeping system. It’s a categorized list of all the different financial buckets your business uses—income, expenses, assets, liabilities, and equity. For contractors, it should be tailored to your industry.
Your income accounts might include:
Labor income
Subcontracted income
Material markup
Consulting or design fees
Your expense accounts will likely include:
Job materials
Subcontractor payments
Equipment rental
Fuel and mileage
Permits and licenses
Insurance (liability, workers’ comp, etc.)
You’ll also track overhead expenses like office rent, software subscriptions, advertising, and salaries.
The Importance of Job Costing
Job costing is the practice of tracking income and expenses per project. This is non-negotiable for any contractor who wants to run a profitable business. Without it, you won’t know if your projects are making money—or losing it.
With job costing, you assign every transaction to a specific job. That means when you buy 2x4s or cut a check to your framing sub, you tag it to the job it belongs to. When a client pays you, you apply that income to the corresponding project.
Done right, job costing reveals:
Actual vs. estimated costs
Which parts of a job (labor, subs, materials) are over or under budget
Profit margins per project
Historical data to improve future bids
QuickBooks Online, especially with the Projects feature, makes this much easier. But the principle applies no matter what software you use.
Keeping Up With Daily Transactions
One of the easiest ways to fall behind in bookkeeping is to let your receipts pile up. General contractors handle a lot of transactions—Home Depot runs, fuel stops, checks to subs, progress payments from clients. Keeping up with these daily activities is essential.
Use these habits to stay ahead:
Record expenses weekly, if not daily
Use accounting software with mobile apps so you can snap a picture of receipts on the go
Connect your business bank account and credit card to your software for automatic imports
Use digital job folders to store invoices, change orders, and supporting documents
Pro tip: assign a job number to every project and reference that number on receipts, invoices, and emails. It’ll make month-end reconciliation a breeze.
Managing Accounts Receivable (Getting Paid)
In construction, delays in payment are common—but they shouldn’t be ignored. Stay on top of your accounts receivable to avoid cash flow nightmares.
Use invoicing software that allows you to:
Send estimates and invoices by email
Accept online payments
Track when invoices are viewed and paid
Send reminders automatically
Also, make it a habit to:
Bill promptly when work is completed
Request down payments or progress payments on larger jobs
Follow up regularly on unpaid invoices
It’s not personal—it’s business. Getting paid on time helps you pay your crew and keep your business moving.
Managing Accounts Payable (Paying Others)
Just like you want to get paid on time, so do your vendors, suppliers, and subcontractors. Keeping up with your bills isn’t just about maintaining relationships—it’s also key to avoiding late fees and protecting your business credit.
Track what you owe by:
Entering bills as they arrive
Setting payment reminders based on due dates
Reconciling vendor statements monthly
Separating job-related costs from overhead
QuickBooks and other tools let you schedule bill payments and track vendor balances so you’re always in control.
Payroll and Contractor Payments
Paying your crew or subcontractors is one of the largest expenses in your business. If you have employees, you’ll need to handle payroll taxes, workers’ comp, and withholdings. If you work with 1099 subcontractors, you’ll need to issue Form 1099-NEC at the end of the year.
For payroll, consider using a software like Gusto or QuickBooks Payroll, which handles the taxes for you. Keep accurate records of:
Hours worked
Gross wages
Deductions
Employer taxes and liabilities
For subcontractors:
Get a W-9 before the first payment
Track total payments throughout the year
Issue a 1099 by January 31 if they’re paid more than $600
Make sure you classify workers properly—mixing up employees and contractors can cost you big in penalties.
Sales Tax and Permitting
Depending on your location, you may be required to collect and remit sales tax on certain construction services or materials. Some states tax labor, some don’t. It’s your responsibility to know the rules.
Track:
Sales tax collected per invoice
Sales tax payable accounts
Filing deadlines
Also, keep copies of permits, business licenses, and registrations up to date. These are often needed for bidding or working legally in certain municipalities.
Monthly Reconciliation and Reporting
At the end of each month, you should reconcile your bank and credit card accounts to ensure everything matches your records. Reconciliation is the process of verifying that the transactions in your software match your actual bank statements.
After reconciliation, pull reports like:
Profit and Loss by Job
Balance Sheet
Cash Flow Statement
Aged Receivables
Job Costing Reports
Reviewing these will give you insight into where your business stands financially and where improvements can be made.
Year-End Close and Working With Your Accountant
When December rolls around, your CPA will need accurate books to prepare your taxes. Don’t wait until the last minute. You’ll need:
All income and expense records
Reconciled accounts
Depreciation schedules
1099s for contractors
W-2s for employees
Inventory counts (if applicable)
A good bookkeeper can help you stay on top of this throughout the year so that tax season is smooth—not stressful.
Tools to Simplify Your Bookkeeping
Today’s contractors don’t need to rely on spreadsheets alone. There are fantastic tools designed to make bookkeeping easier:
QuickBooks Online – The gold standard for small business accounting. Use Projects for job costing, connect your bank feeds, and run custom reports.
Dext or Hubdoc – Capture receipts and invoices by snapping a photo, then categorize them into your books.
Gusto or QuickBooks Payroll – Automate payroll, taxes, and benefits.
ClockShark or TSheets – Track crew hours and assign time to specific jobs for better labor costing.
Google Drive or Dropbox – Keep digital job folders and financial documents organized.
Final Thoughts: A Clean Set of Books Is Your Competitive Advantage
In a competitive industry like construction, contractors who understand their numbers have the edge. Bookkeeping might not feel like your zone of genius—but when handled well, it becomes a superpower. You’ll make smarter decisions, improve job profitability, and build a more resilient, scalable business.
If you’re too busy or unsure how to handle it all, consider hiring a bookkeeper who understands construction. Whether you DIY or outsource, keeping your books in order is one of the best investments you can make in your business.
Need help getting started or cleaning up your books? Let’s chat. I specialize in helping general contractors like you build businesses that last—on a solid financial foundation.
