Contractor Bookkeeping Setup

When you sign up for QuickBooks and pick "Construction" as your industry, you get a generic chart of accounts that doesn't include job costing categories, doesn't separate materials from subcontractors, and doesn't distinguish job costs from overhead. It's a retail template with a construction label.

Most contractors either live with it or try to customize it themselves — and get it wrong. Six months later, they can't answer basic questions: "What was my margin on the Martinez job?" "Am I paying my subs enough below my billing rate?" "Which service type is most profitable?" The data is there; it just went into the wrong categories.

We rebuild it right. Contractor-specific chart of accounts, job costing configured, expense categories documented, invoicing structure in place. Handed off with written coding rules so every transaction goes in the right place going forward.

Accounting Software Selection

QuickBooks Online plan selection (Plus required for job costing), account creation, initial company setup — business name, industry, fiscal year, tax basis.

Contractor Chart of Accounts

Default template replaced with a contractor-specific chart: Income by service type, Cost of Goods Sold (Materials, Labor, Subcontractors, Equipment), Overhead (separate from job costs), owner equity. Installed and documented.

Job Costing Configuration

Projects enabled in QuickBooks. Project template set up. Cost codes or categories aligned to your trades. Tested with a sample project before handoff.

Expense Categories & Coding Rules

Written rules for what goes where: which expenses are job costs vs. overhead, how to handle mixed-use items (truck, phone, tools), and what receipts to capture. One reference doc, usable daily.

Invoicing Structure

Invoice template configured: your standard terms (Net 15/30), deposit requirement, late fee language, and payment instructions. Progress billing setup if applicable.

AR Process & Cash Flow Baseline

AR aging tracker — who owes you, how much, for how long. Weekly cash review habit with a 15-minute agenda. Follow-up cadence for overdue invoices.

What is the best bookkeeping software for contractors?

QuickBooks Online is the most widely used for contractors and small construction companies — it supports job costing, progress billing, and connects to most field management tools (Buildertrend, Procore, Jobber). Wave is a free option for very small operations. The software matters less than the setup: contractor-specific chart of accounts, job costing enabled, and expense categories correct from day one.

How do I set up QuickBooks for a contracting business?

Start by selecting a QuickBooks account type (Simple Start, Essentials, or Plus — contractors need Plus for job costing). Then: (1) Replace the default chart of accounts with a contractor-specific template that includes job cost categories; (2) Enable Projects under Settings > Advanced for job costing; (3) Set up expense categories for materials, labor, subcontractors, equipment, and overhead; (4) Configure invoicing with your standard terms and deposit policy. This setup takes about half a day if you know what you're doing — and creates months of cleanup work if done wrong.

What should a contractor's chart of accounts include?

A contractor chart of accounts needs these categories the default QuickBooks template doesn't include: Income (by service type or trade), Cost of Goods Sold (Materials, Direct Labor, Subcontractors, Equipment Costs, Other Direct Costs), Gross Profit, Overhead (separate from job costs — admin, insurance, truck, tools, office), and ideally AR Retention and WIP (Work in Progress) for larger jobs. Getting these categories right from day one makes every financial report meaningful and taxes far simpler.

How do I set up job costing in QuickBooks for contractors?

In QuickBooks Online Plus: go to Settings > Account and Settings > Advanced > Projects and enable it. Then create a Project for each job. When entering expenses or time, assign them to the relevant project. For accurate job costing you also need your chart of accounts to have job-level cost categories (materials, labor, subs) — not lumped into generic 'expenses.' We configure this as part of the bookkeeping setup in Phase 2 of the Foundation Install.

What expense categories do contractors use?

Contractor expense categories split into two groups: direct job costs (materials, direct labor, subcontractors, equipment rental, permits and fees) and overhead (vehicle/truck expenses, tools and equipment, insurance, office supplies, professional fees, advertising, utilities). The key is keeping job costs separate from overhead so you can calculate true job margin. Most contractors lump everything into 'expenses' and can never answer 'what did I actually make on that job?'

How does a contractor separate business and personal expenses?

The foundation is a dedicated business bank account and business credit card used exclusively for business. All business income goes in, all business expenses go out — nothing else. Set up your accounting software connected to the business account only. When you need cash personally, pay yourself with a documented owner's draw or payroll run. Never pay personal bills from the business account or business bills from personal accounts.

Do contractors use cash basis or accrual accounting?

Most small contractors use cash basis — you record income when you receive payment and expenses when you pay them. It's simpler and matches your cash position better. Accrual accounting (recording when earned/owed, not when cash moves) is required above certain revenue thresholds and produces more accurate job-level reports, but it's more complex to maintain. Your CPA should make the final call on accounting method — it affects your tax filing.

What is the best way to invoice as a contractor?

Set standard terms before you take the first job: Net 15 or Net 30, a deposit requirement (typically 25–50% upfront for residential), and a clear late fee policy. Use software — QuickBooks, Invoice Ninja, or similar — so invoices go out the same day work is completed or milestones hit. Follow up at 7 days past due, not 30. Collect deposits before work starts, not after. The contractors who have cash flow problems are almost always the ones invoicing late and collecting deposits inconsistently.

How do I track project costs in QuickBooks?

With QuickBooks Online Plus and Projects enabled: assign every expense, bill, and time entry to the correct project when you enter it. Run the Project Profitability report to see job-level margin. For this to work, you need (1) job cost categories in your chart of accounts, (2) Projects enabled, and (3) the discipline to code expenses correctly as they happen. Coding expenses retroactively at month-end is 10x harder than doing it in real time.

When should a contractor hire a bookkeeper?

When your books are set up correctly, you don't need an ongoing bookkeeper immediately — the system runs with your weekly review. Most contractors benefit from outsourcing ongoing bookkeeping once they're billing more than $30–50K/month, have more than one person coding expenses, or when the weekly review takes more than 2 hours. The prerequisite: your books need to be set up right first. A bookkeeper maintaining a broken chart of accounts just maintains a broken chart of accounts.