Bookkeeping basics for contractors: a weekly, monthly and yearly routine
Good bookkeeping for a contractor comes down to a few habits: keep business money in its own accounts, record every sale and expense in an accounting system, separate job costs from overhead, capture receipts as you go, and reconcile your accounts every month. Do that, and you'll know which jobs make money, what you owe in taxes, and how much cash you really have, and your accountant's work at tax time gets faster and cheaper.
You don't need to become an accountant. You need a routine and the right setup. This guide covers both. It's general information. For tax questions specific to you and your state, ask a CPA or tax professional.
What should you set up on day one?
A separate business bank account. All business income goes in, all business expenses come out. Mixing personal and business money is the single biggest cause of messy books, and if you have an LLC, it can also weaken the separation it provides. See choosing a business structure for more.
A business credit or debit card used only for business purchases.
Accounting software, such as QuickBooks Online or Xero, or a bookkeeper who uses one. Connect it to your bank and card accounts so transactions import automatically.
A receipt system. A photo of every receipt, attached to the expense or the job, the day you get it.
A savings account for taxes. Move a portion of every payment there so tax bills don't come as a surprise. Ask your accountant what percentage makes sense for you.
Cash or accrual: which method should you use?
There are two basic accounting methods:
- Cash basis: you record income when you receive payment and expenses when you pay them. Simple and common for small businesses.
- Accrual basis: you record income when you earn it, such as when you invoice, and expenses when you incur them. Gives a truer picture of profit on longer jobs.
Many small contractors use cash basis for taxes but still watch invoices and bills closely. Larger contractors and those with long projects may have different rules or reasons to use accrual. Which method you can and should use is a question for your accountant.
How should a contractor organize the chart of accounts?
Your chart of accounts is the list of categories you sort income and expenses into. The most important distinction for a trades business is between job costs, which go up and down with the work, and overhead, which you pay regardless.
| Category | Examples | Why it matters |
|---|---|---|
| Income | Service, installation, maintenance plans, other | See which kinds of work bring in money |
| Job costs (cost of goods sold) | Materials, equipment for jobs, subcontractors, direct labor, disposal fees, permits | Shows gross profit on the work itself |
| Vehicle | Fuel, maintenance, payments, insurance | Often a large cost in field service |
| Overhead | Office rent, phone, software, office staff, advertising, insurance, professional fees | What you need to cover before profit |
| Owner | Owner's pay or draws | Keeps owner money separate from business costs |
Splitting your income by type of work helps you see, for example, whether maintenance or installs carry the business.
Gross profit is income minus job costs. Net profit is what's left after overhead. If gross profit is healthy but net profit is thin, overhead is the issue. If gross profit is thin, look at pricing, materials and labor.
How do you know which jobs make money?
That's job costing: tracking costs against each job, not just in total.
At a minimum, for each job record:
- The price you charged
- Materials used, at your cost
- Labor hours and the cost of that labor
- Subcontractor costs
- Other direct costs, like equipment rental or disposal
Compare them, and you'll start to see patterns. Maybe drain jobs are your best earners, or one kind of install always runs over. That insight is worth more than any tax deduction.
How do you keep track of money owed to you?
Your accounts receivable is a list of unpaid invoices. Look at it every week, sorted by how old each invoice is. A customer who is two weeks late needs a polite reminder. One who is two months late needs a call. If you invoice consistently and collect on the spot when possible, this list stays short.
What about subcontractors and 1099s?
If you pay subcontractors, you may need to issue them information returns, such as Form 1099-NEC, depending on how much you paid them and how. Thresholds and rules can change, so check with your accountant each year.
Make it easy on yourself:
- Collect a Form W-9 from every subcontractor before you pay them.
- Record each payment to subs under their name.
- Keep their certificate of insurance on file and track expiry.
Whether someone is a subcontractor or an employee depends on legal tests, not on what you call them. Ask your accountant if you're unsure.
What about sales tax?
Sales tax rules for contractors vary a lot by state. Some states tax certain services, some tax materials, some treat contractors as the end consumer of materials, and rules can differ between repair work and improvements to real property. Ask your accountant or your state revenue department how sales tax applies to your trade and set up your invoices and pricebook to match.
What routine should you follow?
Every day or two:
- Snap photos of receipts and attach them to the expense or job.
- Send invoices for completed work.
Every week:
- Categorize imported bank and card transactions.
- Review unpaid invoices and follow up.
- Move your tax set-aside into the tax savings account.
Every month:
- Reconcile each bank and card account against its statement.
- Review your profit and loss: income, job costs, gross profit, overhead, net profit.
- Check cash in the bank against upcoming bills.
Every quarter:
- Make estimated tax payments if your accountant advises them.
- File sales tax returns if your state requires them on this schedule.
- Compare results with your business plan forecast.
Every year:
- Send required 1099s.
- Meet with your accountant before year end, not just at tax time, to plan.
- Review your pricing against your actual costs.
Should you hire a bookkeeper?
If you're falling behind, or your evenings are going to categorizing transactions, a part-time bookkeeper often pays for themselves in time and fewer mistakes. You still need to know your numbers, so ask for a short monthly report and a quick call to review it.
FAQ
Can I use my personal account for my business? It makes bookkeeping much harder and can weaken liability protection if you have an entity. A separate business account is strongly recommended.
What software should I use? Many contractors use QuickBooks Online or Xero, often with field service software that sends invoices and payments to it. Ask your accountant which they prefer.
How much should I set aside for taxes? It depends on your income, structure and state. Ask your accountant to estimate a percentage, then revisit it each quarter.
How often should I reconcile? Monthly, at a minimum. Reconciling catches errors, duplicate charges and missing income.
How ServFlo helps
ServFlo is where the work and the money meet. Invoices, payments and customers live in one place, and on the Connect plan and above they sync to QuickBooks Online or Xero so you aren't typing them twice. Technicians can attach receipt photos to jobs, reports show what's owed and how old it is, and on Pro, job costing shows labor, materials and expenses against each job's price. Customers can pay by card or bank on site or from a link. See pricing.