Financial Resources Built for Contractors

Work through these twelve checks once a quarter. Anything you can't answer confidently is not a failure — it's simply the next thing to fix. Most contractors find three or four gaps the first time through, and closing even one of them changes what the business feels like to run.

• Job costing. You can name your three most profitable and three least profitable jobs from the last twelve months, with numbers behind the answer.
• Burdened labor. You know what an hour of field labor actually costs you, including payroll taxes, insurance, benefits and non-billable time — not just the wage. Getting hours attributed to jobs is largely a payroll setup question.
• Overhead recovery. You know roughly what your business costs to keep the doors open each month, and your pricing is built to cover it.
• Markup vs. margin. You price using margin, and you know the difference between adding a percentage to cost and keeping a percentage of the price.
• Change orders. Extra work is documented, priced and approved before it's performed, and it shows up in job profitability.
• Receivables. You know today who owes you money and how long it has been outstanding.
• Retainage. If you work on jobs with retainage, it's tracked separately and someone is responsible for collecting it.
• Reconciliation. Every bank and credit card account was reconciled last month, and the month before.
• Separation. Business and personal spending run through different accounts, consistently.
• Cash runway. You know how many weeks of payroll and fixed costs you could cover if collections stopped.
• Tax readiness. You have a plan for estimated payments and you aren't discovering your tax position at filing time.
• Monthly rhythm. There is a recurring appointment on your calendar to look at your numbers, and you keep it.

Job costing means assigning every dollar of revenue and cost to the specific job that produced it. It's what turns "we had a decent year" into "kitchen remodels earn well and small service calls lose money." Without it, unprofitable work can repeat for years because good jobs quietly subsidize bad ones.

What to capture on every job

• Direct labor, burdened. Field hours costed at the fully loaded rate — wage plus payroll taxes, workers' compensation, general liability, benefits and paid time off. Using the raw wage understates cost substantially on every job you run.
• Materials. Coded to the job at the time of purchase. Receipts assigned weeks later get assigned to the wrong job or to none at all.
• Subcontractors. Their invoices tied to the job, with retainage and any backcharges reflected.
• Equipment and vehicle time. If a machine or truck is dedicated to a job, some of its cost belongs to that job.
• Change orders. Documented, priced and approved before the work happens. Unbilled extras are one of the most common sources of margin loss in the trades.
• Overhead allocation. A consistent method for applying the cost of running the business to the jobs that the business runs.

The review that makes it worth doing

Capturing costs is only half of it. When a job closes, compare estimate to actual line by line, and ask which line moved and why. Do that for a few months and patterns appear fast: a crew that consistently beats estimate, a job type that consistently doesn't, a supplier whose prices moved while your pricing didn't.

Markup is not margin

This single confusion costs contractors more money than almost anything else in this library. Markup is a percentage added to your cost. Margin is the percentage of the final price that you keep. Adding 20% to a $10,000 cost gives a $12,000 price — but the $2,000 you kept is only 16.7% of that price, not 20%.

Profit is what you earned; cash is what you have. Contracting separates the two more than almost any other business, because you buy materials and pay crews weeks or months before the customer pays you. A growing contractor can be profitable on every job and still be unable to make payroll — growth consumes cash before it produces it.

Where the gap comes from

• You fund the job first. Materials and labor go out at the start; the invoice gets paid at the end.
• Retainage is held back. A portion of money you have already earned is withheld until the project closes out, sometimes long after your costs were paid.
• Slow paying customers. Every day between completing work and collecting on it is a day you're financing your customer.
• Seasonality. Many trades have months where revenue drops but insurance, vehicle payments and key staff costs don't.
• Growth itself. Taking on more or bigger jobs increases the amount of cash tied up in work you haven't been paid for yet.

The levers you actually control

• Get money earlier in the job. Deposits, mobilization payments and progress billing tied to real milestones move cash toward the front of the work.
• Bill immediately. Invoicing delay is self-inflicted. If a milestone completes Friday, the invoice goes out Friday.
• Age your receivables weekly. Know who owes what and for how long. Most late payment is inattention, not refusal, and a call in week three works better than a letter in month three.
• Track retainage separately. If it isn't on a list with a name against it, it doesn't get collected.
• Match supplier terms to customer terms. If your customer pays in 45 days and your supplier expects 15, that gap is being financed out of your own pocket.
• Plan for the slow season while it's the busy season. Set money aside during peak months rather than borrowing during quiet ones.
• Forecast simply, but forecast. A rolling week-by-week view of expected money in and money out, kept for a few months ahead, turns cash from a surprise into a decision.

A monthly close takes most contractors under two hours and is the single highest-return administrative habit in the business. The goal isn't perfect bookkeeping — it's a file you trust enough to make decisions from. Work through this list in order; each step depends on the one before it.

The monthly routine

• Reconcile every account. All bank accounts, credit cards and loans. Unreconciled accounts make every report downstream unreliable. If reconciliation has lapsed for several months, catching up is usually faster with help — it is a common starting point for ongoing bookkeeping support.
• Clear the uncategorized bucket. Anything sitting in "Ask my accountant" or uncategorized is a decision nobody has made yet.
• Check that job costs are coded to jobs. Material purchases, subcontractor bills and labor should be attached to the job they belong to, not to a general expense account.
• Review the job profitability report. Compare estimate to actual on open and recently closed jobs. Look for jobs drifting, not just jobs finished.
• Age your receivables. Who owes you, how much, how long. Act on anything past your terms.
• Age your payables. What you owe and when, so payment timing is a choice rather than a scramble.
• Scan the profit and loss against last month and the same month last year. You're looking for lines that moved unexpectedly, not for a verdict.
• Check the balance sheet for nonsense. Negative asset balances, an unreconciled clearing account or an owner's draw account behaving strangely usually indicate a coding problem.
• Confirm payroll posted correctly and that liabilities were paid on schedule.
• Look at cash. What's in the bank, what's committed, what's coming in over the next few weeks.

Setup problems that make the monthly review harder than it should be

• A chart of accounts that doesn't separate direct job costs from overhead. Without that split, gross margin isn't meaningful.
• Jobs not set up as jobs. If work isn't tracked at the project level, no report can tell you which jobs earned.
• Personal spending mixed into the business file. It distorts every number and makes tax preparation slower and more expensive.
• Items and services not mapped to the right accounts, so revenue and cost land in unexpected places.
• Bank feeds accepted without review. Auto-categorization is a starting point, not an answer.

Most of what makes tax time painful is organization, not tax law. This checklist is about readiness — the records, separation and habits that let a qualified professional do good planning work for you. It deliberately avoids specific rates, thresholds and deadlines, because those change and depend on your situation.

Keep the year clean

• Separate accounts. A dedicated business bank account and card, used consistently. This is the highest-value habit on the list.
• Books current within a month. Reconstruction at year end is slower, costlier and less accurate than doing it as you go.
• Receipts captured at the point of purchase, attached to the transaction rather than collected in a box.
• Vehicle and equipment use documented as it happens. Contemporaneous records are far more defensible than an estimate written later.
• Subcontractor documentation collected before you pay them, not chased in January.
• Worker classification reviewed whenever your crew structure changes. The rules are fact-specific and the consequences of getting it wrong fall on the business.

Plan rather than react

• Estimated payments treated as a scheduled cost, set aside as money comes in rather than found later.
• A mid-year and a late-year check-in with your accountant, while there is still time to act. A conversation in November has options that a conversation in March does not. This is the core of planning-led tax preparation rather than filing after the fact.
• Major purchases discussed before you make them. Timing and structure can matter, and the decision should still be driven by whether the business needs the asset.
• Entity structure revisited as the business grows, since what fit an owner-operator may not fit a company with crews.
• Retirement and benefit options reviewed, which for many owners is the most overlooked area of planning.

You don't need a dashboard; you need about eight numbers and the habit of looking at them. What matters is the direction each one moves over time in your business, not how it compares to an industry average. Published benchmarks vary widely by trade, region and job mix, so treat your own trend as the reliable signal.

• Gross margin by job. Revenue minus direct job costs, as a percentage of revenue. The clearest read on whether your pricing and production are working. Watch it by job type — the average across all work hides the problem.
• Overhead as a share of revenue. What it costs to keep the business running, relative to what the business brings in. Rising overhead share while revenue grows is an early warning worth taking seriously.
• Net profit margin. What's left after everything. Useful as a trend line rather than a monthly verdict. Owners who want this interpreted monthly rather than just reported often use fractional CFO support.
• Cash on hand, expressed in weeks. How long you could cover payroll and fixed costs if collections paused. The most practically useful number on this list.
• Days sales outstanding. How long, on average, it takes to get paid after invoicing. If it's lengthening, your cash problem is a collections problem.
• Backlog. The value of work you've sold but not yet completed. Your best forward view of revenue and of whether you need to be selling harder.
• Estimate accuracy. How close actual job costs land to estimated ones, tracked over time. Consistent overruns in one category tell you exactly where to fix your bidding.
• Labor utilization. The share of paid field hours that are billable. Small movements here have an outsized effect on profitability.