7 Bookkeeping Mistakes Contractors Make… And How to Avoid Them
Running a contracting business means keeping jobs moving, managing crews, ordering materials, dealing with customers and constantly thinking about what’s next.
Bookkeeping can easily become something you deal with when you have time.
The problem? There usually isn’t much time.
And when bookkeeping gets pushed aside, small issues can turn into bigger problems — making it harder to understand your cash flow, job profitability and overall financial position.
Here are seven of the most common bookkeeping mistakes contractors make.
1. Treating the Bank Balance as Profit
One of the biggest mistakes is assuming that the money sitting in your bank account represents how much money the business has actually made.
It doesn’t.
Your bank balance doesn’t account for outstanding bills, unpaid invoices, payroll obligations, GST or other upcoming expenses.
You could have $50,000 in the bank and still have significant financial obligations that haven’t been paid yet.
That’s why contractors need to look beyond their bank balance and regularly review their financial statements.
The goal isn’t just to know how much money is in the bank. It’s to understand what that money actually represents.
2. Not Tracking Profitability by Job
Revenue is exciting.
Profit is what matters.
A job that brings in $50,000 sounds great — but what did it cost you to complete?
Once you account for labour, materials, subcontractors and other job-related costs, the actual profit could look very different.
Without job costing, it can be difficult to identify:
Which jobs are most profitable
Which types of work are producing the best margins
Where costs are getting out of control
Whether estimates are accurate
Whether pricing needs to change
If you’re consistently winning work but not seeing the expected profit, job costing deserves a closer look.
3. Letting Accounts Receivable Get Out of Control
You’ve completed the work.
You’ve sent the invoice.
But the money hasn’t arrived.
Outstanding invoices can create serious cash-flow pressure for contractors, particularly when you’re paying employees, subcontractors and suppliers before your customer pays you.
Your bookkeeping process should make it easy to see:
What’s currently outstanding
Which invoices are overdue
How long customers are taking to pay
How much cash you should expect to receive
You shouldn’t have to dig through your accounting software to figure this out.
4. Falling Behind on Reconciliations
Bank and credit card reconciliations are one of those tasks that can seem easy to postpone.
A week becomes a month.
A month becomes three months.
Suddenly, you’re trying to figure out why the numbers don’t match.
Regular reconciliations help identify missing transactions, duplicate entries, incorrect postings and other issues before they become difficult to untangle.
Keeping your books current also means your financial reports are much more useful.
5. Mixing Personal and Business Expenses
Using business accounts for personal purchases — or personal accounts for business expenses — can make bookkeeping unnecessarily complicated.
It can create uncertainty about:
Which expenses belong to the business
How transactions should be categorized
What needs to be recorded as an owner transaction
How much the business is actually spending
Keeping business and personal finances separate makes your books cleaner and makes your financial information easier to understand.
6. Treating Subcontractor Costs as an Afterthought
Contractors often rely heavily on subcontractors, which means subcontractor costs can represent a significant portion of project expenses.
If those costs aren’t captured consistently, your job profitability reports may not tell the full story.
Your bookkeeping process should make it clear which subcontractor expenses relate to which jobs and ensure the supporting documentation is organized.
It’s also important to understand your applicable reporting and documentation obligations. Your bookkeeper can help keep your records organized, while tax-specific questions should be reviewed with your tax professional.
7. Only Looking at the Numbers When There’s a Problem
Your financial reports shouldn’t only come out when your accountant asks for them.
By then, you’re looking backward.
A monthly financial review gives you an opportunity to ask:
How did we perform this month?
Are our margins improving?
What’s happening with expenses?
How much is outstanding from customers?
What bills are coming up?
Which jobs are performing well?
What needs attention?
The purpose of bookkeeping isn’t simply to record what happened.
It’s to give you information you can use to decide what happens next.
The Bottom Line
Good bookkeeping doesn’t need to be complicated.
But it does need to be consistent.
For contractors, the most valuable bookkeeping systems are the ones that provide visibility into cash flow, profitability, job costs and financial performance.
If you’re not sure whether your current bookkeeping process is keeping up with your business, start with the basics.
Start With a Monthly Review
Bricked Bookkeeping created the Contractor’s Monthly Bookkeeping Checklist to help contractors and trades business owners review the key areas of their books each month.
GET THE FREE CONTRACTOR BOOKKEEPING CHECKLIST
And if you’d rather talk through your current setup, you can book a free Contractor Business Call with Bricked Bookkeeping.
You know how to run the job.
We help you understand the numbers behind it.