Bookkeeping for Contractors: What You Need to Track (and Why It Matters)

If you’re a contractor or trades business owner, you probably didn’t start your business because you love spreadsheets. You started because you’re good at what you do whether that’s building, wiring, plumbing, or making things work on the job site.

But even the most skilled tradesperson can run into serious business trouble without strong financial tracking in place.

Bookkeeping isn’t just for tax season. It’s a daily, weekly, and monthly part of keeping your business profitable and growing.

Here’s exactly what you need to be tracking in your contractor business and why it matters more than you might think.

1. Income: Every Dollar Counts

Tracking income might seem straightforward, but many contractors miss a few critical areas. Some often get overlooked or fall behind.

What to Track:

• Payments received by check, credit card, bank transfer

• Deposits from project retainers or upfront billing

• Final payments on completed jobs

Why It Matters:

Without a consistent system, it’s easy to lose track of who paid what and when. This leads to underreporting income, mismanaging cash flow, and potentially triggering issues with the IRS.

Pro Tip: Use a digital invoicing system that tracks payments and sends automatic reminders.

2. Job Costs: Your Profit Lives Here

Job costing is where many trade businesses lose money without realizing it.

What to Track:

• Labor (both in-house and subcontractors)

• Materials and supplies

• Permits, rentals, fuel, and equipment costs

Why It Matters:

Job costing gives you a clear picture of what each project actually costs you. Without this, it’s nearly impossible to price accurately or know your true profit margins.

Pro Tip: Set up job-specific tracking in your bookkeeping system so you can compare estimated vs. actual costs.

3. Expenses: Don’t Leave Money on the Table

Accurate expense tracking ensures you’re maximizing deductions and keeping your records audit-proof.

What to Track:

• Office supplies, subscriptions, software

• Tools, repairs, and maintenance

• Fuel, mileage, meals (with business purpose noted)

Why It Matters:

Every legitimate expense reduces your taxable income. If you’re not tracking them properly, you can’t deduct them, and you end up overpaying in taxes.

Pro Tip: Snap a photo of your receipts and upload them to your bookkeeping software or cloud folder right away the moment you get them.

4. Invoices: Get Paid On Time

Unpaid invoices are one of the biggest threats to healthy cash flow.

What to Track:

• Sent invoices

• Due dates

• Payment status

Why It Matters:

If you’re not following up on unpaid invoices, you’re essentially working for free.

Pro Tip: Automate invoice reminders and send invoices the same day the work is completed or per contract terms.

5. Receipts and Documentation: Cover Your Bases

You don’t need a shoebox full of paper, you need a system.

What to Track:

• Receipts for all purchases

• Contracts and change orders

• Tax forms and licensing

Why It Matters:

In the event of an audit, these documents are your first line of defense.

Pro Tip: Store all documents in organized cloud folders by category or job.

6. Payroll: Accuracy is Non-Negotiable

If you have employees or regular subcontractors, your payroll records need to be airtight.

What to Track:

• Hours worked

• Rates and withholdings

• Payroll tax filings

Why It Matters:

Payroll errors can lead to tax penalties, legal issues, and unhappy workers.

Pro Tip: Use a payroll service that integrates with your bookkeeping software for real-time syncing.

7. Sales Tax: Stay Compliant

Not all contractors need to collect sales tax, but if you do, it needs to be tracked precisely.

What to Track:

• Taxable vs. non-taxable sales

• Sales tax collected

• Sales tax paid

Why It Matters:

Falling behind on sales tax can result in fines and interest.

Pro Tip: Set aside your collected sales tax each week in a separate account so it’s ready when it’s due.

8. Your Financial Reports: Make Better Decisions

What to Review:

• Profit & Loss (P&L) Statement

• Balance Sheet

• Cash Flow Statement

Why It Matters:

If you’re not regularly reviewing your reports, you’re guessing when it comes to pricing, hiring, or investing.

Pro Tip: Review reports monthly with a bookkeeper who can explain what they mean and what to look out for.

Bookkeeping Built For The Trades

Bookkeeping for contractors isn’t about being perfect with numbers, it’s about staying organized, informed, and in control. When you track the right things, your business becomes easier to run, more profitable, and better prepared for growth.

Knowing what to track is the first step toward stronger finances. But proper bookkeeping can quickly become a full-time job, taking you away from more contracting jobs. So as you grow, stay aware of those bookkeeping needs, don’t just push it to the back burner, and decide when it’s time to move from the DIY approach to outsourcing to a professional.

If you need help putting the right systems in place? That’s what I’m here for.