Bookkeeping for Contractors: The Simple System

Short answer first: you need one business checking account, one business card, accounting software that pulls both in automatically, and twenty minutes every Friday. Code every expense to a job. Look at three numbers once a month. That's the whole system, and it will put you ahead of most contractors doing $2M a year.

Everything else in this article is detail on those five things. If you stop reading now and just do them, you've gotten your money's worth.

The reason bookkeeping feels awful for contractors isn't that it's hard. It's that most contractors do a year's worth of it in one panicked weekend in March, working from a shoebox and a bank app, trying to remember what a $340 charge at a lumberyard in July was for. Done that way, it's genuinely miserable and it also tells you nothing. Done weekly, it's twenty minutes and it tells you which jobs are making money.

Quick note: this is general information, not tax or accounting advice. Your CPA knows your situation and I don't.

Step One: Separate the Money. Actually Separate It.

One business checking account. One business credit or debit card. Nothing personal touches either one. Not the gas for the truck you also drive to your kid's game, not the Amazon order that had a shop vac and a birthday present in it.

This sounds obvious and almost nobody does it cleanly. Mixed accounts are the single biggest reason bookkeeping takes six hours instead of twenty minutes, because every transaction becomes a judgment call instead of a category. It's also the thing that erodes the liability protection you formed an LLC to get in the first place.

If you take an owner draw, take it as one transfer to your personal account, then spend from there. One line in the books instead of forty.

Do this and step two becomes almost automatic. Skip it and nothing else in this article works.

Step Two: Pick Software and Connect the Feeds

Your accounting software's real job is to pull every transaction in without you typing it. Connect the bank account and the card, and the transactions show up on their own. You're just categorizing, not entering.

Here's what the main options actually cost right now, straight off their own pricing pages.

Two things happening in 2026 that you should know about before you sign up for anything.

QuickBooks raised prices on Essentials, Plus, and Advanced for renewals on or after August 1, 2026. Simple Start, Ledger, and the free tier were not changed. If you're a new subscriber, Intuit holds your price for the first six months and the new rate hits on your seventh invoice, so budget for that instead of being surprised by it. Xero has posted that its subscription prices are increasing from October 1, 2026.

Both are running heavy first-few-months discounts right now, which is fine, just do the math on the regular price and not the promo price. A 90% off deal on a plan you'll pay $140 a month for forever is a $140 a month decision.

Which one? QuickBooks, for most contractors, and not because it's better software. Because every bookkeeper and CPA in your town already knows it, which matters more than features when you eventually hand this off. Xero is genuinely nicer to use and cheaper at the job-costing tier. FreshBooks is best if you're a one-truck operation who mostly needs to invoice and get paid.

Step Three: Code Every Dollar to a Job

This is the step that separates contractors who know their numbers from contractors who feel their numbers.

Most small businesses categorize expenses by type: materials, fuel, subs, insurance. That's enough for a tax return. It is not enough to run a contracting business, because it can't tell you that the Hendricks kitchen made 34% and the Miller addition made 6%.

Job costing means every expense gets tagged with the job it belongs to, not just the category. Then you can pull a report that shows revenue minus costs on each job, and suddenly you can see which kinds of work, which crews, and which estimators are actually profitable.

This is why the tier table above matters. Project or job tracking is not in the cheap plan on any of these. It's QuickBooks Plus at $140 a month or Xero Established at $90. That gap between the $38 plan and the $140 plan is the single most defensible software upgrade a contractor makes, because it's the difference between doing taxes and running a company.

If your jobs are complex enough that native project tracking isn't cutting it, Knowify and Foundation Software are both built for construction job costing specifically and sync with QuickBooks.

The discipline part is simple: nobody buys anything without knowing which job it's for. Materials, dump runs, rentals, subs. If a crew lead can't tell you the job, they don't get the card.

Step Four: The Friday Twenty Minutes

Same time every week. Put it on the calendar like a jobsite appointment.

1. Open your software and go to the bank feed.
2. Categorize every transaction that came in. Assign each one to a job.
3. Match receipts to anything over your threshold. Snap them with the mobile app on the spot instead of saving paper.
4. Look at your accounts receivable list. Anybody past 30 days gets a call or a text today.
5. Move your tax set-aside into a separate savings account.

That last one deserves its own sentence. A percentage of every deposit, moved the same week it lands, into an account you don't have a card for. Ask your CPA what percentage fits your entity and income, because the right number is different for an S-corp with payroll than for a sole proprietor. The point is that it happens automatically and it isn't sitting in your operating account looking like profit.

Twenty minutes. Fifty-two times a year. That's the entire ongoing cost of having clean books.

Mileage, and the 2026 Thing Nobody Told You

The IRS changed the business mileage rate mid-year in 2026, which almost never happens. You need two numbers, not one:

• January 1 through June 30, 2026: 72.5 cents per mile
• July 1 through December 31, 2026: 76 cents per mile

If you're tracking mileage in one bucket for the year, split it at July 1 or you'll shortchange yourself on the back half. A tracking app that logs drives automatically is worth it here, because reconstructing a year of driving from memory is both painful and the kind of thing that does not hold up if anyone ever asks.

How Long to Keep Everything

The IRS baseline is three years from the date you filed the return. Two exceptions matter for contractors:

• If you underreport income by more than 25% of what's on the return, the window stretches to six years.
• Employment tax records, payroll, W-2s, 1099s, get kept at least four years.

And when the IRS window closes, check before you shred. Your insurer, your bonding company, or a bank you're borrowing from may want records longer than the government does. Cloud storage is cheap. Just keep it all.

Step Five: The Three Numbers You Read Monthly

Once a month, twenty more minutes. You're looking at three things.

Cash. What's in the account, what's committed to bills and payroll in the next 30 days, what's left. This is the number that puts contractors out of business. Profitable companies run out of cash all the time because the money went out on materials in April and comes back in June.

Accounts receivable. Who owes you and for how long. Anything past 45 days is a problem you're pretending isn't a problem. If collections are a recurring fight, the timing rules in our lien waiver guide will do more for you than any accounting software.

Gross profit by job. Revenue minus direct costs, per job, expressed as a percentage. This is the payoff from step three. Look at your last ten completed jobs. The spread between your best and your worst will tell you more about your business than your tax return ever will.

That's it. Not a P&L you don't understand, not a balance sheet, not fourteen KPIs. Three numbers, monthly, forever.

When to Hire Somebody

Do the bookkeeping yourself long enough to understand what the numbers mean. Then hand it off, because you are worth more selling and running jobs than categorizing lumberyard receipts.

Rough trigger points, from what I see in the field: under about $500K in revenue, do it yourself with the weekly ritual. Between $500K and $2M, a part-time bookkeeper a few hours a month plus a CPA at tax time. Over $2M, a dedicated bookkeeper and a CPA who actually knows construction accounting, especially if you're bonded or doing work in progress reporting.

There are firms that only work with contractors, which is worth paying a little extra for. Somebody who already understands retainage, job costing, and progress billing doesn't need six months of you explaining your business. Bookkeeper360, Xendoo, Bookkeeping for Painters, and Construction Cost Accounting are all in the directory and all work with trades businesses.

One thing to understand before you hire: a bookkeeper records what happened, a CPA files your taxes and plans around them. They are different jobs and most contractors need both. Handing a shoebox to a CPA in March and calling it bookkeeping is why so many contractors think accounting is expensive.

What Good Looks Like

You know what's in the bank without opening the app. You know which of your last ten jobs made money and which one didn't. Your tax money is already set aside. When the bank or the bonding company asks for financials, you send them the same day instead of apologizing for two weeks.

None of that comes from being good at accounting. It comes from one account, one card, connected feeds, jobs on every dollar, and twenty minutes every Friday.