General Contractors: The Job Costing Problem That's Quietly Killing Your Margin
Every construction job is its own small business. It has its own revenue, its own costs, its own timeline, and its own risk. The problem is that most contractors' books don't reflect that — they reflect the company, not the jobs.
That gap is where margin disappears. A contractor doing $5M in annual revenue who can't tell you which jobs made money and which didn't isn't running a construction business. They're running a lottery.
The bookkeeping issues that quietly destroy contractor margins:
- WIP accounting is wrong or absent. Work in progress — revenue earned but not yet billed, or billed but not yet earned — is the most important number on a contractor's balance sheet. Most operators either don't track it or track it incorrectly, which means their monthly P&L is largely fiction. Overbilling inflates income; underbilling hides it. Both mislead lenders and buyers.
- Retainage isn't managed as a receivable. Most contracts withhold 5-10% of each draw until job completion. On a $2M project, that's $100,000-$200,000 sitting in receivable limbo for 12-18 months. Operators who don't track retainage separately lose track of it — and sometimes don't collect it.
- Change orders are accounted for too late. Change orders are revenue. When they're approved verbally and billed later — or billed before they're formally approved — they create timing distortions that make job profitability impossible to measure in real time.
- Subcontractor costs aren't matched to jobs. Sub invoices come in late, out of sequence, and sometimes for work across multiple jobs. Without deliberate job-cost coding at the invoice level, sub costs bleed into the wrong jobs and the wrong periods.
- Equipment costs are allocated badly or not at all. A backhoe that works five jobs in a quarter has real costs — depreciation, fuel, maintenance, operator time. Most contractors expense it all at the company level and wonder why job margins don't add up to company margin.
What it costs: jobs that look profitable aren't; the ones bleeding margin don't get fixed; lenders and buyers see financials that can't be reconciled; and the operator has no real basis for estimating future work.
We help general contractors and construction companies build job-cost accounting that tells the truth about every project.