The chart of accounts a contractor actually needs

When you open QuickBooks and it offers to set up your accounts, it gives you a chart built for a business that buys things and sells them off a shelf. You do not run that business. You send people and material to a job site and hope the two add up to more than what the customer pays you.

That mismatch is why so many contractors have tidy-looking books that cannot answer a single useful question.

The one change that matters most

Split your costs into direct costs and overhead, and never let them mix.

A direct cost is one you would not have incurred if that job had not happened. Material for the job. The hours your crew spent on it. The sub you paid. The dumpster you rented for it. The permit.

Overhead is everything you pay whether or not the phone rings. Shop rent. Insurance. Your truck payment. The office person. Software.

Most default charts have one big "Expenses" bucket with both jumbled together. Once they are jumbled you can never work out what a job made, because you cannot tell which costs belonged to it.

What the top level should look like

Five groups, in this order:

• Income — split by the revenue types that behave differently in your trade
• Cost of goods sold — direct job costs only
• Overhead — everything that runs the business
• Other income / expense — interest, gains on equipment sales, one-offs
• Balance sheet accounts — bank, cards, loans, equipment, owner equity

Everything below is about the first three.

Income: split it by how the money behaves

One "Sales" account is a wasted opportunity. Split income wherever two revenue types have genuinely different margins, because that split is what later tells you where to spend your marketing money.

• HVAC — install, service, maintenance agreements
• Plumbing — service calls, scheduled work, new construction
• Electrical — residential service, commercial contract, fixed-bid
• Roofing — insurance restoration, retail replacement, repairs
• Pest control — recurring contracts, one-off treatments, termite/specialty

Three to five income accounts is right. Fifteen is someone building a filing system nobody will maintain.

Cost of goods sold: four accounts, minimum

• Materials — what went into the job
• Direct labor — field wages, plus payroll taxes and workers comp on those wages
• Subcontractors — what you paid out to others
• Other job costs — permits, equipment rental, disposal, job-specific travel

That fourth one stops people dumping oddities into overhead where they disappear.

Direct labor is the account people get wrong. Field wages belong in COGS. Your office manager's wages belong in overhead. If all payroll runs to one account, every job costing number you produce afterwards is fiction.

And the loaded cost matters. A tech on $30/hour does not cost you $30 — add payroll taxes, workers comp, and any benefits, and the real number is meaningfully higher. If your books only capture the base wage, every job looks better than it was.

Overhead: enough detail to act on

Group it so you can see what is controllable:

• Vehicles — fuel, maintenance, insurance, payments
• Facilities — rent, utilities
• Insurance — general liability, umbrella
• Office and admin — software, phones, office wages
• Sales and marketing
• Professional fees

You do not need forty accounts. You need enough that when overhead jumps, you can tell which of six things moved.

The mistakes to avoid

Owner draws booked as an expense. A draw is not a business cost, it is you taking money out. Booked as an expense it understates your profit and overstates your costs, and your tax return will be wrong.

Loan payments booked as an expense. Only the interest is an expense. The principal reduces what you owe on the balance sheet. Book the whole payment as an expense and you are overstating costs every month while your debt sits there looking untouched.

Equipment expensed rather than capitalised. A $12,000 machine is an asset that depreciates, not a cost in the month you bought it.

Transfers booked as income. Moving money from savings to checking is not revenue. It is remarkable how often it ends up looking like it.

Job costing sits on top of this

The chart of accounts tells you what kind of cost something is. Job costing tells you which job it belonged to. You need both, and the second only works if the first is right — which is why this comes first.

More on that in job costing for contractors.

Changing it when you already have history

Restructuring mid-year makes this year's comparisons awkward, so it is usually worth doing at a year boundary. Where that is not practical, map old accounts to new ones so prior periods can still be reported consistently.

That mapping is fiddly and easy to get wrong, and it is one of the things we do during the free first month rather than handing you a spreadsheet and wishing you luck.