Seven QuickBooks mistakes contractors make

QuickBooks is perfectly capable of running a contracting business. Most contractor files we open are a mess anyway, and it is almost never the software's fault — it is how it was set up on day one and never revisited.

Here are the seven that come up over and over.

1. Accepting the default chart of accounts

The setup wizard offers a chart built for a business that buys stock and sells it off a shelf. It has no meaningful separation between the costs of doing a job and the costs of running a company.

Without that split you can never work out what a job made, because you cannot tell which costs belonged to it. This is the root of most of the others. The fix is in the chart of accounts a contractor actually needs.

2. Booking the whole loan payment as an expense

You pay $1,400 a month on the truck. It gets coded to "Loan Payment" and that is the end of it.

Only the interest portion is an expense. The rest reduces what you owe, on the balance sheet. Booked in full as an expense you overstate your costs every month, understate profit, and your loan balance sits there never moving — so your balance sheet stops describing reality.

Split every payment between interest and principal. Your lender's amortisation schedule tells you the numbers.

3. All payroll in one account

Field wages belong in cost of goods sold. Office and admin wages belong in overhead.

Run through a single "Payroll" account, your gross margin is meaningless — it is mixing the cost of doing work with the cost of having an office. Every job costing number built on top of it is fiction.

4. Owner draws coded as an expense

Money you take out is not a business cost. It belongs in equity as a draw or distribution.

Sitting in expenses it makes your profit look smaller than it is, throws off every ratio, and produces a tax return that does not reflect what happened. It is one of the first things we look for, and it is there more often than not.

5. One income account for everything

"Sales: $840,000" tells you nothing you did not already know.

Split income by the revenue types that behave differently in your trade — install against service, insurance against retail, recurring against one-off. Three to five accounts. That split is what later tells you which side of the business is actually paying, and where the marketing money should go.

6. Bank feeds accepted without reconciling

The feed suggests a category, someone clicks accept, the transaction disappears into the books. It feels like bookkeeping and it is not.

Categorising is not reconciling. Reconciling means proving the books agree with the bank statement at a fixed date — that nothing is missing, nothing is duplicated, and the closing balance matches exactly. Feeds duplicate transactions routinely, especially around transfers between accounts.

If nobody reconciles monthly, errors compound silently for a year and then land on your CPA in March.

7. Nothing is ever closed

QuickBooks will happily let you change a transaction from eighteen months ago.

Without a closing date set and locked, someone editing an old entry silently changes a period you already filed a return on. Then this year's opening balances do not match last year's closing balances and nobody can explain why.

Close each month. Lock it. That is what makes the books a record rather than a working document.

The smaller ones worth mentioning

Personal spending run through the business. It happens. It needs identifying and reclassifying rather than coding to "office supplies" because that was quicker.

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

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

Customers and jobs not used. QuickBooks has a job layer. If you never use it you have given up job costing before you started.

Fixing an existing file

You generally have two options: correct the file in place, or start a clean one and bring balances across.

Which makes sense depends on how bad it is and how much history you need. Neither is a weekend job, and both are easy to make worse — which is why we do this during the free first month rather than sending you a checklist.

Related

• The chart of accounts a contractor actually needs
• Nine ways to tell whether your bookkeeper is doing a good job
• Catch-up bookkeeping explained