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Construction bookkeeping guide: The 10 best tips in 2025

By QuickBooks
Published on July 3, 2025

Whether you're a general contractor, specialty trade, or residential builder, a strong bookkeeping system helps you stay profitable, avoid costly mistakes, and make better decisions as you grow. In this guide, we’ll walk through 10 essential bookkeeping tips tailored specifically to construction businesses in 2025.

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Construction bookkeeping stats and demand trends 

  • The construction accounting software market is on the rise, growing from $1.64 billion in 2024 to $1.72 billion in 2025, with projections hitting $2.26 billion by 2029.1
  • U.S. construction spending hit $2 trillion in 2024, making up 4.5% of the country’s GDP. It’s a major economic driver, supporting over 8.3 million jobs.2
  • Labor shortages continue to be a challenge. The industry needs to attract around 439,000 new workers in 2025, and nearly 500,000 more in 2026 just to meet demand.3
  • Nonresidential construction is projected to slow in 2025, but single-family and multifamily residential construction are expected to rebound strongly, especially if interest rates decline.4

Sources:

  1. The Business Research Company 
  2. Deloitte 
  3. Associated Builders and Contractors 
  4. American Institute of Architects

Importance of bookkeeping for construction companies

Bookkeeping matters for every business, but if you run a construction company, it’s absolutely essential. You’re managing several complex projects at once, and each one comes with its own budget, timeline, crew, materials, and client expectations. Without clear, organized financial records, things can get out of hand fast. That’s when cash flow issues, missed deadlines, or even legal trouble can arise.

That's why you need a solid bookkeeping system that can help you:

  • Track costs for each project
  • Plan ahead for cash flow
  • Stay compliant with taxes and regulations
  • Spot which jobs make money (and which don’t)
  • Make confident decisions based on real numbers

In the sections below, we’ll explore how bookkeeping differs for construction companies and provide some key terms you need to know. 

How bookkeeping differs for construction companies

Bookkeeping works a little differently in construction than it does in other businesses. Here’s how:

1. Project-based vs. service-based bookkeeping

Most service-based businesses—like law firms, consultants, or IT support teams—bill by the hour or by the job. Their bookkeeping is usually pretty straightforward: track income, log expenses, and send regular invoices. They often use cash basis accounting, with simple billing cycles and fewer moving parts.

On the other hand, construction bookkeeping is centered around job costing. Each construction project is tracked individually, with its own budget, revenue, and direct/indirect costs, including:

  • Labor hours (usually tracked per job site)
  • Subcontractor payments
  • Materials and equipment usage
  • Permits and inspections

It’s standard to use cost codes and work-in-progress (WIP) reports to make sure each expense lands in the right place. That way, you can track what you're spending on each job and keep an eye on your profit margins. Since projects typically stretch out over months, you’ll likely use accrual accounting to line up your income and expenses as they happen, not just when money changes hands.

Change orders—i.e., modifications to the original contract—are also common. When a client wants to tweak the original plan, it means updating your budget and invoices on the fly. It’s a normal part of construction, but it adds more complexity to your bookkeeping.

2. Progress billing, retainage, and cash flow

In construction, you usually don’t bill everything up front. You use progress billing, which means you invoice clients in stages, based on how much of the project is complete. That’s different from the flat-fee or hourly billing models used in service-based businesses.

You also deal with retainage, where part of your payment is held back until the project wraps up. This can tie up your cash flow, so you must carefully track it on your balance sheet. Plus, since payments don’t always come in on a regular schedule, managing cash flow takes extra planning.

3. Rules, taxes, and compliance

Construction has its own set of rules. Depending on where and how you work, you might need to deal with:

  • Certified payroll for public projects
  • Sales tax on materials and tools
  • Contractor licenses and insurance
  • Lien laws and union agreements

Payroll alone can get complicated, especially if you're working across states, using union labor, or paying prevailing wages. That’s why your bookkeeper needs to understand the specific laws that apply to your projects.

Common construction bookkeeping terms

Here are some terms you’ll usually see if you’re doing—or learning—construction bookkeeping:

  • Job costing: Tracking all costs associated with a specific project to measure profitability.
  • Change order: A change to the contract that affects the scope, cost, or timeline of the job.
  • Retainage: The amount a client holds back until work is complete.
  • Progress billing: Invoicing for a job in stages, based on how much work is done.
  • Schedule of values (SOV): A list of all the work in a project and how much each part costs.
  • Work-in-progress (WIP) report: A snapshot of how far along your current projects are, both financially and physically.
  • Overbilling/underbilling: When you’ve billed more (or less) than the work you’ve actually done.
  • General conditions: Overhead costs tied to the job, like site management and admin work.
  • Cost codes: Categories you use to label and track different types of costs within a project—e.g., labor, materials, equipment, or permits.

How to do bookkeeping for a construction company

While construction bookkeeping does come with extra layers (like job costing, retainage, and progress billing), the foundation is the same as any business: track your money, stay organized, and keep your books accurate.

Here’s a quick rundown of how to do bookkeeping for a construction company:

  • Set up a chart of accounts tailored to construction (labor, materials, subcontractors, equipment, permits, etc.)
  • Track expenses and income by project, not just in general
  • Use cost codes to organize and label specific spending categories within each job
  • Apply job costing to see how much each project actually costs—and how much it earns
  • Use progress billing to invoice clients based on milestones or completion percentages
  • Account for retainage so you don’t mistake withheld payments for cash on hand
  • Reconcile accounts regularly, which includes bank statements, credit cards, and vendor accounts
  • Run financial reports like profit and loss (P&L), work-in-progress (WIP), and job costing summaries
  • Stay compliant with payroll laws, licensing, taxes, and lien requirements

You can do this manually, but using accounting software built for construction, like QuickBooks Online, streamlines the entire process.

Basic vs. advanced bookkeeping practices

Not every construction business needs the same level of bookkeeping. If you’re just starting out or running a smaller operation, basic bookkeeping might be enough to keep you organized and compliant. But as your projects get bigger and more complex, you’ll likely need more advanced systems to stay in control of your finances.

Let’s look at what each level includes and when you might need to level up.

Basic bookkeeping

Basic bookkeeping works well for smaller teams with short projects and straightforward billing. It helps you stay compliant and understand your business at a high level, but it won’t give you detailed insight into individual job performance.

Here’s what that usually includes:

Advanced bookkeeping

Advanced bookkeeping gives you a deeper look into your finances and helps you run a more profitable, efficient business. It’s a must if you manage multiple crews, long-term projects, or government jobs with compliance requirements.

This typically includes:

Outsourcing vs. hiring a full-time employee for construction bookkeeping

Not sure whether to outsource your bookkeeping or hire a full-time bookkeeper? Both options have pros and cons, and the right choice depends on your budget, business size, and how much control or flexibility you want.

Here’s a breakdown to help you compare:

So, what’s the better choice?

  • Hire in-house if you want full-time support, need someone who’s in the loop with your daily operations, or prefer face-to-face collaboration. This works best for larger construction businesses with steady, year-round bookkeeping needs.
  • Outsource if you want cost flexibility, need access to experienced pros without paying a full salary, or want to scale as you grow. It’s a great choice for small to mid-sized businesses or anyone who wants to stay lean and focus on building.

If you decide to outsource, consider QuickBooks Live Expert Full-Service Bookkeeping. You get matched with a certified bookkeeping pro who works in QuickBooks with you, keeps your books clean each month, and helps prep for tax time.

10 tips for bookkeeping for construction companies

Whether you’re just getting started or looking to tighten up your current system, these bookkeeping tips can help keep your construction business on solid ground.

1. Use the correct accounting method

The first step in doing construction bookkeeping right is choosing the accounting method that fits your business. Construction companies typically use project-based accounting, which means matching revenue and expenses to individual jobs. But within that, there are a few methods to choose from:

Before deciding, it’s best to talk with a CPA or financial professional with construction experience, since your choice can impact taxes, cash flow, and financial reporting.

2. Keep records of payments and invoices

Construction jobs typically involve partial payments, change orders, and different billing terms. If you’re not careful, it’s easy for something to slip through the cracks, especially when you’re juggling multiple projects, vendors, subcontractors, and payment schedules all at once.

Good recordkeeping helps you stay on top of what you’ve billed, what you’ve paid, and what’s still outstanding. It also gives you a clear paper trail if a client disputes a charge or if you need documentation for taxes or an audit.

Here’s what you should be storing:

  • Invoices sent to clients (with dates, amounts, due dates, and payment terms)
  • Receipts and payment confirmations (for both incoming and outgoing payments)
  • Subcontractor agreements and bills
  • Change orders and updated estimates
  • Retainage tracking, showing amounts withheld and released

3. Back up your records

Without bookkeeping records, it’s nearly impossible to manage job costs, file accurate taxes, or protect yourself in a legal dispute. But what happens if your laptop crashes? Or your office floods? Or a file gets accidentally deleted?

Fortunately, there’s the 3-2-1 backup rule, which the National Institute of Standards and Technology (NIST) recommends as an effective method for data protection and recovery.

Here’s how the 3-2-1 backup rule works:

  • 3 copies of your data (one primary, two backups)
  • 2 different types of storage (e.g., cloud storage and an external hard drive)
  • 1 backup copy in a separate location (away from your office or job site)

For example, you could store your active bookkeeping files in accounting software like QuickBooks Online, sync those files to a cloud service like Dropbox or Google Drive, and keep a weekly backup on an external hard drive stored safely off-site, maybe at home or in a secure storage space.

This kind of setup protects your records from hardware failures, theft, accidental deletion, and even natural disasters. It also gives you peace of mind knowing that if something goes wrong, you’re not starting from scratch.

4. Utilize multiple bank accounts

When you're running a construction business, your cash flow isn't always predictable. You’ve got incoming payments from progress billings, outgoing payments to subcontractors and suppliers, plus payroll, taxes, retainage, and overhead—all moving in different directions. If you try to manage all of that from a single business bank account, it can get messy fast.

That’s why many construction companies use multiple bank accounts to stay organized and in control. Here’s how that might look:

Many banks and credit unions offer low-fee business checking options, especially if you're managing moderate balances. However, you don’t need a dozen accounts. Even two or three can make a big difference, so just choose what makes the most sense for how your business runs. 

5. Reconcile bank accounts regularly 

Bank reconciliation means comparing your internal records (like what’s in QuickBooks or your accounting ledger) to your actual bank statements. If there’s a difference, you figure out why and fix it.

When you reconcile your bank accounts, you make sure that what your books say matches what’s really in the bank. It helps you catch errors, missed transactions, or even fraud before they turn into bigger issues. For example, if a payment didn’t clear or a deposit was recorded twice, reconciliation will flag it.

It’s a general best practice to reconcile your accounts at least once a month. However, if you’re handling large volumes of transactions or multiple open jobs, a weekly reconciliation might be a better cadence. 

With bank reconciliation software from QuickBooks, you can connect your accounts, automatically import transactions, and reconcile in just a few clicks. It even generates reports and flags discrepancies, which saves you time and reduces manual work every month.

6. Automate bookkeeping with software

Manual bookkeeping might work when you're just starting out, but as your construction business grows, keeping up with job costs, invoices, payroll, and tax deadlines becomes overwhelming. That’s where construction accounting software becomes a lifesaving tool.

You might wonder: Can I use QuickBooks for construction companies? 

Absolutely! It’s one of the most popular solutions for construction-specific needs like job costing, progress invoicing, contractor payments, and profitability tracking by project. You can also run detailed reports to see how much you’re spending, what you’re earning, and where you need to adjust.

Here’s what software like QuickBooks can help you automate:

  • Job costing and labor tracking
  • Batch invoicing and mobile payments
  • Expense categorization and receipt capture
  • Contractor W-9 and 1099 prep
  • Real-time dashboards with income, cash flow, and profit insights
  • Bank feeds and reconciliation tools

QuickBooks even lets you send invoices from the field, accept payments online or via mobile card reader, and sync with apps like Buildertrend, Knowify, and Housecall Pro to manage project timelines and field work more efficiently.

7. Use a consistent invoicing process

In construction, disorganization can cost you real money. A steady invoicing process helps you stay ahead of payment delays, manage change orders with confidence, and give your bookkeeper the clarity they need to keep your finances sharp.

Here’s what a consistent invoicing process should include:

Using a system like QuickBooks Online can make this invoicing process even easier. It lets you create and send invoices on the go, track when a client views or pays them, and even automate recurring billing. In fact, businesses using QuickBooks invoice reminders get paid up to 5 days faster on average1 and as much as 4x faster when offering online payments instead of paper invoices2.

  1. Based on U.S. Intuit Assist Beta customers using outstanding invoice notifications and AI-drafted invoice reminder features, compared to customers using standard invoice reminders to the same customers, from Jan 2024 to August 2024.
  2. Based on U.S. customers using QuickBooks Online invoice tracking and payment features compared to customers not using these features from August 2023 to July 2024.

8. Keep contract retainage in mind

Contract retainage, sometimes called retention, is a standard part of construction contracts where a portion of the total payment, usually around 5% to 10%, is held back until the job is fully completed. It’s meant to protect the client and make sure all the work gets finished the right way.

While retainage helps reduce risk for clients, it can make managing cash flow and bookkeeping harder since some of your money isn’t available right away. If you record that money as income too early, you could end up thinking you have more cash than you really do. That’s why most construction bookkeepers record retainage as a separate receivable, not as income, until it’s actually billed and collectible. It represents money you’ve earned but can’t recognize as revenue or access until the client releases the funds.

Keep these tips in mind when dealing with retainage:

  • Record retainage separately from regular receivables
  • Track how much is being withheld on a per-project basis
  • Set calendar reminders or milestone triggers for following up when retainage is due
  • Understand your state laws, as some states have specific timelines for how quickly retainage must be paid after job completion

9. Stay informed about tax regulations

Taxes are complicated for any small business, but in construction, you may face obligations like sales tax, use tax, payroll tax, and excise tax.

Here are a few common types of small business taxes that construction companies need to keep an eye on, and how they can affect your business:

Also, if your crew works across multiple states, you may create nexus in those states—meaning your company could be responsible for collecting and paying income tax, sales tax, or withholding tax in each one. To stay compliant, you'll need to register with each state’s Department of Revenue, and possibly its Department of Labor as well.

It’s a smart move to find an accountant who understands construction-specific tax issues. They can help you stay ahead of deadlines, take advantage of tax deductions like Section 179 for equipment, and avoid common compliance mistakes.

10. Implement strategies to improve cash flow

According to the Federal Reserve’s 2025 Report on Employer Firms, 51% of small businesses cited uneven cash flows as a challenge in the past year. In construction, payments can come in waves and expenses pile up quickly. That’s why it’s important to stay ahead of your cash flow, so you can take on new projects, pay your crew on time, and grow with confidence.

Consider some of these strategies to help improve your cash flow:

  • Forecast income and expenses per job: Build project-based cash flow plans to predict when money comes in and goes out. This helps you prepare for delays, slow payments, or budget overruns.
  • Use progress billing: Bill clients in stages based on completed work instead of waiting until the project ends. This creates more consistent cash flow throughout the job.
  • Track retainage separately: Don’t count money that’s being held back until the project is finished. Logging retainage separately gives you a more realistic view of your available cash.
  • Negotiate with vendors and suppliers: Ask for better payment terms or early pay discounts. Even an extra 15-30 days can ease cash pressure.
  • Tighten your invoicing process: Send invoices promptly, follow up on outstanding payments, and use tools like QuickBooks Online to automate billing and reminders.
  • Review your cash flow regularly: Check in weekly or biweekly so you can make informed decisions before problems arise.

Additional resources for construction accounting 

Below are some helpful tools, guides, and industry resources to help you navigate construction accounting with more clarity and confidence.

1. Construction Financial Management Association (CFMA)

CFMA is a professional organization focused entirely on construction financial professionals. Their site offers webinars, industry benchmarks, job costing education, and best practices for everything from cash flow to bonding.

2. National Association of Home Builders (NAHB)

NAHB offers accounting guidance, cost management strategies, and tax tips specifically for home builders and residential construction businesses. Their financial toolkits and research reports are especially helpful for smaller firms.

3. IRS Construction Industry Audit Technique Guide

This official guide was created to help IRS agents understand how construction companies work, but it’s just as useful for business owners and bookkeepers. It breaks down how the IRS looks at areas like contract types, job costing, revenue recognition, and what might raise red flags during an audit.

4. State contractor licensing boards

Each state has its own requirements for tax registration, insurance, and reporting. Your state’s board is the go-to place for forms, updates on regulations, and compliance deadlines, which is especially important for multi-state contractors. 

Be sure to search, “[Your state] contractor licensing board.”

5. QuickBooks ebook for construction businesses

Whether you're handling the books yourself or working with a professional, this free ebook breaks down how to use technology to make smarter financial decisions and build a more resilient business.

6. Firm of the Future’s “5 steps for success: Setting up QuickBooks for construction clients”

This QuickBooks Firm of the Future article by Dave Kersting is a must-read for accountants and bookkeepers working with construction clients. It walks through five practical steps to set up QuickBooks Online Advanced specifically for the construction industry—covering job costing, WIP reporting, class tracking, and project management.

Simplify your business with bookkeeping software for your construction company

Managing a construction business is complex, but your accounting and bookkeeping don’t have to be. With tools like QuickBooks Online Advanced, you can streamline job costing, progress billing, payroll, and contractor management—all in one place. Whether you’re in the field or at your desk, QuickBooks helps you stay organized, get paid faster, and keep every project financially on track.


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