QuickBooks Setup for Contractors: Step-by-Step Guide

Set up QuickBooks for contractors by choosing the right version (Online Plus or Desktop Premier Contractor), configuring your chart of accounts for construction, enabling job costing, setting up customer/job hierarchy, and connecting your bank accounts. This setup takes 2-4 hours but saves hundreds of hours throughout the year.

Choosing the Right QuickBooks Version

QuickBooks Online Options

Recommendation for most contractors: QuickBooks Online Plus

QuickBooks Desktop Options

Recommendation for job-focused contractors: Desktop Premier Contractor Edition

Online vs. Desktop

Initial Setup Steps

Step 1: Create Your Company

During setup:

• Company name (legal name)
• Industry: Construction/Contractor
• Entity type (LLC, Corp, Sole Prop)
• Fiscal year (usually calendar year)
• Start date (first of current or next month)

Step 2: Chart of Accounts

The chart of accounts is your financial organization system.

Key accounts for contractors:

Income:

• Contract Revenue
• Change Order Revenue
• Service Revenue (T&M)
• Retainage Held

Cost of Goods Sold (COGS):

• Materials
• Subcontractor Costs
• Labor - Direct
• Equipment Costs
• Permits and Fees

Expenses:

• Vehicle Expense
• Tools and Equipment
• Insurance
• Office Expense
• Professional Services
• Advertising/Marketing

Other:

• Retainage Receivable (Asset)
• Work in Progress (Asset)

Step 3: Enable Job Costing (Critical)

In QuickBooks Online Plus:

1. Settings → Account and Settings
2. Advanced → Categories
3. Enable "Track expenses and items by customer"
4. Enable "Make expenses and items billable"

In QuickBooks Desktop:

1. Edit → Preferences
2. Jobs & Estimates
3. Enable job costing features
4. Set up cost types

Step 4: Set Up Customer/Job Hierarchy

Structure:

• Customer = Client (Johnson Family)
  • Job = Project (Kitchen Renovation)
    • Job = Project (Deck Addition)

This lets you track profitability by both client and project.

Step 5: Connect Bank and Credit Cards

• Link business bank account
• Link business credit card
• Set up bank rules for common transactions
• Review and categorize transactions regularly

Essential Configuration

Items/Products and Services

Set up items for what you sell:

Labor items:

• Standard Labor ($X/hour)
• Overtime Labor ($X/hour)
• Helper Labor ($X/hour)

Material categories:

• Rough Materials
• Finish Materials
• Hardware
• Supplies

Customer Terms

Set up payment terms:

• Net 7 (small residential)
• Net 15 (standard residential)
• Net 30 (commercial)
• Due on Receipt

Sales Tax (If Applicable)

• Configure tax rates
• Set up tax agencies
• Determine taxability by item type
• Many states tax materials but not labor

Classes (For Multiple Types of Work)

If you do different types of work:

• Remodeling
• New Construction
• Repair/Service
• Design-Build

Classes help track profitability by work type.

Job Costing Setup

The Goal

Know the profit/loss on every job by tracking:

• Revenue (invoices)
• Costs (expenses assigned to job)
• Profit = Revenue - Costs

Assigning Costs to Jobs

Every expense should be assigned to a customer/job:

1. Materials: When recording purchase, assign to job
2. Subcontractors: When recording bill, assign to job
3. Labor: Time entries assigned to job
4. Other: Per diem, permits, etc. assigned to job

Labor Tracking

Option 1: Time tracking in QuickBooks

• Workers enter time
• Assign to customer/job
• Transfer to invoices or payroll

Option 2: External time tracking

• Track time in separate system
• Import or manually enter into QuickBooks
• Create billable entries per job

Job Profitability Reports

Key reports:

• Job Profitability Summary
• Job Profitability Detail
• Job Costs by Job
• Estimates vs. Actuals

Invoice Setup

Invoice Template

Customize to include:

• Your logo
• Contact information
• Payment terms
• Payment instructions (check, card, etc.)
• License number (if required)
• Thank you message

Progress Invoicing

For larger projects:

1. Create estimate for total project
2. Invoice against estimate as work completes
3. Track progress percentage
4. Final invoice closes out estimate

Setup:

• Enable progress invoicing in settings
• Create detailed estimates
• Invoice "Based on estimate"

Retainage Handling

If clients withhold retainage:

1. Create "Retainage Held" income account
2. On invoice: Show retainage as negative line
3. When released: Invoice for retainage amount
4. Or use retainage tracking feature in Desktop

Common QuickBooks Tasks

Recording Material Purchases

1. Enter bill from vendor
2. Categorize as Materials or appropriate COGS
3. Assign to customer/job
4. Mark as billable (if passing through to client)

Recording Subcontractor Payments

1. Enter bill from sub
2. Categorize as Subcontractor Costs
3. Assign to customer/job
4. Pay bill when due
5. Issue 1099 at year-end

Creating Change Orders

1. Create new estimate or invoice
2. Reference original scope
3. Detail the additional work
4. Assign to same job
5. Add to billing

Running Payroll

If doing in QuickBooks:

• Set up employees
• Configure tax settings
• Process regular payroll
• Track job time (for job costing)

Many contractors use separate payroll service (Gusto, ADP).

Reports to Run Regularly

Weekly

Monthly

Quarterly/Annually

Common Mistakes

Mistake 1: Not Using Job Costing

Without job costing, you can't know which jobs are profitable.

Fix: Assign every expense and invoice to a customer/job.

Mistake 2: Poor Chart of Accounts

Too few accounts = can't see detail Too many accounts = overwhelming

Fix: Use the standard contractor chart as starting point, customize as needed.

Mistake 3: Not Reconciling

Bank account and books should match.

Fix: Reconcile bank accounts monthly.

Mistake 4: Entering Everything as "Misc Expense"

Kills your ability to analyze spending.

Fix: Use appropriate accounts consistently.

Mistake 5: Not Tracking Retainage

Retainage is money you've earned but haven't received.

Fix: Track separately so you don't forget to bill.

FAQ

Which QuickBooks is best for contractors?

QuickBooks Online Plus for most small contractors. Desktop Premier Contractor Edition if you need robust job costing and don't need cloud access.

Is QuickBooks hard to learn for contractors?

Basic use is straightforward. Job costing setup takes some effort initially but saves significant time. Consider a few hours with a bookkeeper to set up correctly.

Can QuickBooks do construction job costing?

Yes, with proper setup. Online Plus and Desktop Premier both support job costing—tracking costs and revenue by customer/job.

How do I track labor costs by job in QuickBooks?

Use time tracking feature, external time tracking imported to QuickBooks, or manual entry of hours by job. The key is assigning labor hours to specific jobs.

Should I do my own QuickBooks or hire a bookkeeper?

If under $200K revenue and comfortable with numbers, you can DIY. Above that, consider a bookkeeper (4-8 hours/month). Proper setup from a professional pays for itself.

Does QuickBooks work with contractor apps?

Yes, QuickBooks integrates with many contractor apps for time tracking, estimating, and project management. Check QuickBooks App Store.

The Bottom Line

QuickBooks setup for contractors:

1. Choose right version — Online Plus or Desktop Premier Contractor
2. Configure chart of accounts — Use contractor-specific accounts
3. Enable job costing — Track every expense by job
4. Set up customer/job hierarchy — Client → Project
5. Create proper items — Labor, materials, services
6. Connect bank accounts — Simplify data entry
7. Run reports — Know your numbers

Initial setup takes 2-4 hours. The visibility into your business is worth it.

Related: Contractor Accounting Mistakes | Construction Estimating Basics