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How should a general contractor track subcontractor costs by project?

Every subcontractor payment needs to be coded to a specific job. That’s the foundation. If your bookkeeping system lumps all sub payments into a single “subcontractor expense” account with no job assignment, you have no idea which projects are profitable and which are bleeding cash.

In QuickBooks, this means setting up each project as a job (or customer/sub-customer) and assigning every bill from a sub to that job. When the framing sub sends an invoice for the Miller residence, it gets entered with the Miller job tagged. Same for the electrician, the plumber, the drywall crew. At any point, you can pull a job cost report and see exactly what’s been spent on subs for that project.

The next piece is tracking actual sub costs against what you originally bid or budgeted. Before the project starts, enter the estimate by cost category. Framing budgeted at $45,000, electrical at $28,000, and so on. As bills come in, the system compares actual to budget. When the framing sub hits $42,000 and still has two weeks of work left, you see the problem before it becomes a $15,000 loss.

Change orders need the same discipline. If the homeowner adds a bathroom and the plumbing sub’s scope grows, update the budget and get a signed change order. Otherwise you’ll have sub costs that look like overruns when they’re actually approved additions. This is where most contractors lose track. The project has 40 small scope changes and no one updated the budget, so the final numbers look like chaos.

Collect W-9s before you cut the first check. Every sub, every time. It’s much easier to hold a payment until the W-9 arrives than to chase down tax information in January from a sub you haven’t worked with in six months. Any sub paid $600 or more during the year needs a 1099-NEC filed by January 31. If you’ve been coding payments correctly and collecting W-9s throughout the year, running 1099s takes an hour instead of a week. Experienced Pasadena bookkeepers should have a process that keeps 1099 tracking current month by month, not a year-end fire drill.

Retention is another piece that trips people up. If you’re holding back 10% on sub payments until the project closes, that retained amount is still a committed cost. Your job cost report should reflect the full invoiced amount, not just what you’ve paid, or your margins will look better than reality until the retention gets released.

Weekly or biweekly review is where this actually pays off. Pull the job cost report, compare sub costs to budget, flag anything trending over. Catching a framing overrun in week three lets you adjust. Finding out at closeout means you eat the loss. Real construction job costing isn’t about entering data, it’s about using the data to run the project before the project runs you.

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More Questions

How do contractors account for retainage in their books?

Track retainage in a separate balance sheet account instead of regular AR. When you bill with retention withheld, split the entry between AR for the payable portion and Retention Receivable for the withheld amount. Release the retention to AR when the project closes out.

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What bookkeeping records do I need for a California contractor's license?

CSLB requires financial statements showing sufficient working capital, including a balance sheet, income statement, and supporting documentation. Most license classifications require at least $2,500 in working capital, with LLCs needing $100,000.

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What is progress billing and how does it work for general contractors?

Progress billing means invoicing the owner in stages based on how much of the work you've completed, not at project end. Each pay application breaks down work completed to date, retainage withheld, and the net amount due for that period.

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Do I need a bookkeeper if I'm a small remodeling contractor in Pasadena?

Even a one or two-person remodeling operation benefits from organized books. Job costing, permit fees, material purchases, and sub payments add up fast, and without tracking them per project you won't know which jobs actually make money.

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How do I set up job costing for my construction company in QuickBooks?

You'll need QuickBooks Online Plus or Advanced to access the Projects feature. Create a project for each job, enter a budget from your estimate, and code every expense, labor hour, and invoice to that project as work happens.

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A Squared Bookkeepers is a Pasadena accounting firm serving small and medium-sized businesses throughout the San Gabriel Valley and greater Los Angeles. We provide full-service bookkeeping, payroll, and advisory services, led by an owner who brings 20+ years of accounting experience from institutional real estate and construction.

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