Bookkeeping for Trade Contractors: The Financial Terms You Need to Know (and Stop Avoiding)

There’s a version of running a trade business where you know exactly what every number means. You look at a financial report, and it tells you something useful. You price jobs with confidence. You know whether you’re profitable, not just busy. Getting there starts with understanding a handful of financial terms, and with bookkeeping for trade contractors that’s built around how your business works.

Most contractors aren’t there yet, not for the lack of trying, but because it isn’t their trade. Whether you run an HVAC, plumbing, electrical, roofing, flooring, landscaping, or carpentry business in Northern Virginia, Washington DC, or the greater DC metro area, these are the terms that matter most. Learn them, and every conversation about your business finances gets easier.

Start With the Top Line: Revenue and Cost of Sales

Every number further down this list is built out of these two. They're the ones to get right first.

Revenue is the total amount you bill customers for work performed. It’s the top line, but it’s not what you keep.

Cost of Sales (also called Cost of Goods Sold, or COGS) is the direct cost of doing the work: labor, materials, subcontractors, fuel, and supplies tied directly to specific jobs. These costs exist because you did the work. If you didn’t do the work, you wouldn’t have them. Accurately tracking the cost of sales is the foundation of job costing, enabling you to know which jobs make money.

The Profit Numbers That Tell You if a Job Made Money

Revenue tells you how much work you did. These four tell you how much of it you kept.

Gross Profit is what’s left after you subtract the cost of sales from revenue. This is the number that covers your overhead and, ideally, leaves you with profit.

Gross Margin is gross profit expressed as a percentage of revenue. If you bring in $500,000 and your cost of sales is $330,000, your gross profit is $170,000, and your gross margin is 34%. If your gross margin sits well below the benchmark for your trade, you’re either underpricing or your job costs are out of control, often both.

Typical gross margin benchmarks for trade:

Benchmarks vary by market and job mix; use them as a directional gut check, not a hard rule.

Operating Expenses (Overhead) are the costs of running the business that aren’t tied to specific jobs, your office, insurance, vehicles, software, advertising, and your own salary. Overhead comes out of gross profit.

Net Profit is what’s left after everything: revenue minus cost of sales minus overhead. This is what you made.

The Job-Level Terms That Tell You Which Work Pays

Company-wide margin tells you whether the month was good. These three terms tell you which work made it good.

Job Costing is the practice of assigning revenue and direct costs to individual jobs so you can see the margin on each one, not just on the business as a whole. It’s the difference between knowing you made money last month and knowing which crews and job types made it.

Labor Burden Rate is what a technician actually costs you per hour, not what you pay them. Add payroll taxes, workers’ compensation, health insurance, paid time off, training, and the truck they drive, and a $30 wage can carry a real cost closer to $45 an hour on the job. Price off the wage instead of the burdened rate and every hour you sell is thinner than you think.

Overhead Allocation is how you spread the costs that aren’t tied to any single job, rent, office staff, software, insurance, across the jobs that benefit from them. Without allocation, every job looks more profitable than it is, because the cost of running the business hasn’t been charged to anything.

The Cash Flow Terms That Keep Contractors Up at Night

Profit and cash answer two different questions. These five terms cover the second one, and it's the one that decides whether you make payroll on Friday.

Accounts Receivable (AR) is money owed to you that you haven’t collected yet. It lives on your balance sheet as an asset, but it isn’t cash. The gap between billing and collecting is where cash flow problems live.

Accounts Payable (AP) is money you owe to suppliers and vendors that you haven’t paid yet.

Cash Flow is the movement of money in and out of your business. A business can be profitable on paper and still run out of cash. This happens constantly in the trades when customers pay slowly, and suppliers expect payment quickly.

Working Capital is current assets minus current liabilities. It tells you whether you have enough liquid resources to cover your near-term obligations. Accounting convention puts “current” on a twelve-month horizon, so the formal measure covers a year. Most contractors read it more tightly than that, as a cushion for the next quarter, because receivables and payables in the trades usually turn inside 90 days.

Break-Even is the revenue level at which your business covers all its costs and generates zero profit or loss. Knowing your break-even point tells you the minimum you need to sell every month to keep the lights on.

The Terms That Only Show Up in Construction and the Trades

The terms above apply to any business. These three are yours, and they are the ones generic accounting advice tends to skip.

Work in Progress (WIP) is the value of work you’ve performed but haven’t billed yet. On any job that runs longer than a few weeks, revenue earned and revenue invoiced drift apart, and WIP is what closes the gap on your balance sheet. Leave it out and a profitable job can make a good month look bad, or a bad month look fine.

Retainage is the share of a contract, commonly 5% or 10%, that a general contractor or property owner holds back until the job is closed out. It isn’t missing money. It’s parked money. Tracked as its own receivable, it tells you exactly what’s held, by whom, and when it releases.

Over Billing and Under Billing describe whether you’ve invoiced ahead of or behind the work you’ve actually completed. Over billing means you’re holding customer cash for work not yet done, which flatters your bank balance. Under billing means you’re funding the job out of your own pocket. Both matter to a lender reading your financials.

The Three Reports Where All of This Lives

Every term above appears in one of three reports. Knowing which is which is half of learning to read them.

Profit & Loss Statement (P&L, also called the Income Statement) covers a stretch of time, usually a month, a quarter, or a year. Revenue, cost of sales, overhead, and net profit all live here. It answers one question: did the business make money over this period?

Balance Sheet is a snapshot of a single day rather than a period. Assets, liabilities, and equity. AR, AP, WIP, and retainage all sit here. It answers what you own, what you owe, and what’s left over.

Cash Flow Statement tracks money actually moving in and out. This is the report that explains how a strong month on the P&L can still leave your account tight.

Read together, every month, those three stop being paperwork and start being a dashboard.

From Knowing the Terms to Running the Numbers

None of this is complicated. But you can’t manage what you can’t measure, and you can’t measure what you can’t name. Once these terms are second nature, the next step is having clean, decision-ready books that put them in front of you every month. That’s how you see your true margins on every job instead of guessing.

It’s also where the difference between bookkeeping and accounting starts to matter, because recording a number correctly and organizing it so it answers a question are two different jobs.

That’s exactly what DeBlanc CPA’s trade-focused bookkeeping is built to do. As a CPA-led firm serving trade contractors across Northern Virginia and the DC metro area, we set up your books around job costing and track profitability by service type and crew. Month-end reports become something you can run the business on.

Frequently Asked Questions

What’s the Difference Between Gross Profit and Net Profit?

Gross profit is revenue minus the direct cost of doing the work (cost of sales). Net profit is what remains after you subtract overhead, office expenses, insurance, vehicle expenses, and your salary. Gross profit tells you if your jobs are priced right; net profit tells you if the whole business is making money.

What’s a Good Gross Margin for a Trade Business?

It depends on your trade. HVAC and plumbing tend to run around 34%, electrical closer to 31%, and labor-intensive work like landscaping around 47%. If you’re consistently below your trade benchmark, it usually points to underpricing or job costs you aren’t tracking closely enough.

Why Is My Contracting Business Profitable but Always Short on Cash?

Because profit and cash aren’t the same thing. When customers pay slowly (accounts receivable) but suppliers and payroll come due fast (accounts payable), you can show a profit on paper and still run out of cash. Watching cash flow and working capital, not just net profit, is how you stay ahead of it.

What Is Retainage?

Retainage is the share of a contract, commonly 5% or 10%, that a general contractor or property owner holds back until the job is closed out and accepted. It’s money you’ve earned but can’t spend yet. Tracking it as its own receivable instead of lumping it in with regular AR tells you how much is held, by whom, and when it’s due to release. That keeps it from turning into a cash surprise at closeout.

What Is Working Capital for a Contractor?

Working capital is your current assets minus your current liabilities. Accounting convention defines “current” as within twelve months, so the formal measure covers a year of obligations. Most contractors read it more tightly, as a cushion for the next quarter, because receivables and payables in the trades usually turn inside 90 days. Either way it answers one question: can you cover what’s coming due without new work landing first?

Ready to See Your True Numbers?

You want books that tell you which jobs make money. If you’re a trade contractor in Northern Virginia or the DC metro area, book a discovery call with DeBlanc CPA, a CPA who understands your industry.

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