How to Set Up QuickBooks for a Contracting Business

To set up QuickBooks for a contracting business, choose QuickBooks Online Plus or higher, build a chart of accounts that separates job costs from overhead, turn on projects for each job and classes for each division, connect your bank accounts, and code every invoice, bill and timesheet to a job.

QuickBooks out of the box is set up for a generic small business. A contractor needs it to answer different questions: which jobs made money, whether service or install work pays better, what's owed on open invoices, and what the accountant will need in March. This guide walks through setup in the order that matters, explains the concepts behind each step, and points to the detailed how-tos. Menu paths change often, so we quote only the ones we've checked against Intuit's help articles, with the date; for everything else, search Intuit's help for the feature name.

1. Which QuickBooks plan does a contractor need?

Most contractors need QuickBooks Online Plus. It's the first plan with projects, which track income and costs per job, and class tracking, which splits your profit by division. Simple Start and Essentials work for a solo operator who only needs invoices and expenses, but you'll outgrow them once you want profit by job.

Larger commercial and construction firms with committed-cost tracking, WIP reports and heavy change-order volume sometimes choose QuickBooks Desktop Enterprise's contractor edition or construction accounting software instead. For most service and residential trades shops, QBO Plus is enough. The QuickBooks integration page compares the options in more depth.

2. Decide cash or accrual before you start

Decide whether you'll view your books on a cash basis, which counts income when paid, or an accrual basis, which counts income when invoiced. QuickBooks can show reports either way, but your tax return uses one method, and that choice belongs with your CPA. Most owners want to see both.

Accrual shows whether the work you did this month was profitable. Cash shows whether you can make payroll. If you do long jobs with deposits and progress payments, accrual (or even percentage-of-completion for larger contracts) gives a truer picture of job profit. Read accrual vs. cash accounting and percentage of completion before your first meeting with the accountant.

3. Build a chart of accounts for the trades

Build a chart of accounts that separates direct job costs from overhead. Job costs (materials, field labor, subcontractors, equipment rental, permits) go in cost of goods sold. Office rent, admin wages, insurance and marketing go in operating expenses. That split is what lets QuickBooks show gross profit, the number that tells you if your prices are right.

QuickBooks builds a starter chart from your business type. To add an account, Intuit's help (updated August 2026) says to go to All apps, then Accounting, then Chart of accounts, and select New account. Pick an account type and a detail type, then name it. Keep it lean: a few dozen accounts, not hundreds.

Two contractor-specific accounts trip people up. Customer deposits are a liability until you do the work, not income. Retainage receivable holds the part of each progress bill the customer withholds until completion; see retainage. The chart of accounts guide explains every section, and the QuickBooks chart of accounts for contractors template gives you an import-ready list.

4. Turn on projects and classes

Turn on projects to track profit on each job, and classes to track profit by division, service line or crew. Projects answer "did the Johnson remodel make money?" Classes answer "is our install side more profitable than service?" Most contractors need both, and they work together on the same transaction.

• Projects. Per Intuit's help (updated October 2026), projects are available in QBO Plus, Advanced and Intuit Enterprise Suite, and on by default in Plus and Advanced. If they're off: Account & settings, then Advanced, then turn on "Organize all job-related activity in one place." Create one project per job under its customer.
• Classes. Per Intuit's help (updated August 2026): open Settings, select Account and settings, go to Advanced, then Categories, and turn on Track classes. Choose one class per transaction or one per line, and turn on the warning for transactions with no class.
• Limits. QBO Plus allows up to 40 classes and locations combined; Advanced has no limit. You can see your plan's limits on the Usage tab in Account and settings.

QuickBooks classes vs. projects explains the difference in detail, including where locations and tags fit.

5. Set up products, services and your price book

Set up products and services as the line items you sell: diagnostic fee, flat-rate repairs, labor hour, common materials. Each one maps to an income account, so your sales sort themselves into service, install and material revenue automatically. Keep the list short and consistent so reports stay readable.

• Map each service item to the right income account (service vs. install vs. maintenance).
• Mark taxable items correctly. Sales tax on labor and materials varies by state; see sales tax on labor vs. materials and use tax for contractors.
• If you price from a flat-rate book, keep your field software as the master and sync to QuickBooks rather than maintaining two price lists. See flat rate pricing.
• Track inventory in QuickBooks only if you really stock parts in a warehouse; truck stock is usually expensed or tracked in field software. See truck stock.

6. Connect bank accounts and set categorization rules

Connect every business checking account and credit card so transactions flow in automatically, then review and categorize them weekly. Set up rules for recurring vendors, like your fuel card or supply house, but always add the job or class by hand when an expense belongs to a specific job.

• Separate business and personal money. One business checking account, one business card. Mixing them is the top cause of messy books and missed deductions.
• Match, don't duplicate. When a customer payment or vendor bill is already in QuickBooks, match the bank transaction to it instead of adding it again.
• Snap receipts. Attach receipts to transactions so you can back up deductions. See contractor tax deductions list.
• Reconcile monthly. Reconcile each account to the bank statement. An unreconciled account is a guess.

7. Set up payroll and job labor costing

Set up payroll so field wages land in cost of goods sold and are assigned to jobs, and office wages land in overhead. Labor is usually a contractor's biggest cost, so if it isn't coded to jobs, your job profit numbers are fiction. QuickBooks offers two ways to count labor on projects.

Per Intuit, you can use payroll expenses (actual payroll data, posted after you run payroll with QuickBooks Payroll) or hourly costs (an estimated cost rate you enter per employee, applied as soon as time is entered). Set the hourly cost rate to wage plus employer taxes and burden, not just the wage. Labor burden shows how to calculate it, and payroll taxes covers what the employer owes.

If you pay subcontractors, collect a W-9 before the first payment and track their totals. For payments made in 2026, the Form 1099-NEC reporting threshold is $2,000 per payee, up from $600. See 1099 for subcontractors and W-9 for subcontractors. Classify workers carefully; W-2 vs. 1099 explains the risk.

8. Invoicing, progress billing and getting paid

Invoice from estimates inside the project so income and costs line up per job. For longer jobs, use progress invoicing to bill deposits and milestones from one estimate. Turn on online payments if you want customers to pay by card or ACH from the invoice. The faster the invoice goes out, the faster you get paid.

Per Intuit's help (updated August 2026), turn on progress invoicing from the Settings gear: Account and settings, then the Sales tab, then edit Progress Invoicing and turn on "Create multiple partial invoices from a single estimate." The estimate must be marked Accepted before you convert it. QuickBooks progress invoices don't produce AIA G702/G703 pay applications; see progress billing and AIA billing.

• Send invoices the day the job is done. See how to get paid faster as a contractor.
• Record deposits against the customer deposits liability until the work is done.
• Run the A/R aging report weekly and chase anything over 30 days. See accounts receivable and how to collect unpaid invoices.
• Track days sales outstanding monthly with the DSO calculator.
• Enter supplier bills when they arrive and pay on terms. See accounts payable.

9. Reports every contractor should run

Run a profit and loss by class monthly, project profitability on every finished job, A/R aging weekly, and a balance sheet at month end. Together they tell you whether jobs are priced right, which divisions pay, who owes you money, and whether you have the cash to grow.

10. QuickBooks setup by trade

The core setup is the same everywhere, but each trade has a few extra accounts or settings worth adding. Use this as a starting point with your accountant.

More trade-specific guidance lives on the bookkeeping pages for roofing, general contractors and landscaping.

11. Keep it clean: the monthly close

Close the books every month: reconcile bank and card accounts, clear uncategorized transactions, check every invoice and bill has a job and class, review the P&L for anything odd, and set aside money for taxes. An hour or two a month beats a week of cleanup at tax time.

1. Categorize every bank and card transaction, adding job and class.
2. Reconcile each account to the statement.
3. Review A/R aging; send reminders on overdue invoices.
4. Review open bills and A/P.
5. Run payroll reports and confirm payroll liabilities match what was paid.
6. Run P&L by class and project profitability on closed jobs.
7. Move tax money to a separate savings account. See how much to set aside for taxes.
8. Note anything odd for your bookkeeper or CPA.

The full routine is in the bookkeeping checklist for contractors. For the tax side, see the contractor taxes guide and quarterly estimated taxes for contractors.

QuickBooks setup checklist

• Chose QBO Plus or higher (or confirmed Desktop/other with your CPA).
• Agreed on cash vs. accrual reporting with your CPA.
• Chart of accounts splits job costs (COGS) from overhead.
• Customer deposits and retainage accounts set up if you use them.
• Projects on; one project per job.
• Class tracking on with the missing-class warning.
• Products and services mapped to income accounts, with correct sales tax settings.
• Bank and card feeds connected; personal spending kept out.
• Payroll set up with field labor coded to jobs and an hourly cost rate that includes burden.
• W-9s collected from every subcontractor.
• Progress invoicing on if you bill in stages.
• Monthly close on the calendar.

Common QuickBooks mistakes contractors make

• Everything in one expense bucket. Without COGS separated, you can't see gross margin.
• Deposits booked as income. Your P&L looks great until the jobs cost money with nothing left to bill.
• Labor not on jobs. Field wages are the biggest cost; leave them off and every job looks profitable.
• Double entry from field software. Entering the same invoice in two systems creates duplicates. Pick one source and sync.
• Skipping reconciliation. Unreconciled books hide errors until tax time.
• Using classes for jobs. Use projects for jobs and classes for divisions.