Why Contractors Need Better Accounting
There’s a version of this story that plays out constantly in the construction industry.
A contractor builds a successful business. Revenue is growing, the pipeline is healthy, and the team is expanding. But the books? The books are a mess. Not because anyone did anything wrong. Because nobody ever set them up right in the first place.
Chris Murphy has spent the last several years cleaning up exactly that kind of mess. A classically trained CPA who spent the first half of his career as a generalist before discovering construction accounting — and falling hard for its complexity — Chris recently left a leadership role at a top-10 accounting firm to bootstrap his own Client Accounting and Advisory Services practice exclusively for construction contractors. He sat down with Reece on Builders Budgets and Beers to talk about what he sees in practice, what contractors consistently get wrong, and what it actually takes to get the financial side of a construction business running the way it should.
The riskiest thing you can do with your money
Before Chris got deep into construction, a financial advisor told him something that stuck: the riskiest thing you can do with your money is open a business.
Coming from someone in accounting and finance — not traditionally a risk-tolerant profession — the line landed hard. But the point wasn’t to discourage entrepreneurship. It was to name the reality that starting a business means accepting a certain amount of inherent risk. The question is which risks you choose to manage and which ones you leave on the table.
For a lot of contractors, the bookkeeping and accounting seat is a risk they’re leaving on the table. Not because they don’t care about their finances. Because they haven’t thought about that role with the same intentionality they bring to hiring a superintendent or a project manager.
“There are folks who understand that bookkeeping and accounting is a trade — similar to an electrician or a plumber — and give it the respect it deserves,” Chris said. “And others who want to take that risk.”
The gamble often looks innocuous at first. An office manager who’s good at details. A spouse who handled the books at their last job. Someone willing to learn. And sometimes it works out. But when it doesn’t, the fallout tends to show up quietly over time — in financials that don’t quite reconcile, in job costs that don’t tell the real story, in a tax return that requires three months of cleanup before anyone can file it.
Why contractors think about taxes first — and why that’s a problem
Ask a small construction business owner what they want from their accountant, and most will give you some version of the same answer: help me pay less in taxes.
It’s an understandable instinct. Taxes are visible. They represent a concrete number at a concrete deadline. And for a business running tight margins, every dollar saved on a tax bill feels like a win.
The problem, as Chris sees it, is that tax strategy is the finish line — not the starting point. Getting there cleanly requires months of accurate, consistent, day-to-day accounting. The contractors who pay the least in taxes usually aren’t the ones working the hardest on tax planning. They’re the ones who’ve been running disciplined books all year, so that by the time tax season arrives, every deduction is already documented and every number is already clean.
“The emphasis needs to be on the day-to-day execution of tracking costs and income,” Reece put it, “as opposed to just looking at the end goal of wanting less taxes.”
A lot of contractors don’t realize how much work their tax accountant is doing behind the scenes before filing — quietly cleaning up a year’s worth of messy bookkeeping so the return is defensible. Some accountants share that with their clients. Others don’t. Either way, the contractor ends up paying for the cleanup, whether in accountant fees, in taxes they could have avoided, or in both.
The worst payroll process Chris has ever seen
When Reece pushed Chris to share a specific example of what broken financial processes actually look like in practice, he didn’t have to think long.
The story that came to mind involved a contractor whose payroll process included six distinct points of duplicate entry or manual data manipulation. Part digital timekeeping, part paper time cards. Someone keying the paper cards into the digital system. Someone else manually reformatting 200 rows of time data into the format the payroll processor needed. The payroll report coming back disconnected from the general ledger. A front office employee manually entering a journal entry to get the job-costed data into QuickBooks Desktop.
Six steps where any one of them going wrong meant the numbers were wrong. “They didn’t know,” Chris said. “They just accepted that that’s how you do it.”
That last part is the thing that stays with him. The contractor had a fractional CFO. They had processes, of a kind. They just had no frame of reference for how much unnecessary friction was baked into those processes — or how much it was costing them in time, in risk, and in the accuracy of the financial data they were making decisions from.
When Chris tried to explain what a cleaner setup could look like — digital timekeeping flowing directly into a construction-specific payroll solution, integrated at the job cost code level, with no manual reconciliation required — they didn’t bite. Not because they didn’t believe him. Because they couldn’t see the cost clearly enough to feel the urgency.
The cost code problem nobody talks about
One of Chris’s recurring frustrations in construction accounting is how often the cost code structure gets set up wrong — and how much downstream pain that causes.
In QuickBooks, the product and service item list and the chart of accounts are two different things. They serve different purposes. But a lot of contractors — and frankly a lot of accountants who aren’t construction-specific — conflate them, or ignore one entirely. The result is financials that look fine at the surface level and fall apart the moment you try to get actual job-level insight from them.
Payroll is where this problem gets particularly expensive. Most payroll solutions, when they sync to QuickBooks, bring the transaction in as a journal entry. And you can’t code a journal entry to a cost code. Which means all that labor cost lands in the books in a way that looks fine to a tax accountant and is useless for job costing.
This is one of the reasons Chris is a vocal advocate for payroll solutions that have invested seriously in construction-specific integrations — platforms that bring payroll in as a check transaction that can be coded to the right job and cost code, rather than a journal entry that obscures where the labor actually went.
The distinction sounds technical. Its impact on the financial picture of a construction business is anything but.
What a good discovery conversation actually sounds like
When Chris is evaluating whether he can help a new contractor, he’s not leading with a pitch. He’s leading with questions.
Do you have a month-end close process? Who’s recording the transactions? Who’s reviewing the books — and are you one of those people? Are you tracking by job?
That last one eliminates a surprising number of contractors. Job costing — the practice of tracking costs and revenue at the individual project level — is the foundation of meaningful financial reporting in construction. Without it, a contractor might know whether their business made money this year. They won’t know whether any individual job made money. They won’t know where margin is leaking. They won’t know which project types are profitable and which ones are quietly destroying their bottom line.
“There are a lot of folks still who aren’t tracking by job,” Chris said. “Because it’s too burdensome.”
The irony is that the burden of not tracking by job is almost always higher than the burden of tracking by job. You just don’t see it until something goes wrong — a job that closes out at a loss you didn’t see coming, a change order that never got billed, a subcontractor you paid twice.
The right butts in the right seats
Chris’s philosophy on construction accounting technology isn’t complicated: there are some tools that do their specific job really well, and the goal is to find the right combination of them rather than defaulting to whatever promises to do everything.
He’s an advocate for QuickBooks Online as the accounting foundation for smaller contractors, while keeping a close eye on the enterprise tier as it moves further into construction-specific functionality. He’s genuinely enthusiastic about Adaptive for the AP automation, draw management, and job costing layer it adds on top. He’s particular about payroll solutions and thinks deeply about how data flows between systems — because a payroll solution that doesn’t integrate cleanly with the GL isn’t just inconvenient, it’s actively corrupting the financial data the whole operation depends on.
But more than any specific tool, what Chris emphasizes is the human side of the equation. “It’s the right butts in the right seats using the right tools,” he said. “There are a lot of similarities there — the guys in the field, those tools. You don’t know what kind of work product you’d get without the right person using them.”
The best accounting software in the world, run by someone who doesn’t understand construction accounting, will still produce bad numbers. The right person with the right system — even a modest one — can give a contractor the financial visibility they need to make better decisions, protect their margins, and build a business that actually survives long enough to hand off to someone else.
Take inventory of your pain
For contractors listening to this and recognizing pieces of their own operation in the story, Chris’s advice is simple: start by taking inventory of where it hurts.
Maybe it’s the month-end close that never quite happens on time. Maybe it’s job costs that don’t add up. Maybe it’s a payroll process that eats three days every pay period because somebody has to manually reconcile paper time cards with a digital system. Maybe it’s financials that your tax accountant cleans up every year and you’ve never fully understood why.
The pain is usually there. The question is whether you can see it clearly enough to do something about it.
“Lead with value,” Chris said. “The money will follow.”
Chris Murphy is the founder of Breakaway CAAS, a Client Accounting and Advisory Services firm exclusively focused on construction contractors. You can reach him atbreakewaycaas.comor find him on LinkedIn atChris J. Murphy, CPA. This episode of Builders Budgets and Beers is available wherever you listen to podcasts.