Most contractors look at their bank account to judge how their business is doing. If there’s money there, things are good. If it’s low, things are bad. But the bank balance tells you almost nothing about the health of your business — it doesn’t tell you which jobs are profitable, whether your overhead is too high, whether you’re growing or shrinking, or whether you’ll have enough cash next month to make payroll. That’s what financial reports are for. This guide shows you exactly how to use the three core financial reports to make smarter decisions and grow your contracting business.
The Three Reports Every Contractor Must Understand
QuickBooks and other accounting software generate dozens of reports, but three are foundational: the Profit and Loss Statement (P&L), the Balance Sheet, and the Cash Flow Statement. Understanding these three reports — and reviewing them monthly — is one of the highest-leverage things you can do as a business owner.
Report #1: The Profit and Loss Statement (P&L)
The P&L shows your revenue, expenses, and net profit over a specific period (usually a month, quarter, or year). It answers the question: “Did my business make money during this period?”
For contractors, the most important section of the P&L is gross profit — revenue minus direct job costs (labor, materials, subcontractors). Gross profit margin is the percentage of revenue left after paying the direct costs of doing the work. For most contractors, healthy gross margins range from 25–40% depending on trade and project size. If your gross margin is consistently below 20%, your pricing or job costing is off.
Below gross profit, you see your operating expenses — overhead items like office rent, insurance, vehicle expenses, bookkeeping, advertising, and owner’s salary. Subtract overhead from gross profit to get operating profit (EBITDA). This is your true business profitability before taxes and debt payments.
How to Use the P&L to Grow Your Business
Compare your P&L month-over-month and year-over-year. Is revenue growing? Is your gross margin holding steady or shrinking? Are overhead costs creeping up faster than revenue? The P&L answers all these questions. If you run QuickBooks job costing, you can also generate a P&L by project — the single most powerful report for a contractor because it shows exactly which jobs made money and which didn’t.
Report #2: The Balance Sheet
The Balance Sheet is a snapshot of your business’s financial position at a specific point in time. It shows what you own (assets), what you owe (liabilities), and the difference (equity). The fundamental equation: Assets = Liabilities + Equity.
Key assets on a contractor’s balance sheet include cash and bank balances, accounts receivable (money clients owe you, including retainage), equipment and vehicles (at depreciated value), and any prepaid expenses or deposits. Key liabilities include accounts payable (what you owe to suppliers and subs), credit card balances, equipment loans, and any payroll taxes due.
What to Look for on the Balance Sheet
The most important metric to watch is the current ratio: current assets divided by current liabilities. A ratio above 1.5 indicates healthy liquidity — you have enough short-term assets to cover short-term obligations. Also watch your accounts receivable aging. If you have a lot of receivables that are 60–90+ days old, you have a collections problem that’s strangling your cash flow.
Report #3: The Cash Flow Statement
The Cash Flow Statement shows how cash actually moved in and out of your business during a period. This is different from the P&L, which uses accrual accounting and records revenue when earned (even if not yet collected) and expenses when incurred (even if not yet paid). A profitable contractor can still run out of cash — and the Cash Flow Statement shows you why.
The statement is divided into three sections: operating activities (cash from running the business), investing activities (cash used to buy or sell assets), and financing activities (cash from loans or paid to repay loans). For most contractors, operating cash flow is the most important — it should be positive and growing over time.
Job Cost Reports: The Contractor’s Secret Weapon
Beyond the three core financial statements, job cost reports are the most valuable reports a contractor can run. In QuickBooks, the Project Profitability report shows — for each job — the total revenue billed, total costs incurred, and the resulting profit and margin. Run this report monthly and sort by margin. You’ll immediately see your most and least profitable jobs, which types of work make you the most money, which crew members or subcontractors are affecting margins, and whether your estimates are accurate.
Many contractors discover that some of their “big” jobs are actually their least profitable once all costs are properly allocated. Conversely, some smaller jobs have excellent margins. This data drives smarter bidding and business development decisions.
How to Build a Financial Review Habit
Schedule a 30-minute financial review on the same day every month — the 10th of the month works well, giving your bookkeeper time to close the previous month. During this review, go through your P&L (compare to prior month and prior year), check your bank balances and receivables aging on the Balance Sheet, review job cost reports for any completed jobs, and note any trends or anomalies that need attention.
This one habit — 30 minutes a month — will make you a significantly better business operator. You’ll catch problems early, spot opportunities, and make pricing and hiring decisions based on data instead of gut feel.
Frequently Asked Questions
What’s the difference between cash basis and accrual accounting?
Cash basis accounting records revenue when cash is received and expenses when cash is paid. Accrual accounting records revenue when earned and expenses when incurred, regardless of when cash changes hands. For contractors doing more than $5M in revenue, the IRS requires accrual accounting. For smaller contractors, cash basis is simpler but can misrepresent your financial position if you have significant receivables or payables.
How often should I review my financial reports?
At minimum, monthly. Ideally, your bookkeeper closes the prior month within the first week of the new month, and you review reports by the 10th. Quarterly reviews with your bookkeeper or CPA for tax planning purposes are also highly recommended.
What is a good profit margin for a contracting business?
Gross profit margins (revenue minus direct job costs) typically range from 25–40% for most contractor trades in California. Net profit margins (after overhead) are typically 8–15%. If you’re not hitting these benchmarks, your P&L will show you exactly where the leakage is.
For more information, see our guide on how to read a profit and loss statement.
For more information, see our guide on cash flow management.
For more information, see our guide on building an effective budget.
For more information, see our guide on job costing reports.
Let Bookkeeping Champs Deliver the Reports That Drive Growth
At Bookkeeping Champs, we don’t just close your books — we give you the financial reports and insights to actually use them. We serve contractors across Los Angeles, Ventura County, and the San Fernando Valley with monthly bookkeeping, job costing setup, and quarterly financial reviews. Call (818) 679-4451 to schedule your free consultation.
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