Bookkeeping for Trades: The "Busy But Broke" Paradox
- Anchor Peak Bookkeeping
- Jan 10
- 3 min read
In the Okanagan construction industry, there is a common story we hear at Anchor Peak regarding bookkeeping for trades. It usually sounds like this:
"I’m booked solid for three months. My crew is working overtime. I just landed a $50,000 renovation. So why is my bank account empty?"
This is the "Busy But Broke" Paradox.
Many talented tradespeople—plumbers, electricians, framers—operate their businesses based on bank balance accounting. If there is money in the account, they buy tools. If there isn't, they panic.
Recently, we worked with a local contractor who was generating over $400k in revenue but struggling to pay himself a consistent wage. Here is the deep dive into how we found the leaks in his business and the specific system we used to plug them.
Part 1: The Diagnosis (Where the Money Was Going)
When this client came to us, he was using what we call "The Shoebox Method." Receipts were in his truck, invoices were made in Word, and he had zero visibility into his numbers.
After digging into his data, we identified three "Silent Profit Killers" that are common in almost every trade business:
1. The "Truck Stock" Leak
He often bought materials for a specific job (e.g., $300 of copper pipe) but paid for it out of general funds. Because he didn't assign that expense to the customer's invoice, he essentially gave the client $300 of free materials. Over a year, this was adding up to thousands in lost revenue.
2. Unbilled Change Orders
The client would ask, "While you're here, can you just move this vent?" He would say yes to be helpful. It cost him two hours of labor and $50 in parts, but because it wasn't written down or tracked, it never made it to the final bill.
3. The "Overhead" Misunderstanding
He was pricing his jobs based on Labor + Materials. He forgot to factor in the "invisible" costs: insurance, fuel, vehicle maintenance, and his own administrative time. His 20% markup was actually a 5% loss once overhead was factored in.
Part 2: The Solution (Job Costing with QuickBooks Online)
You cannot fix what you cannot see. As a Certified QuickBooks Online ProAdvisor firm, we moved his business from a reactive state to a proactive one using Project-Based Accounting.
Here is the exact workflow we implemented:
Step A: Implementing "Projects"
In QuickBooks Online, we stopped treating all expenses as generic. We set up the Projects feature.
Before: A $5,000 invoice from the wholesaler was coded to "Cost of Goods Sold."
After: That invoice was split. $2,000 was assigned to "Project A: Smith Kitchen," $1,000 to "Project B: Jones Bath," and $2,000 to "Shop Inventory."
Step B: Tracking Time (The Real Labor Cost)
We had his crew start tracking their hours against specific jobs using a simple mobile app. We discovered that a job quoted for 20 hours was consistently taking 30 hours. This data allowed him to adjust his future quotes immediately.
Step C: The BC Tax Trap (PST on Real Property)
In British Columbia, the rules for PST on "Real Property" contractors can be confusing. We ensured his books were set up to correctly handle PST paid on materials versus PST charged to clients, ensuring he wasn't overpaying the government or exposing himself to audit risk.
Part 3: The Result
Three months after implementing this system, the change was drastic.
Immediate Price Correction: The data showed he was losing money on "small service calls" due to travel time. He implemented a higher minimum dispatch fee.
Accurate Invoicing: No more forgotten materials. If it was bought for the job, it was billed to the job.
Profitability: For the first time, he could look at a report and say, "I made 18% profit on the Smith job, but lost 2% on the Jones job." This insight is invaluable.
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