How to Track Expenses in Residential Construction
For a builder, staying on top of expenses isn’t busywork; it’s one of the smartest habits you can develop. Accurate cost tracking protects your profit, prevents cash-flow surprises, and keeps your construction projects running smoothly.
That means ensuring you’re setting up systems to properly account for all the construction costs involved in running a successful remodeling or custom home-building business. Because when they’re not tracked properly, small oversights can quickly add up, resulting in stress, lost profit, and poor project pricing.
Read on to learn how to set up a system that works for your business, avoid common financial mistakes, and keep your projects on budget and profitable.
What is Construction Expense Accounting
When you hear the term “accounting,” you likely think of one big set of books for the whole company that tracks revenue and expenses and that you hand over to your accountant at tax time. And while that may be the case for most small businesses, the residential construction industry is different. In a general contracting business, looking only at company-level numbers won’t give you the full picture of how well your business is performing.
When you build or remodel houses for a living, you have to treat each project like its own mini-business. This involves tracking each cost by both the cost of goods it belongs to (labor, materials, and subcontractors) as well as by cost code, such as framing, electrical, plumbing, etc. Without that detail, it’s impossible to know if a project is truly profitable or silently eating into your margin. This is what we call Managerial, or Construction Expense Accounting.
At the same time, that project-level tracking rolls up into your overall business numbers, giving you the full company-wide view. That overall view is known as Compliance Accounting. This combined approach helps you identify mistakes early, refine estimates, and prevent small errors from escalating across other projects.
Instead of just seeing a snapshot of your finances, construction expense accounting shows you exactly where you’re making money, where you’re losing it, and what needs attention before your profits take a hit.
Why Construction Expense Accounting Is Critical
Proper construction expense accounting tracking is critical to ensuring you make the best decisions possible for each project and your company. It helps you see trends - both good and bad - and shows you exactly where your money is going, so you can consistently improve.
Here are four key reasons why proper expense management is critical:
1. Staying on Budget
Construction budget overruns usually don’t come out of nowhere. They occur because of the same mistakes repeated again and again — underestimating labor hours, failing to account for rising material costs, or forgetting to issue change orders. By tracking your expenses closely, you build a record you can learn from. Over time, your estimates become more accurate, and you stop repeating the same costly errors. This is the first step toward building consistent profitability into your business.
2. Using Job Costs to Improve Estimating
Guessing at what a project will cost is a fast way to lose money. When you have a system in place that allows you to capture the exact numbers for labor, materials, and trades on every job, you can know exactly what that job is costing you. Additionally, it enables you to create estimates that accurately reflect reality rather than relying on guesswork.
3. Protecting Your Profit
Profit isn’t what’s left over, it’s what you protect along the way. Careful expense tracking ensures every cost is covered and that you aren’t missing costs that can erode your profit. Particularly when it comes to changes or additions to the project scope. The fastest way to eat up profit is to forget to pass along those costs to your clients as change orders.
4. Simplifying Tax Time
Accurate books are helpful not only during the year. They also make your life easier at tax time. When your expenses are organized and up to date, year-end reporting is faster, deductions are easier to claim, and you avoid the stress of scrambling to pull records together.
With a solid handle on your expenses, you not only understand what each job really costs, but you also create a system that makes it easier to spot problems, protect your profit, and make smarter decisions on every project.
Buildwise can help you build this system quickly and accurately. Request your free demo today.
Types of Expenses to Track in Residential Construction
Not every dollar you spend in residential construction belongs in the same category. Some costs are tied directly to a specific project, while others cover your business as a whole. Additionally, each expense is either fixed or variable. Understanding these distinctions is crucial because it enables you to track them accurately, which in turn helps you predict costs, avoid surprises, and protect your profit on every job.
Let’s break down each expense type so you can see how they fit together.
Direct Costs
Direct costs belong to a specific project. If the job goes away, so do these costs.
Fixed direct costs: These stay the same once agreed on. A subcontractor quoting you $10,000 is a fixed direct cost.
Variable direct costs: These change depending on usage or price. Lumber is a classic example, since prices can change week to week. Labor hours also fall in here.
Indirect Costs
Indirect costs, also known as overhead, keep residential construction companies running but are not directly tied to any single project.
Fixed indirect costs: These remain steady from month to month, such as office rent or software fees.
Variable indirect costs: These costs fluctuate in response to changes in activity or the market. Fuel is a good example, since gas prices shift from day to day.
Sorting expenses this way helps you identify which costs you can count on to be constant and which ones to watch closely. Fixed costs provide a stable base, while variable costs highlight the areas most likely to eat into profits. Knowing the difference makes it easier to build accurate estimates and keep projects on track.
Buildwise can help you categorize and track every expense so you always know where your money is going. Request a demo today to learn how.
Steps to Set Up Construction Expense Accounting
Now that you know what construction expense accounting is and why it’s important to categorize and track your expenses so carefully, it’s time to look at how to set up your construction expense accounting system.
It starts within QuickBooks, or a suitable accounting software, where you’ll set up the various accounts that costs will be applied to.
1. Start with Direct Job Costs
Out of the box, QuickBooks and other accounting programs often struggle to adapt to the unique needs of construction businesses. Some work is needed to adapt the accounts to read accurately and to ensure that costs are allocated correctly.
Here are four Cost of Goods accounts I recommend setting up. You can create these new, or modify the default ones in QBO.
COS - Materials (for lumber, drywall, hardware, and other project-specific materials)
COS - Labor (for crew hours)
COS - Trades (subcontractor costs)
COS - Other Costs (for equipment rentals, permits, inspections, and similar items)
This structure ensures that project-related costs are assigned accurately on your income statement (aka Profit and Loss or P&L).
2. Review and Simplify Overhead Accounts
Indirect costs are expenses that support your projects but aren’t tied to a single job. This includes office rent, insurance, software subscriptions, and other general business expenses. Make sure your accounting system separates these from direct project costs. Deactivate or rename default QuickBooks accounts like “Supplies” or “Materials” so project costs don’t accidentally end up in indirect accounts.
3. Use a Job Costing System
Use Buildwise to streamline the assignment of every expense to the correct project using cost codes. These codes allow you to organize by construction category, such as demolition, framing, and electrical.
Organizing your costs in this way creates a clear structure for tracking project-level profitability and allows you to have real-time awareness of estimated-to-actual costs across all construction categories.
Capturing every expense and hour ensures accurate project-level accounting from day one. Buildwise can simplify each of these steps. Request a demo to learn how.
Common Challenges in Tracking Construction Expenses (and How to Solve Them)
Each project creates its own paperwork, which is often managed by multiple people. And if you haven’t got a clear system in place to track all the information constantly coming in, it can get lost in the shuffle, leaving you with an incomplete picture of how well your jobs are performing.
These are some of the most common challenges we see builders struggling with:
Manually Tracking Information
The Problem:
Using manual spreadsheets to manage project budgets, relying on paper timesheets, and collecting physical receipts from vendors from your crews.
Situations like this mean you’re constantly waiting on information, so you never have a full picture of each project’s financial status. It also opens you up to the risk of losing out on costs because a team member forgot to log their hours, or a vendor receipt was misplaced.
The Solution:
Use a centralized system like Buildwise to organize expenses by project, cost of goods category (labor, materials, trades), and cost code. This creates a single source of truth for all project-level expenses, replacing fragmented spreadsheets and ensuring nothing slips through the cracks.
Uncategorized Work from Trade Partners
The Problem:
Your subcontractors are sending invoices without the proper information to identify which project they’re charging you for.
The Solution:
Require detailed invoices from subcontractors and assign each expense to the correct project and cost code. A system like Buildwise can enforce coding responsibilities, so project managers or designated team members ensure that all trade costs are captured accurately.
Manual Time Tracking
The Problem:
You’re still tracking your team’s hours using paper timesheets, which means you’re spending too much time chasing down paper and not accurately capturing labor costs.
The Solution:
Implement digital time tracking, which automatically flows into job cost reports. This improves accuracy, keeps all information up to date, and simplifies cost plus invoicing.
Getting a Clear Financial Picture
The Problem:
Individual spreadsheets for each project don’t aggregate all your project-level costs into one big picture, leaving you unsure about your company-wide performance.
The Solution:
Use automated systems to collect, aggregate, and share this information so that you have accurate job-level and company-wide financial visibility.
For project-level reporting, financial management software like Buildwise works best to ensure that all job costs are captured and recorded, and then synced with your QuickBooks accounting software.
For company-wide financial reporting, you’ll want to rely on accounting software like QuickBooks. QuickBooks is best for reconciling bank and credit card accounts, generating financial statements, and automating expense reconciliation. When combined with project-level tools like Buildwise, it ensures that both job-level details and company-wide financials are accurate.
By addressing these challenges with the right mix of tools and processes, remodelers can:
Ensure every expense is properly allocated to a project.
See real-time job costing to track project performance.
Improve future estimates based on accurate data.
Maintain up-to-date records for clients if running cost-plus projects.
Calculate margins based on current costs and review them regularly, typically from monthly reconciled QuickBooks accounts.
Buildwise combines project-level tracking with company-wide reporting, enabling you to solve these challenges without juggling spreadsheets. Request a demo today.
How to Use Data from Expense Tracking to Improve Profitability
1. Identify Profit Drains
Use your tracked expense data to pinpoint where actual costs are exceeding your estimates. This can include labor, materials, or trades. Identifying these “profit drains” helps you catch areas that are quietly eating into your margin before they become bigger problems.
2. Adjust Pricing Strategies
Your financial performance gives you insights into whether you’re adding the right margin to your cost of goods, which in turn contributes to your overhead contribution and net profit. Using this information helps ensure you are pricing future jobs correctly and not leaving money on the table.
3. Estimate More Accurately
Leveraging past expense data helps you to see where you may have missed costs, and keeps you from repeating those mistakes. This helps ensure that you’re creating more accurate estimates at the start, which helps reduce change orders and improves overall project profitability.
With Buildwise, you can turn tracked data into insights that make your next project run smoother and more profitably. Request a demo today.
Common Mistakes to Avoid in Construction Expenses Accounting
Even small slip-ups in tracking expenses can quietly throw off your project budget. When costs get missed, mixed up, or recorded inconsistently, it becomes harder to see how each job is really performing and make smart decisions. Knowing these common pitfalls and staying on top of them helps you keep every project on track, your estimates accurate, and your margins protected.
Here are three common mistakes builders make and how to avoid them.
1. Not Assigning Costs Correctly
It’s easy to overlook smaller or indirect expenses, but things like extended fencing rentals, portable toilets, or extra labor when schedules slip can add up quickly. Failing to assign these costs to the correct project means your financial picture is incomplete and your margins can suffer.
2. Mixing Personal and Business Expenses
Using personal accounts for company purchases creates confusion, makes bookkeeping harder, and can lead to tax headaches. Keep all business expenses separate to maintain clarity and accurate reporting.
3. Relying on Manual Methods Alone
Spreadsheets and paper tracking can work temporarily, but they’re prone to errors, duplication, and inefficiencies—especially when managing multiple projects. Using a centralized system like Buildwise ensures all expenses are captured, organized by job and cost category, and automatically flow into job costing and reporting, reducing mistakes and saving time.
The Bottom Line on Tracking Expenses in Residential Construction
Tracking expenses isn’t just about logging receipts or balancing your books. It’s how you keep your projects profitable and avoid little mistakes that quietly eat into your margin. When you capture every cost correctly and assign it to the right project, you finally know what each job really costs. That kind of clarity keeps surprises from sneaking up on you and gives you control over every project.
Having a system to organize invoices, receipts, and time tracking makes everything a lot simpler. You can see at a glance which costs are steady and which need attention, and you can fix small issues before they turn into big problems. You’re not just tracking numbers. You’re spotting patterns, learning from every project, and making smarter decisions as you go.
Buildwise is construction cost tracking software that helps you organize all your project costs in one place, giving you the clarity and control you need to protect your margins.
Request a demo today.
