How a Construction Company Cleaned Up Two Years of Books and Financed New Equipment

At the first meeting, the owner said the same thing most contractors say: "my bookkeeper quit and I'm behind." What he actually meant, once we pulled the QuickBooks Desktop file, was that no one had reconciled a bank account since the prior January, job costs had been coded to a single miscellaneous expense account for over a year, and three pieces of equipment purchased on separate loans were sitting nowhere on the balance sheet at all.

The immediate trigger was a bank that had turned down a $680,000 equipment loan application because the financial statements he submitted did not tie to his tax return and showed a net loss that didn't match what he knew was actually a profitable year. He needed financing to replace an aging fleet before a large highway subcontract started in the spring, and the bank would not move forward without reviewed, accrual-basis statements.

Underneath the loan problem was a job costing problem. Without accurate work-in-process tracking, he had no reliable way to know which jobs were actually making money. He had bid two contracts in the prior year using gut instinct rather than historical cost data, and one of them had come in barely above break-even after change orders were absorbed instead of billed.

The cost of the disorganization was compounding. Payroll tax deposits had been made late twice due to cash flow surprises that better records would have flagged months earlier, and his CPA at the time was preparing the Form 1120-S from bank statements alone, which meant depreciation schedules and loan balances were guesses dressed up as numbers.

Our approach on any catch-up engagement is to stabilize the ledger before touching the tax return, because a tax return built on a wrong balance sheet just produces a wrong return with more confidence attached to it. We did not attempt to fix the current year and the prior year simultaneously. We closed the prior year first, on an accrual basis, then moved forward.

We considered keeping the client on cash-basis books since that is common and simpler for a contractor his size, but ruled it out because the lender required accrual financials and because percentage-of-completion job costing only tells the truth on an accrual basis. A cash-basis file would have solved the tax preparation problem but not the loan problem or the bidding problem, and those were the two things actually costing him money.

We also considered outsourcing job costing to his existing office manager with a template, but her time was already committed to payroll and AP, so we ruled that out in favor of a controller-level engagement where our team owns the monthly close and she owns data entry and vendor management.

We migrated the file from QuickBooks Desktop to QuickBooks Online and rebuilt the chart of accounts around cost codes by job phase (labor, materials, subcontractors, equipment, and overhead allocation) rather than a flat expense list. Twenty-two months of bank and credit card transactions were reconciled and recoded, and three equipment loans totaling $410,000 in original principal were booked to fixed assets with amortization schedules matching the note terms.

We applied Section 179 to two of the three equipment purchases that qualified and used bonus depreciation on the third, which had been placed in service late in the year and made more sense to spread given his income projection for the following year. This required amending the prior-year Form 1120-S, since the original return had been filed with the equipment expensed incorrectly as repairs.

We built a job-costing structure in QuickBooks Online Projects that ties labor hours from his payroll system, tracked through Gusto, directly to job phases, and set up a monthly work-in-process schedule so percentage-of-completion revenue recognition matches actual costs incurred rather than billings.

Once the prior year was closed and reconciled, we prepared reviewed financial statements (a step up from a compilation, since the bank specifically required review-level assurance) and packaged them with the amended return, current job cost reports, and a cash flow projection for the lender.

The bank approved the $680,000 equipment loan within three weeks of receiving the reviewed statements, and the client closed on the new fleet in time for the spring subcontract to start on schedule. The amended Form 1120-S produced additional depreciation that reduced his prior-year tax liability by just under $38,000.

More importantly, he now knows within two weeks of month-end which jobs are profitable and which are not, instead of finding out at tax time or not at all. On his next two bids, he used actual historical labor and material costs by job type instead of estimates, and both contracts have held their margin through the first several months of work.

Payroll tax deposits have been on time every period since the cleanup, because cash flow is visible a month ahead instead of being a surprise. He has since added a second office employee to handle field-level data entry, freeing our team to focus on the monthly close and quarterly check-ins on job margins rather than chasing down missing receipts.