Which financial reports do contractors need?
Contractors need five financial reports: the profit and loss statement (P&L), the balance sheet, a cash flow forecast, accounts receivable aging and a job costing report. Read the P&L and the balance sheet once a month, after the books close. Check cash, receivables and a short list of home service KPIs every week.
Other financial reports for contractors, like payables, payroll summaries and sales tax, are the ones you pull when one of those five raises a question.
The reports, in one table
| Report | The question it answers | How often |
|---|---|---|
| Profit and loss (P&L) | Did we make money last month, and where did it go? | Monthly |
| Balance sheet | What do we own and owe, including tax we're holding? | Monthly |
| Cash flow forecast | Will we cover payroll and bills over the next 13 weeks? | Weekly |
| Accounts receivable aging | Who owes us, and how late are they? | Weekly |
| Job costing | Which jobs, crews and services made money? | Weekly |
| Accounts payable aging | What do we owe suppliers and subs, and when? | Before you pay bills |
| Payroll summary | What did labor cost, with taxes and overtime? | Every payroll |
| Sales tax liability | How much collected tax is waiting to be filed? | Each filing period |
The cash flow forecast for contractors and job costing posts show how to build those two.
Start with the P&L
The P&L, also called the income statement, shows what you earned over a period and what it cost. It runs from revenue to cost of goods sold (what it took to do the work) to overhead, and ends at net profit. Two numbers on it matter most: gross margin, what's left of each dollar after labor, materials and subs, and net profit, what's left after everything.
Gross margin only means something if your techs' pay sits in cost of goods sold. If every paycheck lands in one overhead line, gross margin looks great and tells you nothing. The chart of accounts for contractors shows the split, and HVAC profit margins shows how to compare yours with published survey numbers.
Why profit and cash don't match
The P&L can say you made money while the bank account says otherwise. The balance sheet, which lists what the business owns and owes on one day, shows where the difference went. Brandon Vaughn, who coaches home service owners, checked it every month at his own cleaning company:
…every single month, I would look at my profit and loss. And I would look at that little bank account balance line and say, okay, I'm supposed to have $49,000. I'd look at my bank account balance and I'd see that at 30,000. And I'd look at my accounts receivables and I'd see that at 19,000. And I'm like, there's my money right there.
He told that to an owner whose bank account wasn't growing the way he expected. $30,000 in the bank plus $19,000 owed by customers is the $49,000 the books said should be there. When the math ties out, you know where the money is. When it doesn't, look at these lines on the balance sheet:
- Accounts receivable: work you've billed and haven't been paid for.
- Trucks and equipment: the cash leaves the bank, but the purchase goes on the balance sheet as an asset, so profit doesn't drop with it.
- Loan principal: the payment comes out of the bank, but only the interest is an expense.
- Owner draws: they lower the bank balance without touching profit.
- Sales tax and payroll taxes you're holding: these make the bank look better than it is, because the money belongs to the state and the IRS.
How often should you read each one?
Cash weekly, margins monthly. Reading cost of goods sold more often than that mostly measures when payroll happened to post:
COGS is really hard to get a good percentage on more often than once a month, even because payroll cycles are, can be weird. So like you could run a snapshot of your COGS, but your payroll hasn't hit yet… it's kind of like when you step on a scale, when you're trying to lose weight and you do it too often, you get really discouraged…
Brandon said that to two co-owners running healthy margins who felt they weren't on top of their numbers. His own rhythm was to track sales every day and fill in the budget from the P&L once a month.
Home service KPIs to check every week
A KPI (key performance indicator) is one number that tells you whether part of the business is on track. The weekly ones come mostly from your field software and the bank; the monthly ones come from the P&L.
| KPI | How to figure it | How often |
|---|---|---|
| Cash against the next two payrolls | Bank balance minus payroll and bills due in the next two weeks | Weekly |
| Booked revenue against the monthly goal | Work done plus work on the schedule this month | Weekly, daily in season |
| Revenue per tech hour | Revenue ÷ hours paid to field techs | Weekly |
| Receivables over 30 days | Unpaid invoices past 30 days | Weekly |
| Average ticket | Revenue ÷ jobs completed | Weekly |
| Close rate | Jobs sold ÷ estimates given | Weekly |
| Gross margin | (Revenue − COGS) ÷ revenue | Monthly |
| Field labor as a share of revenue | Techs' wages, taxes and comp ÷ revenue | Monthly |
| Net profit margin | Net profit after your own pay ÷ revenue | Monthly |
For the techs themselves, keep it shorter still. One owner had built a dashboard with four numbers per tech (dollars per hour, callback ratio, revenue per week and five-star reviews) and asked Brandon if that was too many:
For us what I'd say is that revenue hour is kind of the kind of gives you several different data's at once. It can identify if they're having too many callbacks if they're having too many fix-its. If it was me personally the only two ones that I would typically look at for techs would be revenue hour and five star.
What about HVAC KPIs?
An HVAC shop runs two businesses under one roof, service and replacement, so track them apart:
- Maintenance agreements: how many are active and how many renew. They fill the schedule in the shoulder seasons.
- Replacement close rate: systems sold ÷ replacement estimates given.
- Average ticket, split: service calls and replacements on separate lines, because one big install hides ten weak service tickets.
- Callbacks: return visits you can't bill.
- Gross margin by department: only possible if the books tag service and replacement separately, which is part of how we set up HVAC bookkeeping.
Your field software reports most of the operating numbers. The margins and the cash come from the books, and every YetiBooks client gets a first report with action items inside 30 days (how it works). If you're not sure your reports are right, bring last month's P&L and balance sheet to a free profit call.
Questions owners ask
What's the difference between a cash flow statement and a cash flow forecast? The statement looks back at where cash came from and went over a past period. The forecast looks ahead, week by week, at what's coming in and going out. For running a shop, the forecast is the one you'll use, and building one is a big part of what fractional CFO services cover.
Can my field software replace these reports? No. ServiceTitan, Housecall Pro and Jobber report revenue, tickets and close rates, but they don't see payroll taxes, the truck note, overhead or what you owe. Those live in the books.
Do I need an accounts payable aging report? Only if you buy on terms from suppliers or pay subs on invoice. Run it before each bill run so nothing gets paid twice or late.
