Guides
Cash flow for a plumbing contractor business: the books an owner has to keep
Plumbing contractor bookkeeping built around the four cash gaps, a chart of accounts that answers real decisions, and a weekly reconciliation routine.
What to take away
- Profit and cash answer different questions. A plumbing company can post a profitable year and still miss a payroll in March.
- Four gaps hold the moneywork finished but not invoiced, the invoice-to-payment lag, materials bought before the job starts, and retainage held by a general contractor.
- Every gap has a different fix, and the invoice lag costs nothing to close because no money moves, only a date.
- Reconcile once a week in one sitting. A monthly rhythm hides a payment problem for six weeks.
- Keep direct job costs separate from overhead, and get your state's sales tax rule on labor and materials in writing.
A chart of accounts built for decisions
A stock template balances and says nothing useful. Split direct job costs from overhead first, then add detail only where you will read it.
| Group | Account names |
|---|---|
| Revenue | Residential service; commercial service; sewer and drain; change orders |
| Direct costs | Field labor; job materials by service family; disposal fees; permits absorbed; card processing |
| Overhead | Vehicles by unit; insurance; software and phones; office wages; licensing; marketing by channel |
| Cash and receivables | Operating checking; payroll checking; tax reserve; accounts receivable; retainage receivable; accounts payable; sales tax payable |
Every extra account forces a coding choice on each transaction. Coarse coding done consistently beats fine coding done badly, because reports that contradict each other get ignored. The measures worth building reports around are listed in a plumbing contractor software and KPI guide.
The four cash gaps, named and fixed
Cash hides in four places in this trade, and each one needs a different remedy.
Four cash gaps and fixes
Cash gap
- Material to job
- Pay before work
- Job to invoice
- Work done, no invoice
- Invoice to payment
- Invoice sent, no cash
- Retainage
- Money held back
What it is
- Material to job
- Large installs, repipes
- Job to invoice
- Everywhere, largest
- Invoice to payment
- Commercial, contract work
- Retainage
- New construction, contracts
Where it hurts
- Material to job
- Job to invoice
- Invoice to payment
- Retainage
| Gap | How it looks | The fix |
|---|---|---|
| Unbilled completed work | Job closes Friday, the invoice waits until the following week | Invoice from the job record before the truck leaves the street |
| Invoice-to-payment lag | Net 30 drifts to net 47 | Invoice the day the job closes and remind before the due date |
| Materials bought early | Fittings and a pump sit in the shop for weeks | Order to the scheduled install date and take a deposit on long-lead jobs |
| Retainage | A general contractor holds back 5 to 10 percent | Track the release condition and date per job, then price the hold into the bid |
Retainage is the slowest of the four, because the money is held by contract and released on an inspection or a final draw. Three of these gaps live in the paperwork as much as in the ledger, and the drain cleaning contract terms guide shows how those clauses read on a real job.
Four numbers to read every month
- Completed work not yet invoiced, with its average age in days.
- Days from invoice to payment, split residential from commercial.
- Materials bought for jobs not yet finished.
- Retainage outstanding, with its release condition and date.
Those four show how much cash sits in the operating cycle. That total, rather than the profit line, decides whether the next large job is safe to take.
The weekly thirty-minute reconciliation
Same day, same desk, one sitting. Five tasks.
- Pull the bank and card feeds and clear every line against a receipt or a job number.
- Match deposits to invoices, then flag anything unpaid past fourteen days.
- Read the unbilled list and invoice everything finished.
- Compare the sales tax payable balance with the invoices written that week.
- Run a thirty-day cash forecast and mark any week that turns negative.
Weekly 30-minute routine
- Reconcile bank to books
- Invoice all completed work
- Review and act on overdue
- Code uncoded transactions
- Check cash vs 4-week commitments
Weekly beats monthly because a payment problem found six weeks after the work is a negotiation. Found on day ten, it is a reminder.
Deposits, retainage and the contract
Set deposit policy by job type, not by customer, so it never becomes a negotiation. Say what the deposit covers, what the stage payments are, and what triggers each one. Put that in the quote rather than raising it after acceptance.
A deposit moves the price as well as the timing, and the flat, hourly and per-foot pricing formula covers how to load payment terms into a number. Several states regulate deposits on home improvement work, so confirm your own state's rule.
Sales tax on labor and materials
How your state taxes labor and materials on real property contracts varies, is counterintuitive in several states, and shapes every invoice you write. Ask your state revenue department, keep the answer in writing, and build the invoice template around it. Other obligations of the same kind are grouped in a plumbing contractor licensing and compliance guide.
The Internal Revenue Service sets the standard for records that clearly show income and expenses, covering purchases, sales, payroll and assets. An insurer or a court will ask for the same documents.
GST and HST for Canadian work
Drain and plumbing services sold in Canada carry GST or HST. Registration becomes mandatory once taxable supplies pass the small supplier threshold of 30,000 Canadian dollars across four calendar quarters, and the Canada Revenue Agency explains registration and remittance for a business that crosses it.
Provincial rates differ, so one hourly rate yields different take-home totals in Ontario, the Prairies and the Atlantic provinces. The drain cleaning prices after GST and HST comparison shows what that does to a published price list.
Protecting the books you keep
Your accounting system holds bank details, payroll data and customer card information, which makes it a target. Small firms are picked because they assume nobody would bother. The Cybersecurity and Infrastructure Security Agency publishes guidance aimed at small and medium businesses on the basics.
Verify any change of bank details by phone, using a number you already had. Payroll access deserves the same protection as banking access.
