You started your contracting business to build something real. Maybe you wanted to be your own boss, make better money than working for someone else, or create a legacy for your family. Whatever the reason, you hit the ground running — and now you’re staying busy, winning jobs, and still scratching your head at the end of the month wondering where all the money went.

You’re not alone. This is one of the most common conversations I have with contractors here in San Diego. And in almost every case, it comes down to three specific financial mistakes that are quietly draining profit out of the business.

Let’s break them down.

If I had a dollar for every contractor who told me they set their prices by looking at what the competition charges and coming in a little lower — well, I’d have a lot of dollars.

Here’s the problem: that’s not a pricing strategy. That’s a race to the bottom, and it almost always ends with you working harder than anyone else in the market and making less than you should.

Your price needs to cover four things:

• Direct labor — including burden Your employee making $20/hr isn’t costing you $20/hr. Factor in payroll taxes, workers’ comp, and benefits and that number is closer to $28 to $30. If you’re not building that into your bids, you’re losing money before the job even starts.
• Materials and subcontractors Account for price fluctuations — don’t rely on last month’s numbers when costs are moving.
• A portion of your overhead Your truck, insurance, phone, office — these costs exist whether you’re on a job or not. They need to be in every bid.
• Your net profit Sounds obvious — but it’s the line item most contractors forget to actually build in.

There’s a big difference between estimating and job costing — and most contractors only do one of them.

Estimating is what you do before the job starts. Job costing is what you do during and after. It means tracking what a job is actually costing you in real time, not just what you projected when you wrote the bid.

This is more common than you’d think. And the scary part is that without job costing, you can’t learn from it. You just go out and bid the next job the same way and repeat the same mistake.

The good news: if you’re already using QuickBooks, you have job costing built right in. It’s a matter of making sure every expense — every hour of labor, every material purchase, every sub payment — gets tagged to the right job. Then, when the job is done, you compare estimated costs to actual costs and walk away smarter every single time.

This is one of the first systems I set up with every new contractor client. The insights are immediate and often eye-opening.

This one is personal for a lot of contractors, so I’ll be direct about it.

If your process at the end of the month is to pay your crew, pay your vendors, pay your taxes, and then take whatever’s left over for yourself — that’s a problem. Not because it makes you a bad business owner, but because it makes it nearly impossible to know whether your business is actually profitable.

Your compensation as the owner needs to be a fixed line item in your budget, just like any other operating expense. When you don’t pay yourself consistently, two things happen. First, you lose visibility into your true profitability. Second, you start to resent the business you worked so hard to build.

A framework I share with a lot of my clients is the Profit First model — the concept of setting aside profit and owner’s pay before any other expenses get paid. It’s a shift in how you think about cash flow, but for contractors especially, it creates a discipline that pays off.