Contractors & tradesBookkeeping for HVAC and Plumbing Companies: The Service Business Edition

Somewhere right now, a service van is carrying $9,000 of parts, three half-used tubes of sealant, a ladder that belongs to a different van, and a stack of paper tickets nobody has entered yet. That van is basically a warehouse with a radio, and this is a perfectly ordinary Tuesday for an HVAC or plumbing company.

Service businesses run on lots of small transactions moving fast. That's great for cash and tricky for the books. Most of the bookkeeping headaches we see in this trade come from treating a service company like a simple retail shop or a big construction contractor, when it's really a bit of both.

Here's how to set up bookkeeping for HVAC companies and plumbing shops so the reports tell you something useful.

Split revenue by line of business

Bookkeeping for plumbers and HVAC companies starts with the income side. One "Sales" account hides everything interesting. Most service companies have at least three different businesses under one roof:

1. Service and repair calls: fast, high volume, usually paid on the spot
2. Replacement and install jobs: bigger tickets, longer timelines, often financed
3. Maintenance agreements: recurring plans, usually prepaid

Each has different margins and different labor needs. A company can be crushing it on service calls while losing money on installs and never know, because the totals blend together like paint in a rinse cup.

Set up a separate income account (or a class) for each line, and do the same for direct costs: technician labor, materials and equipment, and subcontractors.

Job cost the installs, track the service in batches

Installs are projects. They deserve real job costing: equipment, materials, labor hours at a burdened rate, permits and any subcontracted electrical work. Our guide to job costing for contractors walks through the setup and a worked example.

Service calls are different. Costing every $189 drain call individually would take longer than the call itself. Instead, track service as a group: total service revenue, total service labor, total parts used. Review the margin monthly. If it slips, then dig into tickets.

Maintenance agreements are deferred revenue

This one trips up a lot of shops. When a customer pays $240 upfront for a year of seasonal tune-ups, you haven't earned $240 yet. You owe them two visits.

In the books, the prepayment is deferred revenue (money received for service you'll deliver later), which is a liability. You recognize it over the year, either evenly or as visits happen.

Say you sell 300 plans at $240 in a spring promotion. That's $72,000 of cash. If you record it all as income in April, April looks incredible and the next eleven months look weak. Recognizing $6,000 a month gives a P&L that matches the work. It also shows something owners like to know: how much service you still owe customers.

Truck stock and inventory

Parts on trucks and in the shop are inventory, an asset until they're used on a job. When a tech installs a part, its cost becomes cost of goods sold for that job.

A practical approach for most service companies:

• Set a standard stock list for each truck.
• Restock from the shop or supplier, and record what was used against tickets.
• Count trucks and the shop on a regular schedule, quarterly at minimum.
• Adjust the books to the count and investigate big differences.

If all parts get expensed as they're bought, a big pre-season stock-up makes one month look awful and the busy season look better than it was.

Customer financing and card payouts

Many install customers finance through a third-party lender. The lender pays you the job price minus a dealer fee, and the net deposit is what shows up in the bank.

Hypothetical example: a $14,000 system replacement financed with a 9% dealer fee. The lender deposits $12,740. The books should show $14,000 of install revenue and a $1,260 financing fee expense. Record the deposit as revenue and you'll understate sales and hide what financing costs you. The same logic applies to card processor payouts that arrive net of fees.

Vehicles, equipment and subcontractors

Two other areas deserve their own system.

Vans, trucks, jetters, and expensive tools are fixed assets, recorded on the balance sheet and depreciated over time rather than expensed all at once. Keep a list with purchase date, cost and serial or VIN. Our article on fixed asset records when you buy equipment covers what to track. Depreciation methods for tax are your CPA's call.

Subcontractors (the electrician who wires the new condenser, the excavator on a sewer line job) may need 1099s at year end. Collect a W-9 before the first payment, and read 1099 tracking for contractors for a simple process. Your CPA confirms who requires a form.

Reconcile the field software to the books

Most HVAC and plumbing companies run a field service app for scheduling, tickets and invoicing. It often syncs with QuickBooks. Syncs are handy and sometimes wrong, especially with payments split across methods, deposits on installs, and voided tickets.

A monthly check:

1. Compare total invoiced in the field app to revenue in the books, by line of business.
2. Compare payments received in the app to deposits in the bank.
3. Review open invoices in both systems. They should match.
4. Look for duplicate customers or items created by the sync.