Carpentry and framing bookkeeping: who buys the lumber

Carpentry businesses split along one line that changes almost everything about their books: who buys the lumber.

A labor-only framing contractor works for a builder who supplies the material. Revenue is almost all labor, margins are thin but predictable, and the risk is in production and payroll. A labor-and-material contractor buys the lumber, carries the price risk, and has a much larger revenue number that says much less about how the business is doing.

Many carpentry businesses do both, plus finish work that behaves differently again. The first job of the books is to keep them apart.

Separate labor-only from labor-and-material

Put them on separate income accounts or classes. Otherwise a quarter with more supply-included jobs looks like growth — revenue up sharply — when all that grew was the lumber passing through.

The number to watch on labor-and-material work is gross profit in dollars per job, not revenue. On labor-only work it is labor cost as a share of the contract, because that is essentially the whole margin.

Lumber moves between the bid and the purchase

On labor-and-material work, lumber prices can move meaningfully between the day you price a job and the day the package is delivered. On a fixed-price contract, that movement comes straight out of your margin.

The books should show, per job, material cost at estimate against material cost actually paid. Over a few quarters that tells you how much price movement you have been absorbing, and whether your contracts need an escalation clause or a shorter quote validity. See how to bid a job.

Framing by the square foot

Builders often pay framing contractors per square foot, and many framing crews are in turn paid by the square foot or by the house. That keeps labor cost predictable per job, which is useful — with two cautions:

• Classification. A framing crew that works only for you, on your schedule, with your equipment, may be employees rather than subcontractors, whatever the paperwork says. See 1099 or W-2.
• Overtime. Employees paid by the piece or by the square foot are still generally owed overtime under federal law. A piece-rate plan that ignores overtime creates a liability that grows quietly.

For true subcontractors: a W-9 before the first payment, a current insurance certificate, and payments tracked by payee for the 1099 run. See who needs a 1099.

Builder draws and slow pay

Production builders usually pay on a draw schedule tied to their own lender, often on longer terms than a homeowner would accept. Track receivables by builder and by house. A builder who is slow on every draw is financing their project with your payroll, and it belongs in your cash flow forecast on realistic dates.

Fasteners, consumables and tools

Nails, screws, adhesive, blades and the rest are small individually and significant in total. On labor-only framing — where the builder supplies the lumber but you supply the fasteners — they are a meaningful share of your direct cost and should be coded to jobs or at least to labor-only work.

Nailers, compressors, saws and lifts are equipment. Rented lifts and telehandlers are job costs.

Finish carpentry is a different business

Trim, cabinets, stairs and built-ins are slower, more skilled, and priced very differently from framing. They often carry better margin and more callbacks. Separate them in the books so you can see which side of the business is paying.

Related

• General contractor bookkeeping
• Construction bookkeeping, step by step
• Paying roofing crews: piece rate or hourly?

General information, not tax or legal advice. Worker classification and wage rules vary between federal and state agencies.