You're working harder than ever. Your crew is busy every day. Projects are getting done. But somehow, at the end of the month, you're not seeing the profits you expected.

Sound familiar?

If you're running a service-based business—whether you're a power washing company, landscaping contractor, HVAC technician, plumber, or general contractor—you're likely making at least one of these five critical mistakes that are quietly draining your profits. The good news? Once you understand these problems, they're completely fixable.

At Performance Financial, we work exclusively with construction contractors and service businesses in Des Moines and throughout Iowa, and we see these same issues over and over. Let's dive into what's going wrong and how to fix it.

Why Most Service Businesses Struggle With Financial Visibility

Before we get into the specific mistakes, let's talk about why these issues are so common. Most service business owners started their companies because they're exceptionally skilled at what they do. You're an expert electrician, a talented painter, a skilled landscaper, or an experienced HVAC technician.

But being great at your trade doesn't automatically make you great at business management. And that's completely okay—as long as you recognize the gap and take steps to fill it. The fact that you're reading this article right now means you're already ahead of most of your competition.

As Drake Finn Hall from Performance Financial explains: "Most people are happy with just the same old same old, living with what they've done. But if you're taking this next step, you're on the right track. You're starting to do the right thing."

Mistake #1: Not Understanding Your True Overhead Costs

The Problem

This is perhaps the most common and most dangerous mistake service businesses make. You're charging $500 for a power washing job or $1,500 for an HVAC repair, but you're basing these prices on gut instinct rather than actual cost analysis.

When you don't understand your true overhead costs, you're flying blind. You might think you're making money on every job, but you actually have no idea whether you're profitable or not.

Most service business owners can tell you approximately what their direct costs are—materials, labor, fuel. But they're missing the bigger picture. What about insurance? Vehicle depreciation? Equipment maintenance? Office rent? Software subscriptions? Marketing costs? These overhead expenses need to be factored into every single job you bid.

What This Looks Like in Real Life

Imagine you're a pressure washing contractor bidding on a $500 residential driveway cleaning job. You calculate that you'll use about $30 in chemicals and spend two hours on site with one technician at $25 per hour. So you figure your direct costs are $80, leaving you with $420 in profit. Sounds great, right?

Wrong. You haven't accounted for:

• The fuel to drive to and from the job site
• The wear and tear on your pressure washing equipment
• Your insurance costs allocated across all your jobs
• The time you spent bidding the job and handling administrative work
• The percentage of your truck payment that should be allocated to this job
• Your general liability and workers' compensation insurance
• Marketing costs to acquire this customer
• Software and technology costs

When you factor in all of these overhead costs, your actual profit margin might be closer to 15-20% instead of the 84% you thought you were making. And if you consistently underbid jobs because you don't understand your true costs, you'll be busy going broke.

The Solution: Implementing Proper Overhead Allocation

The fix starts with understanding your total annual overhead costs and developing a systematic way to allocate them to each job. At Performance Financial, we help service businesses implement job costing systems that track both direct and overhead costs.

Here's the basic process:

1. Calculate Your Total Annual Overhead: Add up all your business expenses that aren't directly tied to specific jobs—insurance, office expenses, equipment depreciation, your salary as the owner, marketing costs, software, and more.
2. Determine Your Overhead Rate: Divide your total annual overhead by your expected annual direct costs (labor and materials). This gives you an overhead percentage that you need to add to every job estimate.
3. Apply Your Overhead Rate Consistently: When bidding jobs, calculate your direct costs, then multiply by your overhead rate to get your true cost. Only then can you add your desired profit margin.
4. Review and Adjust Regularly: Your overhead rate will change as your business grows. Review it quarterly and adjust your pricing accordingly.

Companies like DMS Demolition have built successful contracting operations by maintaining rigorous cost tracking systems that ensure every project accounts for full overhead costs. Similarly, Partners MN demonstrates how systematic overhead allocation enables sustainable growth in the competitive construction market.

For service businesses specifically, understanding overhead is even more critical because your projects tend to be smaller and more numerous than traditional construction projects. A painting contractor might complete 200 jobs per year, while a custom home builder might only complete 10. That means painting contractors need even more precise overhead allocation systems.

Mistake #2: Not Tracking Expenses Accurately

The Problem

This mistake compounds the first one. Even if you understand the concept of overhead allocation, it's worthless if you're not accurately tracking all your expenses in the first place.

We see this constantly: business owners using personal credit cards for business expenses, paying for materials out of pocket without documenting it, or running personal expenses through the business card. This creates three major problems:

1. You're missing tax deductions when business expenses never make it into your accounting system
2. You're violating your LLC protection by commingling personal and business funds
3. You have no accurate picture of your true costs because half your expenses aren't being tracked

What This Looks Like in Real Life

Drake shares a common scenario: "I see this all the time in small businesses. The business owner has a personal credit card and he's running expenses personally for the business—paying for gas, meals for employees, equipment purchases. It never gets into the business's accounting records. Nobody ever goes, 'This is what we actually bought, these are our true expenses.' You're going, 'I think I spent probably $3,000 throughout the year,' but you have no idea what that actually is."

On the flip side, we also see businesses where the owner is using the business credit card for personal expenses—groceries, gym memberships, even haircuts. As Drake notes: "I've seen guys that are getting haircuts on a weekly basis that do gutters. Those are not business expenses."

This commingling of funds creates problems on multiple levels. First, it makes it impossible to understand your true business profitability. Second, it puts your LLC protection at risk—if you end up in a lawsuit, opposing counsel will argue that you treated your LLC as a personal piggy bank, which could pierce your corporate veil and expose your personal assets. Third, you're likely either missing legitimate deductions or claiming personal expenses as business deductions, both of which can cause problems with the IRS.

The Solution: Clean Separation and Systematic Tracking

The fix requires both discipline and systems:

Implement Clean Separation:

• Use business cards for business expenses only
• Use personal cards for personal expenses only
• If you do use a personal card for a legitimate business expense, reimburse yourself through a formal expense reimbursement process
• If you need to take money from the business for personal use, take it as an official owner's draw or distribution

Set Up Proper Tracking Systems:

• Connect your bank and credit card accounts to your accounting software
• Categorize every transaction with appropriate job codes or expense categories
• Save and file all receipts (use apps like Dext or Hubdoc to digitize paper receipts)
• Review your books monthly to catch any miscategorizations
• Work with a specialized bookkeeping service that understands service businesses

At Performance Financial, we implement document management systems for our clients where every receipt and invoice is properly filed, categorized, and coded to the appropriate job or expense category. This isn't just about tax compliance—it's about having the accurate data you need to make good business decisions.

Homes by Moderno exemplifies how professional builders maintain clean financial separation and detailed expense tracking, enabling them to accurately assess project costs and profitability. New Spaces similarly demonstrates the value of systematic expense management in their remodeling operations.

Small accounting firms like AJ Financial specialize in helping small businesses implement proper bookkeeping systems. Other quality providers include West CPA Group's bookkeeping services for construction contractors who need industry-specific financial tracking.

Mistake #3: Not Paying Employees Correctly

The Problem

This is a huge compliance risk that could come back to haunt you. Many service business owners classify their workers as 1099 independent contractors when they should actually be W-2 employees.

Here's the issue: there are specific IRS guidelines that determine whether someone is an employee or an independent contractor, and it's not up to you to just decide based on what's most convenient. The primary test is control—if you control when, where, and how someone works, they're probably an employee, not a contractor.

What This Looks Like in Real Life

Drake explains the scenario he encounters frequently: "A lot of times I'll talk to a business owner and they'll say, 'Yep, my guys out here, they are contractors—1099 contractors.' And that may be true if you're a general contractor managing multiple specialized subcontractors. Maybe you don't pour foundations, so you hire a concrete contractor. Maybe you don't do electrical, so you hire an electrical contractor. Those might be true contractual relationships."

"However, a lot of guys out there are just saying, 'Hey, these are just contractors, they're not employees,' when really they are. The IRS puts out some pretty good guidelines of employee versus contractor. It really comes down to this control idea. If you have control over them, you're setting hours, setting their time schedules, they don't really have another opportunity to go take other jobs—they look like an employee, they're probably an employee."

Signs your "contractor" is actually an employee:

• You set their work schedule and hours
• You provide the tools and equipment they use
• You train them on how to do the work
• They work primarily or exclusively for you
• You can fire them at will
• They don't market their services to other companies
• They're integrated into your regular business operations

Why This Matters

You might be thinking, "So what? Everyone's doing it this way." But the consequences can be severe:

Tax Liability: If the IRS reclassifies your 1099 contractors as employees, you could owe back payroll taxes, including the employer's share of Social Security and Medicare taxes, plus penalties and interest. We're talking about potentially tens of thousands of dollars in liability.

State Penalties: State unemployment agencies are even more aggressive than the IRS about misclassification. You could owe years of back unemployment taxes, plus penalties that can be substantial.

Workers' Compensation Issues: If you're not carrying workers' compensation insurance for people who should be classified as employees, you could face massive liability if someone gets injured on the job.

Increased Scrutiny Post-PPP: As Drake notes, "If you think about the climate in the world we're living in, the government in the last two years has spent an incredible amount of money on small businesses. If you think that they're not going to try to recoup some of that by people that are doing some shady dealings, you're wrong."

The Solution: Proper Classification and Payroll Systems

The good news is that getting this right isn't as expensive or complicated as you might think. Modern payroll services like Gusto, QuickBooks Payroll, or ADP make it easy and affordable to run proper payroll.

Steps to Fix This:

1. Evaluate Your Current Workers: Review the IRS guidelines for employee vs. contractor classification. The IRS provides clear guidance on this topic.
2. Reclassify as Needed: If you determine that your contractors should actually be employees, reclassify them. Yes, you'll need to pay employer taxes, but it's far better to do this proactively than to have the IRS or state agencies force you to do it retroactively with penalties.
3. Set Up Payroll: Choose a payroll service that handles tax withholding, tax payments, and compliance automatically. Most services cost less than $100 per month for small businesses.
4. Document True Contractor Relationships: For your legitimate independent contractors (like specialized subcontractors), maintain proper documentation of their independent business status.

Companies like Country Creek Builders and Gerl Construction demonstrate proper employment practices by maintaining clear distinctions between employees and subcontractors, which protects them legally while enabling predictable cost management.

For contractors looking to understand the full tax implications of different business structures and employment decisions, our guide on S-Corp vs LLC for Iowa home builders provides specific examples of how different structural decisions impact your tax liability.

Mistake #4: Never Reviewing Your Business Performance

The Problem

This might be the most damaging mistake of all because it prevents you from identifying and fixing the other problems. If you never take time to step back and review how your business is actually performing, you'll never know which jobs are profitable, which types of work you should pursue more of, or where you're hemorrhaging money.

Most service business owners are stuck in operator mode. They're swinging the hammer, running the equipment, managing the crews, dealing with customers. They never carve out time to actually look at their numbers and analyze their business performance.

What This Looks Like in Real Life

"I understand as a business owner you might have started your business because you're really really good at whatever your business does," Drake explains. "Maybe you're fantastic at framing, or power washing, or landscaping. That's great. But you need to be able to step back as the business owner and go, 'Okay, this is my investment. This business is my investment, it's not my job, it's my investment. How is it performing?'"

Without regular performance reviews, you're operating on assumptions rather than data:

• You assume certain types of jobs are profitable (but you haven't actually analyzed job-level P&Ls)
• You assume you're managing cash flow well (but you haven't forecasted upcoming expenses against expected revenues)
• You assume your crews are working efficiently (but you haven't compared estimated labor hours to actual hours across jobs)
• You assume you're competitive on pricing (but you haven't benchmarked your profitability against industry standards)

The result? You keep doing what you've always done, even though it may not be working. You might be pursuing unprofitable work, overpaying for materials, or keeping inefficient employees simply because you don't have the data to identify these problems.

The Solution: Implement Regular Review Processes

The fix is to schedule regular time for business review and create the systems that give you meaningful data to review:

Monthly Financial Reviews (2-3 hours):

• Review your profit and loss statement against budget
• Analyze job-level profitability for completed projects
• Review cash flow and upcoming obligations
• Check key performance indicators (KPIs) specific to your business

Quarterly Strategic Reviews (half day):

• Analyze profitability trends across job types, customers, and crews
• Review pricing strategy based on actual cost data
• Assess operational efficiency metrics
• Plan for the upcoming quarter based on what you've learned

Annual Planning (full day):

• Comprehensive year-end financial review
• Strategic planning for the coming year
• Goal setting for revenue, profitability, and growth
• Tax planning with your CPA

At Performance Financial, we provide comprehensive accounting and advisory services specifically designed for service businesses and contractors. We don't just prepare your tax returns—we help you understand your numbers and use them to make better decisions.

Plan Pools demonstrates how swimming pool contractors can successfully scale by implementing systematic business reviews that identify profit improvement opportunities. Minnesota Landscapes similarly shows how landscaping companies benefit from regular performance analysis.

For digital marketing and SEO support that can help attract better clients and grow strategically, Feedbackwrench specializes in helping service businesses improve their online presence and lead generation.

Quality accounting firms that provide this level of service include Passageway Financial's tax reduction planning services and their general contractor accounting expertise. Another excellent option is PTS Delray's construction accountants, who specialize in the same comprehensive approach we advocate.

Mistake #5: Not Managing Labor Costs Effectively

The Problem

Labor is typically your largest expense, and small inefficiencies multiply quickly across multiple jobs and multiple crew members. When you're not actively managing labor, profits evaporate fast.

Here's the mathematics of the problem: if you bid a job estimating 10 labor hours at $50/hour ($500 in labor costs), but the job actually takes 12 hours, you've lost $100 in profit on that single job. If you're completing 100 jobs per year with similar overages, you've lost $10,000 annually. Scale that across multiple crews and hundreds of jobs, and you're talking about six-figure profit leaks.

What This Looks Like in Real Life

"Labor can be a massive killer in service space and even a ton of construction-based businesses," Drake explains. "If you're bidding on a $500 job, you got two guys that should be able to knock it out in two hours, and you're paying them $25 an hour or whatever it is, that money can add up really quick if they go an extra half hour or hour over what you expected when you bid the job. Right there you just lost fifty dollars of profitability. You lost ten percent of your profit because those guys went an hour too long."

The challenge is that as the business owner, you can't be on every job site supervising every minute. When you're there, crews tend to work harder and more efficiently. When you're not there, things can get slack.

Without proper labor management systems, you face:

• Consistent overruns on estimated labor hours
• No way to identify which employees or crews are most efficient
• No accountability for labor productivity
• Inability to accurately estimate future jobs

The Solution: Labor Tracking and Incentive Systems

The solution has two components: tracking and incentives.

Implement Labor Tracking Systems:

1. Time Tracking by Job: Use time tracking software (like TSheets, ClockShark, or similar) that lets employees clock in and out by specific job. This gives you actual labor hours by project.
2. Estimated vs Actual Analysis: For every completed job, compare your estimated labor hours to actual hours. Track this by employee or crew to identify patterns.
3. Labor Efficiency KPIs: Calculate and track labor efficiency ratios—the percentage of jobs that come in at or under estimated labor. This becomes a key performance indicator.
4. Weekly Labor Reviews: Review labor efficiency weekly, not monthly. By the time you see monthly reports, it's too late to correct problems.

Create Performance-Based Compensation:

The real breakthrough comes when you align employee incentives with business goals. As Drake explains: "What I like to do in this situation is really implement some type of comp structure around these types of employees to really incentivize them to do a good job while they're out performing those jobs. Because if they're focused on making sure that they're being as efficient as possible because they're going to reap some type of reward for it, that job automatically becomes a better performing job."

Performance-based compensation models for service businesses:

Efficiency Bonuses: Pay bonuses when crews complete jobs at or under estimated labor hours. For example, if a job is estimated at 10 hours and your crew completes it in 8 hours, they might split 50% of the labor savings as a bonus.

Project-Based Incentives: For larger projects, tie bonuses to project profitability. If the project hits target margin or better, the project manager and crew get a percentage of the profit.

Quality Metrics: Combine efficiency incentives with quality metrics to prevent crews from rushing and sacrificing quality. Tie bonuses to both efficiency and customer satisfaction scores.

The beauty of these systems is that they make labor management self-regulating. Crews have a direct financial incentive to work efficiently, which means you don't need to supervise every minute. You've aligned their interests with yours.

Charter Home Renovation and IBS Coating both demonstrate how specialty contractors can maintain profitability through diligent labor management. Kenosha Heating and Cooling shows how HVAC contractors specifically manage labor across multiple simultaneous service calls.

For tile contractors and other specialized trades where labor is the primary cost driver, these management systems become even more critical. Our article on essential bookkeeping tips for commercial painting contractors dives deeper into labor tracking for service businesses.

How to Actually Fix These Problems: A Practical Implementation Plan

Now that we've identified the five critical mistakes, let's talk about how to actually implement solutions. Because knowing what's wrong is only half the battle—you need a practical plan to fix it.

Step 1: Shift Your Mindset from Operator to Owner

This is the foundational shift that makes everything else possible. You need to carve out time to work on your business, not just in your business.

"We got to change that mindset of 'I'm working for my business' instead of 'I'm working on my business,'" Drake emphasizes. "I'm focused on these metrics. Your business is an investment. You want that investment to be able to kick you out cash, to grow in value. That's the whole point of the reason you got into business."

Practical Action Items:

• Block out 2-3 hours every week on your calendar for business review and planning
• This time is non-negotiable—treat it like your most important customer meeting
• Use this time to review numbers, analyze performance, and plan improvements
• Eventually, this time investment will allow you to delegate more operations

Step 2: Get Professional Help

You don't have to figure this all out alone. In fact, you shouldn't try to. The mistakes we've discussed are complex, and fixing them requires specialized knowledge.

"Find somebody to help you understand some of these things if this is a whole foreign concept to you," Drake advises. "Find somebody that has kind of that heart of the teacher that's willing to teach you and walk you through some of these steps. This is something that I find the most value in working with my clients—being able to show them these different opportunities in their business to help them prevail. I kind of take it on as a teacher mentality to where I'm helping them learn, I'm giving them some of the answers, but I'm also challenging them to understand what are we talking about and how does this affect their business."

At Performance Financial, we specialize in working with service businesses and contractors throughout Des Moines and the greater Iowa area. We don't just do your bookkeeping and taxes—we help you build financial systems that support business growth.

What to Look For in an Accounting Partner:

• Industry specialization (construction and service businesses have unique needs)
• Proactive advice, not just reactive compliance
• Teaching approach that helps you understand your numbers
• Systems focus, not just transaction processing
• Regular communication and strategic planning

Book a Tax Reduction Analysis with Performance Financial to see how we can help you implement these systems and identify additional opportunities to reduce taxes and increase profitability.

Quality alternative firms include Scaled Tax & Accounting, which helps contractors nationwide, and Nexoa CPA, which brings specialized expertise to construction accounting.

Step 3: Implement Systems Incrementally

Don't try to fix everything at once. That's overwhelming and unlikely to stick. Instead, implement systems incrementally:

Month 1-2: Clean Up Your Books

• Separate personal and business expenses completely
• Set up proper chart of accounts for your business type
• Implement document management system for receipts and invoices
• Get caught up on any backlog of bookkeeping

Month 3-4: Implement Job Costing

• Set up job costing in your accounting software
• Create standard cost codes for your business
• Start tracking all expenses by job
• Begin comparing estimated to actual costs

Month 5-6: Overhead Analysis and Pricing

• Calculate your true overhead rate
• Review your pricing against actual costs
• Adjust pricing on new jobs based on real data
• Implement regular profitability reviews by job type

Month 7-8: Labor Management Systems

• Implement time tracking by job
• Start analyzing labor efficiency by employee/crew
• Design performance-based compensation structure
• Communicate new systems to employees

Month 9-12: Optimization and Refinement

• Analyze which types of jobs are most profitable
• Refine your target customer and job profiles
• Optimize your pricing based on 9-12 months of data
• Plan for the coming year based on actual performance

Step 4: Commit to Regular Reviews

Systems only work if you actually use them. Commit to regular review schedules:

Weekly (30-60 minutes):

• Review upcoming cash needs
• Check labor efficiency for the week
• Address any immediate problems

Monthly (2-3 hours):

• Full financial statement review
• Job-level profitability analysis
• KPI tracking and trending
• Course corrections as needed

Quarterly (half day):

• Strategic business review
• Pricing evaluation and adjustment
• Systems evaluation and refinement
• Goal setting for next quarter

Annually (full day):

• Comprehensive year-end review
• Strategic planning for new year
• Major system upgrades or changes
• Tax planning and strategy with your CPA

Real-World Success Stories

Let's look at how successful service and construction businesses implement these principles:

ADF Philly shows how precision and attention to detail in financial management translates to construction excellence. Stormmaster Roofing demonstrates how roofing contractors can build substantial businesses through systematic cost management and operational discipline.

Davis Contracting exemplifies how general contractors leverage professional financial systems to scale operations while maintaining profitability. GroundTech MN shows how excavation contractors manage the unique challenges of equipment-intensive operations through careful cost tracking.

Bettencourt Construction and Red's Outdoor both illustrate how mid-sized contractors maintain growth without sacrificing margin through disciplined financial management. CBC Twin Cities demonstrates similar principles in the commercial building space.

For specialized trades, Fredrickson Masonry shows how masonry contractors track labor and materials across multiple simultaneous projects. Properties by ARC and Legacy Painting 757 demonstrate how painting contractors maintain profitability in a highly competitive market.

Garvin Homes exemplifies how custom home builders implement sophisticated job costing systems that track costs down to individual cost codes and phases. Cascade Concrete Coatings and Enclave Marine show how specialty contractors combine technical excellence with financial discipline.

The Bottom Line: Knowledge Is Power

Here's the truth: these five mistakes are incredibly common. Chances are, you're making at least one of them right now, possibly all five. But recognizing the problem is the first step toward fixing it.

The good news is that these aren't insurmountable problems. With the right systems, the right help, and the right commitment to working on your business instead of just in your business, you can transform your service company from a job you own into a valuable asset that works for you.

The contractors and service businesses that thrive over the long term aren't necessarily the ones with the best technical skills. They're the ones who treat their business like the investment it is—tracking their numbers, understanding their costs, managing their labor, and making data-driven decisions.

Drake sums it up perfectly: "Information is the best data for these guys running these businesses and they don't have the information in front of them. They can't make informed decisions because they're really really good at what they do. If they can understand some key inputs that keeps them really good at what they're doing, they just get better and better at what they're doing."

Ready to Fix These Problems in Your Business?

At Performance Financial, we specialize in helping service businesses and contractors in Des Moines and throughout Iowa implement the systems and strategies we've discussed in this article. We work with power washing companies, painting contractors, HVAC technicians, electricians, plumbers, landscapers, and general contractors who are ready to move from operator mode to owner mode.

We provide comprehensive services including:

• Specialized bookkeeping for contractors and service businesses
• Job costing implementation and analysis
• Overhead allocation methodologies
• Business tax preparation and filing
• Strategic tax reduction planning
• S-Corporation structure optimization
• Cash flow forecasting and management
• Performance KPI tracking and analysis
• Monthly financial reviews and strategic advisory

Whether you're a growing power washing company looking to scale, a painting contractor trying to improve job profitability, or a general contractor ready to implement sophisticated financial systems, we can help.

Book your Tax Reduction Analysis today and let's discuss how we can help you avoid these five critical mistakes and build a more profitable, sustainable service business.

Your business deserves more than generic accounting services. You need a partner who understands the unique challenges of service businesses and has the expertise to help you overcome them.

Let's get started.

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