Profit First works cleanly for a lot of businesses. For general contractors, it runs into the draw schedule almost immediately. Money comes in tied to milestones, not months, and on most jobs 60–70% of each draw is already committed to subs, materials, and payroll before it clears. The standard account setup doesn't account for that, and many contractors who try to implement it straight out of the book end up walking away because the standard setup was never built for their cash flow.
This article covers the accounts a general contractor actually needs, how to calculate your percentages using real revenue instead of gross draws, how retainage changes the math, and how to automate splits when a deposit hits.
Why Standard Profit First Breaks for General Contractors
The pass-through cost problem is what breaks standard Profit First for general contractors. A $2M general contractor with $1.3M in materials and sub costs (65%) keeps $700K to split across profit, owner's pay, taxes, and overhead. Apply the standard Profit First owner's compensation target of 50% to the full $2M, and you've allocated $1M to owner's pay alone—more than the business actually retains. The math doesn't just miss; it collapses.
Shawn Van Dyke's Profit First for Contractors fixes this with the real revenue concept: total income minus materials and subcontractor costs. That $700K, not the $2M, is the number you build your allocations from. Profit, tax, owner's comp, and operating expenses all get sized against what the business actually keeps after paying subs and buying materials.
Get the base wrong and the tax account blows up first: 15% of $2M is $300K, nearly triple the $105K you'd owe on $700K of real revenue. For general contractors already dealing with cash flow timing gaps between draws, getting this base wrong compounds every other problem.
The right setup leaves reserve cash in place instead of letting every draw disappear into one checking account, and everything that follows depends on getting this base right.
Which Accounts Does a General Contractor Need for Profit First?
Sub payment sequencing is the problem that turns one checking account into guesswork. A $55K draw hits from the Oak Street renovation. The electrical sub needs $12K, the drywall crew is waiting on $8,400, and payroll runs in three days. In one account, $55K looks available. In reality, $20,400 belongs to subs, and you still need to set aside profit, taxes, and your own salary.
Profit First for contractors calls for five foundational accounts, each holding a specific category of cash. Here is what each account does and what belongs in it:
Income: the clearing account where every draw deposits first. No spending happens from this account.
Profit: your 5–20% of real revenue, set aside before anything else. Quarterly distributions only.
Owner's Compensation: your salary as an S-Corp owner, separate from profit, running through payroll like any other employee.
Tax: estimated quarterly tax obligations and payroll taxes. Don't touch it for operations.
Operating Expenses: insurance, trucks, office costs, tools, and everything that isn't materials, subs, or the four accounts above.
Materials and sub payments flow through the Income account as COGS before the remaining real revenue splits across the other four. Some general contractors add a sixth account for materials and sub payments to keep pass-through dollars visually separated. Tools like Relay let you open up to 20 accounts1 with no monthly maintenance fees, which makes adding that sixth account practical instead of expensive. Pull up the dashboard and you can see the split right away. No mental math between the truck and the job site.
1Relay is a financial technology company and is not an FDIC-insured bank. Banking services provided by Thread Bank, Member FDIC. FDIC deposit insurance covers the failure of an insured bank. Certain conditions must be satisfied for pass-through deposit insurance coverage to apply.
How to Set Your Profit First Allocation Percentages at General Contractor Scale
Getting allocation percentages wrong in either direction breaks the system. Set profit too high and operating expenses starve mid-project; set it too low and the business never builds reserves. The balance depends on your COGS ratio, which shifts based on how much work you self-perform versus sub out.
Using the $2M general contractor example above, with $700K in real revenue after materials and subs, here's how allocations break down:
Profit (8%): $56K per year, roughly $4,670 per month, accumulating for quarterly distributions.
Owner's Comp (~34% of real revenue): approximately $240K, run through payroll as a reasonable S-Corp salary.
Tax (15% of real revenue): $105K per year, covering estimated quarterly payments and payroll tax obligations.
Operating Expenses (~43% of real revenue): $299K for insurance, vehicles, office, tools, and everything else that keeps the business running.
Those numbers shift at different revenue levels. A $1.2M general contractor where the owner still estimates every job and manages crews directly may need owner's comp closer to 40% of real revenue, with operating expenses compressed to 35%.
At $4M with dedicated project managers and office staff, owner's comp drops to 20-25% while operating expenses climb past 50% to cover the additional overhead. COGS ratios move too: heavier sub reliance at the upper tier can push pass-through costs toward 70%, shrinking the real revenue base further.
Start 1-3% below your targets and increase by 1% per quarter. Reaching your target PF percentages typically takes 12-18 months, and that slower ramp is intentional.
One trigger to watch: if COGS consistently runs above 70% of total income, the allocation math won't hold no matter how you adjust the percentages. That's a pricing problem, not a Profit First problem.
How Does Retainage Fit Into a Profit First Setup?
Retainage is the problem that creates phantom profit. On a $500K commercial project with 10% retainage, $50K sits in someone else's account until punch list is signed off, months after the work is done. If your allocations treat each gross draw as income, you're setting aside profit on money you won't see until closeout. Across three active projects, that's $80K-$150K in retainage warping every allocation.
The fix is simple: exclude retainage from your allocation base. When a $60K draw arrives with 10% withheld, you receive $54K. Allocate from $54K, not $60K. Track the $6K retainage separately, either in a spreadsheet or in a dedicated tracking account. When retainage releases at project closeout, run that lump sum through the same allocation percentages as any other draw.
General contractors targeting 5-8% profit on jobs where 10% retainage is standard stay cash-negative on profit until the job closes. That's arithmetic, not a sign the job is unprofitable. Separate retainage from the allocation base, and the percentages reflect cash you can actually touch right now instead of a number locked up somewhere else.
How to Automate Allocations When Draws Arrive on Their Own Schedule
Material timing is the problem that catches general contractors mid-project. You commit $14K to a lumber delivery for the framing phase on Monday. The draw covering that phase won't arrive for another three weeks, maybe longer if the architect is slow on the pay app. If allocations only happen on the 10th and 25th, that $14K comes out of whichever account still has cash, usually operating expenses, and the structure falls apart.
Tie Allocations to Deposits, Not Calendar Dates
The 10/25 Rule from Van Dyke's book works for businesses with predictable income. General contractors don't have that. Contractors running weekly payroll while managing draws that land on their own schedule need allocations tied to deposits, not dates. Contractors commonly report that weekly or per-draw allocations, triggered every time a deposit hits the Income account, hold the system together better than a fixed twice-monthly calendar.
Split Each Draw the Same Day It Hits Your Income Account
A $67K draw deposits into the Income account. The split happens the same day:
$43,550 moves to cover COGS
$23,450 of real revenue divides across Profit, Tax, Owner's Comp, and OpEx at your set percentages
No manual transfers. No raiding the tax account because a materials bill landed early.
Most construction cash flow software tracks where money went after the fact. Automated Profit First transfers decide where it goes before you spend it.
Connect Automated Splits to Your Accounting Software
Relay1 is one option that handles this with percentage-based splits triggered on deposit. Connect to QuickBooks Online or Xero so each account feeds clean data to your bookkeeper.
Separated accounts simplify reconciliation too:
Every transaction in the Tax account is tax-related
Every transaction in the OpEx account is overhead
No more sorting through 40 line items in a single account at month-end
That clarity keeps the books ready for surety bond reviews without a last-minute scramble.
1Relay is a financial technology company and is not an FDIC-insured bank. Banking services provided by Thread Bank, Member FDIC. FDIC deposit insurance covers the failure of an insured bank. Certain conditions must be satisfied for pass-through deposit insurance coverage to apply.
Keep the Owner Watching the Transfers
Automation handles the mechanics, but the behavioral piece still matters. Construction CPAs who work with Profit First often recommend that the owner personally watch cash move between accounts, rather than delegating transfers entirely, because seeing money separate changes spending behavior.
When the OpEx account drops below a comfortable threshold, that visual cue forces a conversation about whether overhead has crept up or whether a job is underperforming. When the Profit account grows quarter over quarter, it reinforces that the bidding strategy is working. Delegating those transfers to a bookkeeper removes the friction that makes the system work.
Set Up the Account Structure Your General Contracting Business Needs
The banking setup is usually where construction financial management goes sideways for general contractors. Traditional banks often charge per account, so contractors stop at two or three and cover the gap with spreadsheets and memory. That puts Friday's sub payment, next week's payroll, and tax money in the same pile, even when each dollar already has a job.
Separate accounts and automatic splits fix that by showing what money is spoken for before you spend it. On Wednesday afternoon, the sub account shows what belongs to subs, the tax account holds what April needs, and operating expenses show what's left for overhead. Relay handles the account structure and the automated splits together, giving a general contractor up to 20 checking accounts1 that keep every draw, tax dollar, and sub payment separated without manual work.
Open a Relay account to build the Profit First structure your general contracting business needs. Automated percentage-based transfers split each draw across your accounts the day it lands, so tax money, profit, and operating cash stay where they belong from the start instead of sitting in one pile waiting to be spent.
1Relay is a financial technology company and is not an FDIC-insured bank. Banking services provided by Thread Bank, Member FDIC. FDIC deposit insurance covers the failure of an insured bank. Certain conditions must be satisfied for pass-through deposit insurance coverage to apply.
Frequently Asked Questions
Do I Run Allocations on the Full Draw or Just Real Revenue?
Allocate from real revenue only. Subtract what you owe subs and suppliers from the draw amount, then split the remainder across your Profit First accounts. A $48K draw with $30K in materials and sub costs means your percentages apply to the $18K the business keeps.
How Many Bank Accounts Do I Actually Need?
Five is the foundation, as described above. Most general contractors benefit from a sixth to separate COGS from the money the business retains, and some add a seventh for retainage tracking on commercial work where holdbacks stack across multiple projects.
Should I Stick With the 10/25 Rule if I Run Weekly Payroll?
A hybrid approach works better for most general contractors: allocate per draw or weekly to cover crew costs and operations, then use the 10/25 schedule for vendor payments. The key is matching allocation frequency to how draws actually land, not forcing a calendar that assumes steady income.
Does Profit First Help With Bonding?
It can. Surety underwriters look at cash reserves and sustained profitability when they set bonding limits. A dedicated Profit account builds reserves over time, and separated accounts make it easier for the underwriter to see what cash is actually sitting there.
What Happens When COGS Runs Above 70%?
Thirty cents of every dollar can't cover profit, taxes, owner's salary, and overhead at the same time. Before adjusting percentages, look at whether bids reflect actual COGS or assume margins the jobs aren't producing.
