7 Steps to Building a Profitable HVAC Chart of Accounts
If you've got a messy HVAC chart of accounts, it's costing you money. Missed deductions, unclear job costs, and zero visibility into where your profit goes ALL stem from poor financial organization.
In other words, your chart of accounts is the backbone of your bookkeeping. It's a structured list of all your income, expenses, assets, equities and liability categories which determine how you track every dollar.
This guide shows you how to build one that reveals what's profitable and will help you make smart financial decisions that grow your company.
Therapeutic Tax Solutions helps scaling HVAC business owners improve financial visibility and make their numbers work for them with advisory-level accounting + bookkeeping services.
What Is an HVAC Chart of Accounts?
Your HVAC chart of accounts (COA) is the foundation of your accounting system. It’s the structure that organizes every dollar flowing through your business so your financial reports tell a clear, accurate story about how your company is performing.
Every transaction - materials purchased, invoices sent, equipment bought, payroll processed, and overhead paid - gets recorded into a specific account within your COA. These accounts roll up into your financial statements and show not just how much money came in and went out, but where it came from, how it was spent, and why it matters.
Most accounting software includes a default chart of accounts, but those templates are generic. HVAC businesses aren’t. A profitable HVAC chart of accounts needs to reflect how HVAC work actually happens; residential versus commercial, service versus install, labor versus materials, and overhead versus job costs.
When your chart of accounts is built correctly, your financials do more than satisfy bookkeeping and tax requirements. They support accurate tax reporting, align with IRS guidelines, and give you visibility into which jobs, crews, and services are driving profit, and which ones are quietly draining it.
Without that breakdown, your profit and loss (P&L) is just a pile of numbers that don’t tell you your financial story.
Learn more about HVAC accounting.
Why Your HVAC Chart of Accounts Matters for Profit
Nearly 90% of U.S. households use air conditioning. The demand for HVAC services is massive. But demand doesn't guarantee profit. Execution does!
Companies with accurate financial reporting are 70% more likely to make effective strategic decisions. Translation: HVAC contractors who can see their numbers clearly know when to:
Hire
Raise prices
Drop unprofitable service lines
Invest in new equipment
A well-structured COA gives you that clarity. It tells you determine which revenue streams are worth doubling down on and which expenses are quietly draining profit. Without it, you're flying blind. You might be busy as hell but never entirely sure if you're making money or just breaking even.
Your chart of accounts gives you the financial visibility to capitalize on demand and build a business that scales without burning you out.
7 Steps to Building a Profitable HVAC Chart of Accounts
1. Set Up Your Account Categories
Every chart of accounts is divided into five main categories: Assets, Liabilities, Equity, Revenue, and Expenses.
Assets are what you own. For HVAC contractors, this includes cash in the bank, accounts receivable (money customers owe you), inventory like refrigerant and filters, trucks, tools, and equipment.
Liabilities are what you owe. Think vendor bills, credit card balances, equipment loans, and payroll taxes due.
Equity is what's left when you subtract liabilities from assets. This is your ownership stake in the business - retained earnings and any capital you've invested.
Revenue tracks all the money coming in. Service calls, installations, maintenance contracts, and emergency repairs each need their own line so you know which work drives income.
Expenses cover everything you spend to run the business. Labor, materials, rent, insurance, marketing, and fuel all fall here.
These five categories form the foundation, but how you organize them is key to building a helpful financial system that helps you see everything clearly.
Learn more about improving your HVAC business profitability.
2. Organize Revenue Accounts
Don't lump all income into one "HVAC Revenue" account. You need to see which services are making money and which services aren’t.
First, split your revenue by service type.
Residential service calls perform differently than commercial installations, maintenance contracts bring predictable income, emergency repairs spike seasonally, and new installs carry different margins than repair work...It's all different!
You might also want to separate revenue by location if you operate in multiple areas or by contract type if you handle commercial bids differently from residential jobs.
When you can see revenue broken down this way, you know where to focus your energy and where to raise prices.
3. Structure Your COGS
Cost of Goods Sold (COGS) includes every direct cost tied to completing a job. For HVAC work, this means materials, equipment, and labor that you can trace back to specific projects.
Separate COGS categories for materials (refrigerant, ductwork, units), subcontractor labor, and direct technician wages. Some contractors also track vehicle expenses like fuel and tolls under COGS when those costs tie directly to job completion.
COGS shows you your gross profit margin, or the money left after you cover the direct costs of doing the work. If your gross margin is too low, you're either undercharging or overspending on materials and labor!
Learn more about HVAC profit margins + how to improve yours.
4. Create Expense Accounts
Operating expenses cover everything that keeps your business running but doesn't tie directly to a specific job.
Payroll for office staff, rent, utilities, insurance, software subscriptions, marketing, office supplies, and professional fees all fall here. Vehicle maintenance and depreciation that isn't job-specific belongs in this category, too.
Break expenses into subcategories that match how you spend. For example, marketing might include website costs, advertising, and lead generation services.
The more detailed your expense accounts, the easier it is to spot where costs are creeping up. For example, when marketing spend doubles without more leads, you'll see it immediately.
5. Track Assets and Depreciation
HVAC contractors own expensive equipment. Trucks, vans, specialty tools, diagnostic equipment, and compressors don't last forever, and their value decreases over time.
Set up asset accounts for major purchases. When you buy a $40,000 service van, it goes into a Fixed Assets account, not straight to expenses. You'll depreciate that van over several years, which spreads the cost and reflects the truck's declining value.
Depreciation shows up as an expense on your P&L, but it doesn't touch your cash flow because you already paid for the truck. Tracking depreciation properly gives you a clearer picture of true profitability and helps with tax planning since depreciation reduces taxable income.
Your accountant will handle the depreciation schedules, but you need asset accounts set up correctly to make that work.
6. Manage Seasonal Cash Flow
Summer and winter slam most HVAC businesses, and spring and fall often go quieter. Your chart of accounts should help you navigate that swing.
You can create a separate account for operating reserves with cash set aside to cover slow months. During peak season, transfer a percentage of profit into reserves so you're not scrambling to make payroll in October.
Track accounts receivable aging so you know who owes you money and for how long. Slow-paying commercial clients can wreck cash flow if you don't stay on top of collections!
Also, consider setting up a line of credit as a liability account before you need it. When cash gets tight in the off-season, having access to working capital is a way to keep your operations smooth.
7. Review Quarterly
Your chart of accounts needs maintenance. Set up a quarterly review to check whether your categories still make sense and reflect reality.
Look for accounts with very little activity. For example, maybe you created a category that never gets used, in which case you should consolidate or delete it. Also, check for accounts being used inconsistently, like expenses that should be in COGS or vice versa.
It's also important to compare your numbers to the previous quarter and the same quarter last year. Are your margins holding steady? Are some expense categories growing faster than revenue? This will help you catch problems before they compound.
Do I Need an Accountant, or Can I Set Up My HVAC Chart of Accounts Myself?
You can set up a basic chart of accounts yourself, especially if you're using accounting software like QuickBooks or Xero. Most platforms include templates that give you a starting point.
But DIY gets risky because you don't know what you don't know.
A generic template won't show you how to structure revenue by service type, separate COGS properly, or set up job costing that reveals crew profitability. You might create accounts that seem logical but make your financials harder to read or mess up tax reporting.
As a rule of thumb, if you're doing under $500K in revenue, you can probably handle the setup and adjust as you go. Once you hit seven figures or start managing multiple crews, you need an accountant who understands HVAC operations. They'll structure your COA to support job costing, benchmarking, and strategic planning, not just tax compliance.
Therapeutic Tax Solutions - We Give HVAC Contractors the Numbers They Need to Scale
To build a successful HVAC business, you need financials that tell you what's working, what's not, and what's the smartest move to make next.
✓ Chart of Accounts Built for HVAC Operations: We structure your COA to track profitability by job type, crew, and service line so you know where money's coming from and where it's going.
✓ Job Costing with Real Margins: Direct costs, overhead allocation, and labor tracking are built into every job, so you see true profit and not just revenue minus materials.
✓ Cash Flow Forecasting: We project your income and expenses 12 months out so you're not panicking when spring slows down or wondering if you can cover payroll.
✓ Benchmarking Against Industry Standards: Compare your margins, labor costs, and overhead ratios to similar HVAC companies so you know if you're leaving money on the table or operating efficiently.
✓ Scenario Modeling for Big Decisions: Thinking about hiring another tech or buying a new truck? We model the financial impact before you commit.
✓ Pricing Sufficiency Checks: We tell you whether your rates cover true costs and match market positioning, so you stop undercharging out of fear or habit.
If you want to get financial clarity to make confident decisions and grow without the guesswork, let's chat!
FAQs
How Detailed Should My Chart of Accounts Be?
Detailed enough to give you useful information, but not so granular that your financial reports are miles long. If you're a $1M residential contractor, you might only need a handful of revenue and COGS accounts. If you're running $5M across residential, commercial, and service contracts with multiple crews, you need more breakdowns to see what's profitable.
Start with major categories and add detail as your business grows. You can always split accounts later, but merging messy categories is a pain.
Can I Use the Default QuickBooks Chart of Accounts for My HVAC Business?
You can, but you shouldn't. The default QuickBooks COA is generic and doesn't account for how HVAC businesses operate. It won't separate service revenue from installation revenue, won't track COGS by job type, and won't help you understand crew profitability or seasonal cash flow. Start with the default template if you need to, but customize it immediately to match your business structure. Otherwise, your financial reports will be pretty much useless for decision-making.
Should I Have Separate Accounts for Residential and Commercial Work?
Usually, yes! Residential and commercial work have different pricing, margins, job timelines, and payment terms. Lumping them together hides which side of your business is profitable and which side is dragging you down. Separate accounts give you the visibility to allocate resources smartly and adjust your business model.
The Bottom Line
A well-structured HVAC chart of accounts shows you which jobs make money, which expenses are creeping up, and whether your pricing covers true costs. Without it, you're often running blind.
But it can be very hard to set up your COA correctly from the start.
At Therapeutic Tax Solutions, we can help you build a financial system that supports your growth. Learn more about our HVAC accounting services or get in touch!
