Most contractors learn a job lost money after it is finished. The monthly numbers had the answer the whole time. They were just being read wrong.
You bid on experience, buy materials, run crews, and bill on a schedule somebody else set. Then the P&L arrives reporting a number that has more to do with the draw schedule than with the work.
Three things go wrong at once. Billings run ahead of or behind the work, so revenue lands in the wrong month. Costs get recorded without ever attaching to the job that caused them. And the good jobs get averaged in with the bleeders, so nothing tells you which was which. Fix those three and the numbers start answering questions instead of raising them.
Nothing below is in dispute. Both columns describe the identical job in the identical month. Only the reading changes.
A $1,200,000 contract, estimated to cost $1,000,000.
You have spent $600,000 and billed $800,000.
Looks like a strong month. It is not really a month at all. It is a draw schedule wearing a P&L costume.
You have collected $80,000 you have not earned. On the balance sheet that is a liability. In the field it is next month's payroll, already spent.
Same job, same month, an $80,000 gap in reported profit. That is not an accounting technicality. It is the difference between a contractor who confidently takes on another job and one who should not.
This is the distinction that separates books that work from books that mislead, and most contractors have never had it explained. Plenty of generalist preparers pick one by default and never revisit it.
Revenue and cost stay off the income statement until the job is substantially done. What you spend accumulates on the balance sheet as an asset, often shown as construction in progress.
Revenue is recognized as the work progresses, usually measured cost to cost. Costs do reach cost of sales as you incur them. The correction happens on the revenue side instead.
Your book method and your tax method do not have to match. A qualifying contractor can report percentage of completion for the bank and the surety, where it shows the true position of open work, while using completed contract for tax. The small-contractor exemption turns on an inflation-adjusted gross receipts test and on expected contract duration, and those figures change, so the current-year numbers get confirmed against your actual receipts rather than remembered from a few years back. Getting this pairing right is frequently worth more than any single deduction.
It is one page. Read left to right, it tells you where every open job stands and whether the money you think you made is real.
Profit fade is the one to watch. It is what happens when the estimated cost at completion creeps up month after month and the expected margin quietly shrinks. Caught in month two, it is a conversation with a project manager. Caught at closeout, it is a loss you already took.
Everything above earns its keep for one reason first: you can run the business on it. Bid from real cost history, bill sooner, and catch a bad job while it is still fixable.
The same work has a second effect. The WIP schedule you build to run your own company is the exact document a banker reads before extending a line, and the first thing a surety underwriter turns to when deciding how much bonding capacity to hand you. Contractors who get job costing right tend to notice at some point that bonding stopped being a wall, without being able to say exactly when. That is not a coincidence, and it runs the length of the business, from your first entity to the day you hand it over.
See how it carries across the whole arc, or read what the engagement covers.
No, and we will not build you one. WIP exists to match revenue to work on jobs that span billing periods. If your work opens and closes in the same month, what you need instead is profitability by job, by truck, and by tech, plus pricing that provably covers overhead. Different report, same question: which work actually makes money.
Often yes, because your book method and your tax method do not have to match. Banks and sureties generally want to see percentage of completion, since it shows the real position of open work. Qualifying contractors can report that way while still using completed contract for tax. The two get reconciled rather than chosen between.
Ask three questions. What is the estimated cost at completion on each open job? Which jobs are overbilled and which are underbilled right now? Has the expected margin on any job moved since last month? If those answers are not readily available, the books are recording history rather than reporting position.
Most contractors see their first real monthly close in month two, and the first WIP schedule is usually the moment something clicks. If the books need cleanup first, that changes the timeline and we say so in the proposal rather than after.
