Why Your Profitable Jobs Keep Running Out of Cash (Fix Your WIP Reports)
- Cost Construction Accounting
- 2 days ago
- 7 min read
Updated: 1 day ago
A contractor called us last month about a confusing problem. His WIP report showed his commercial renovation at 22% profit $74,000 in the green. But he'd maxed out his credit line and couldn't pay his concrete supplier.
We found $68,000 in July costs that wouldn't hit his books until September. His plumber had worked three weeks but hadn't invoiced. Materials sat in "uninvoiced receipts" because his supplier batched invoices monthly. His WIP showed profit that didn't exist. His bank account showed reality. This happens every week to contractors. Your WIP reports should tell you where you stand financially. Instead, they show projects looking profitable while you're scrambling for payroll cash.
The disconnect isn't random. Five specific technical failures break the link between what's happening in your jobs and what your accounting system can see. Here's what's actually breaking your WIP reports, and how to fix them.
Why This Matters More Than You Think
For contractors operating on 8-15% margins, flawed WIP data doesn't just create confusion, it triggers a cascade of business problems.
The immediate crisis:Â
You can't make payroll on time. Your best foreman starts looking elsewhere. Subcontractors put you on COD. Suppliers tighten your terms. Relationships that took years to build crack in weeks because they think you can't manage money when really, you just can't see your actual costs until it's too late.
The banking problem:Â
Your banker asks for updated financials before increasing your line of credit. You submit your WIP reports. She asks why your costs seem impossibly low relative to your stated progress, and why your retention receivable doesn't match your contract values. You can't explain the discrepancies because you don't know they exist. Credit denied. Your growth stalls.
The strategic damage:Â
You're using your WIP's phantom profits to bid new work. Because the WIP masked your true costs, you underbid a $500K project. Three months later, you realize you were already overextended. Now you're burning through your line of credit instead of building working capital.
While you're firefighting cash shortages caused by bad data, your competitor who knows their real numbers is bidding and winning the projects you should have had. They move fast, make smart decisions, and grow while you survive.
For contractors doing $2-10 million annually, using QuickBooks set up by a general accountant, a single WIP miscalculation can disrupt everything missing payroll, losing bonding capacity, or worse.
The Five Technical Failures Breaking Your WIP Reports
1. Percent Complete Based on Guesswork
Your PM walks the Martinez site Friday. Drywall's up, electrical roughed in, HVAC installed. He estimates 60% complete. You enter 60% into your WIP. The system recognizes $510,000 of your $850,000 contract as revenue. With $420,000 in costs, you're showing $90,000 profit.
But you're not 60% done you're 52% based on actual units installed and labor hours. The PM was eyeballing it. That 8% difference is $68,000 in revenue you haven't earned. Your WIP overstated profit by $68,000.
The consequence:Â You make decisions on phantom profit. You take another project, buy equipment, give bonuses. Reality catches up the job runs over. That $90,000 profit becomes a $15,000 loss. You already spent money you thought you had.
Under ASC 606 revenue recognition standards, this is non-compliant. You're recognizing revenue based on guesses, not measurable progress.
You have this problem if:
Percent complete jumps 20% in one week with no major milestone
Different PMs estimate differently, one says 45%, another says 65% on similar work
You can't explain to your banker how you calculated percent complete
Field says "halfway done" but WIP shows 65%
2. Material Costs Hit Your Books 30-60 Days Late
February: You install $47,000 in lumber and drywall on Thompson remodel. It's delivered, installed, in the walls. The invoice arrives mid-March. Your bookkeeper enters it late March.
February WIP: Revenue $180,000 | Costs $145,000 (missing $47,000) | Profit $35,000
March WIP: Revenue $220,000 | Costs $237,000 (Feb + Mar together) | Profit -$17,000
Nothing changed except invoice timing. The costs were always there your WIP couldn't see them.
This breaks accrual accounting discipline. Your trends become useless. Every WIP is a surprise. You're also potentially overbilling billing 65% progress when true progress is 52%.
The consequence:Â For six weeks, you thought Thompson was profitable. You bid similar jobs at similar margins. Then real costs hit at once. Your estimates weren't wrong your timing was.
You have this problem if:
Margins look steady two months, then crater in month three
"Surprise" material invoices blow up job costs
Supplier says you owe $30K but job costing shows $18K
Material costs swing wildly month to month
3. Subcontractor Costs Missing Until They Invoice
Your plumbing sub spends all February roughing in Martinez. Four guys, three weeks. You see them daily. He doesn't invoice until March 15th.
In February WIP, $68,000 in plumbing costs don't exist.
February WIP: 55% complete | Revenue $467,500 | Costs $385,000 | Profit $82,500 (22%)
Reality: Costs should be $453,000 | Actual profit $14,500 (3%)
You overstated February profit by $68,000. Across three or four jobs, that's a quarter-million in phantom profit.
Subcontractor costs are 40-60% of total project costs. When these don't appear until weeks later, your profit picture is fiction. You bid more work at inflated margins. All invoices hit one month, cash collapses.
This demands construction-specific accrual accounting costs accrued when work is performed, not when invoiced.
You have this problem if:
Labor costs look too good (showing 20% when norm is 35-40%)
Profit margins of 25%+ on jobs where you normally make 10-12%
Multiple sub invoices arrive same week creating sudden "loss"
Subs complain about late payment, but WIP showed you were flush
4. Change Orders Lost Between Field and Billing
Three months into Harrison build-out, owner asks for break room upgrade. Better cabinets, countertops, backsplash. You estimate $8,500. He verbally approves. Your crew does the work week 12.
Paperwork gets stuck. Waiting for signature, negotiating price, or PM forgot to notify office.
Your WIP shows original $680,000 contract. But costs now include the $8,500 upgrade. You're comparing reality (expanded scope, higher costs) to fiction (original contract). The math breaks.
The consequence:
Work done but no revenue added: You're working for free. Margins erode. Jobs that should profit show losses.
Revenue added before approval: You recognize $8,500 you might not collect. Owner disputes it. You're overbilled with a collection problem.
Most contractors experience both. Some changes tracked, some not. Some added too early, others too late. Your WIP becomes guesswork.
You have this problem if:
Field mentions "extras" not in your system
Total costs exceed budget but contract value unchanged
Owners dispute invoices, don't remember approving work
PM's change order log doesn't match QuickBooks
You're chasing two-month-old signatures
5. Field Data and Office Records Never Sync
Your superintendent tracks deliveries, installations, labor, problems. It's in a notebook, spreadsheet, or his head. Your office tracks invoices, time cards, POs in QuickBooks. These never connect not weekly, not monthly. Maybe at closeout, when it's too late.
The disconnect:
Field log: "Installed 2,400 sq ft tile weeks 8-9" Accounting: Purchased 2,200 sq ft tile
Where'd the extra 200 sq ft come from? Personal credit card? Supplier shortage? Theft? Wrong measurement? Nobody knows, nobody's checking.
Another disconnect:
Accounting: 480 labor hours charged to Garcia in March PM: "We're 60% done, should be 600 hours total"
Math: 480 = 80% of 600. But PM says only 60% done. If accounting's right, you're behind schedule. If PM's right, someone's charging wrong job. Either way, WIP is wrong.
The consequence:Â You can't catch errors until closeout. Waste, theft, rework stay invisible. Percent complete is guesswork. Quantities don't match you over-order (killing cash) or under-order (causing delays). Your WIP is technically accurate (matches QuickBooks) but doesn't reflect job site reality.
You have this problem if:
"Ran short on materials" happens regularly
Jobs take 30% longer, can't explain why
PM and bookkeeper give different answers
Material waste varies wildly with no pattern
Find missing receipts at closeout
Can't answer "where are we on Johnson job?"
How Construction Cost Accounting Fixes These Problems
Fixing these failures requires more than awareness, it demands a specialized construction accounting system that most contractors can't maintain alone while running jobs.
Here's how we build WIP reports you can actually rely on:
Foundation: Accrual Discipline That Matches Job Site Reality
Foundation: Accrual Discipline That Matches Reality
What we fix:Â The 30-60 day cost lag making your WIP fiction.
How:Â We restructure your Chart of Accounts to support construction-specific accrual accounting. We implement "Accrue-Reverse-Actual" where all sub work and material deliveries post as costs weekly based on field reports, not invoice arrival.
When your plumber roughs in Martinez for three weeks in February, that $68K shows in February WIP as accrued cost. When his March invoice arrives, we reverse the accrual and post actual.
Result:Â Costs show up when work happens. Profit margins stop swinging 15-20% month to month. You can trust trends.
Intelligence: Job Costing That Predicts Problems Early
What we fix:Â Percent complete guesswork and inability to forecast outcomes.
How:Â We establish granular cost codes and implement calculations tied to measurable progress units installed, labor hours against budget, physical milestones. We track Estimated Gross Profit by phase and calculate Estimate to Complete in real-time.
Result:Â By week 8 of a 16-week job, you know your electrical phase is trending 12% over budget. You adjust before it compounds. No surprises at closeout.
Control: Field and Office Operating as One System
What we fix:Â Chronic disconnect between site and books.
How:Â We establish mandatory weekly reconciliation between your PM and our construction accountant. Every Monday we verify physical progress matches financial accruals, change orders are tracked through approval to billing, quantities purchased match installed.
Result:Â Your WIP becomes a Single Source of Truth. When your banker asks how you calculated 58% complete, you show the math: actual units installed, verified costs incurred, approved changes reflected. It's defensible, compliant, bond-ready.
Your Next Step
The contractors who succeed don't try to be accountants and builders simultaneously. They outsource the specialized financial discipline so they can focus on what they do best. If implementing weekly accruals, restructuring your chart of accounts, and building job costing analytics sounds like adding another full-time job, you're right. It is.
That's exactly why Construction Cost Accounting exists. We specialize in construction financial systems for contractors doing $2-20 million annually. We optimize your QuickBooks or Sage to deliver the accurate, bank-ready WIP intelligence your business needs to grow with confidence. You didn't get into construction to be an accountant. But you need accounting that understands construction. Let's build that system together.
