Cracking the WIP

November 20, 2014

Although the commercial construction industry in the DC Metro area seems to be picking up, gross profit margins continue to be tight.  These continued tight margins make it ever so important to have timely, accurate, monthly financial statements so the proper business decisions can be made. Nothing drives the financial statements for a contractor more than the calculation of the under and overbillings on a work-in-progress (WIP) report. This report allows the financials to accurately recognize earned revenue on contracts under the percentage of completion method.  Without this data on a monthly basis, the financial statements are not worth the paper they are printed on.  While cash might still be king in today’s business world, data is its first-born heir.  It is this data that feeds the decision making processes of a successful business.

What are the benefits of a monthly WIP Report and Cracking the WIP?
This report will provide the ability for a quick comparison of actual results to the budgeted estimates.
It will assist in recognizing “earned revenue” versus “invoiced revenue” each month on the profit and loss statement.
It will assist in cashflow management job by job as well as for the overall company by showing the levels of under and overbillings at the end of each month.
It will assist in the tracking and processing of change orders on a quicker basis.
It contains the gross profit backlog which indicates how much future overhead is covered by work on hand.
Tracking potential contract profit fade on a monthly basis will lead to the ability to make quicker decisions to correct the reasons for the fade.

The preparation of a monthly WIP report benefits all levels of a company, from the superintendents and project manager to the accounting department and owners. These timely reports will assist in financial operations running more smoothly and maintaining expected profit margins.  In the end, it will make it much easier to forecast future needs and opportunities for the company. If you have any questions or need assistance in getting to the level of preparing a WIP on a monthly basis please do not hesitate to contact me.


About the Author:

Brian Pollack is a partner of the firm. He has been associated with the firm for 16 years and has worked with business owners to help provide the strategies, tools and services they need to take the next steps in growth. His practice areas include tax planning and preparation for businesses and individuals, accounting and consulting services, reporting and accounting system design and installation. Brian services a variety of industries including the Commercial Construction, Real Estate, Personal Service Corporation and Government Contracting industries. Brian has also volunteered his time and expertise for many organizations including the American Subcontractors Association of Metro Washington, where he served four years on the Board of Directors and currently serves as the Financial Advisor to the Board of Directors.

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