Construction Company Owners – What’s my profit last month & Year to Date?

Do you find it difficult to know what your monthly profits are?

The biggest problem that the work is project based, & many projects can take several months or years to complete.
The problem is a client, who can be a main contractor or the site owner, does not always value the work at your month end. This makes it more difficult to value & invoice the work done as you would like to, & so track your profit trend monthly.

What is Work In Progress (WIP) & why is it important?

Most companies put an adjustment in for work done but not yet invoiced or agreed with the client as done, this is known in the trade as Work In Progress.
If you have a many jobs, you need find a way to regularly track progress on all of them (or at least the big ones), this means valuing the work done for every job at the end of every month, to make sure each job is on track, so you can take action if it’s not. In short you need a reliable system to value your WIP, so you have a handle on work in progress in your hashtag#construction firm.
This is important because your month Gross Margin and Net Profit will fluctuate widely from month to month if you don’t, so you will never know from one month to the next how your business is performing.

Below are the general things you need to consider to enable you to get these WIP adjustments, that are so crucial in understanding your numbers, about right & consistent.

1) You need to know the margin of each job when you pricing the work.
2) You need a site/project manager or supervisor on each job who understands what is included in the order, quote, or estimate. So, they can pick out variations (things that you find that need to be done, but aren’t included in the agreed price). The aim being to quote & invoice the client for this extra work before you start doing it.
3) You need to have a system set up to track sales & costs per job/project. All direct costs need to be costed to jobs consistently.
4) You need to know who is working on each job/project for every hour of the day (digital timesheets are a good way to do this).
5) You need to have a strong month end cut off process.
6) You need to get feedback from those doing the work, or their supervisors, on how the job is going. Larger businesses will normally have cost value reconciliations.
7) Information provided to your Accountant or FD on steps 2 & 6, so that work in progress adjustments can be calculated and included in the accounts, and so variations are invoiced.

Conclusion

Accurate WIP calculations contribute to precise financial reporting, which reflects the revenue earned and costs incurred during each period. This information is essential for generating accurate financial statements & forecasts, so you know where your are financially.
To find out more, why not contact us or book a meeting?