Tracking WIP (Work In Progress)

December 5, 2017


Yes, you most likely should track WIP.


You might say, "What's the big deal anyway? I'm busy. I've got jobs stacked up. In fact I have to turn down people.  My bank account is full. My big problem is getting all the work done."


So, why would I spend time on the details of WIP and over-under billing? 


There are some very good reasons that will pay off for your business if you do track WIP.


Before we get to those reasons, WIP is especially important when your company: 

  • Has jobs that will be completed and billed over a few months. 

  • Multiple jobs underway. 

  • Wants to secure more or larger bonds, construction loans. 

  • Needs smoother, cleaner cash management. 


Conceptually, tracking WIP and over/under billing is relatively straightforward. If you are 10% through a job and have billed 10% of the total, there is no over/under. You are in good shape. 


The issue arises when your billing and percent complete don't match. Let's say you complete 25% of the job and have only billed 10% as the month end occurs. Then your income statement is off. You are under billed and show less profit than you should. 


Or the opposite happens. 


You completed 25% of job and have billed 50%. Now you show a nice profit at month-end. This will eventually lead to "profit fade" as the expenses catch up to the billing. Hopefully, you haven't spent all that (overstated) profit on other things. Oops.  


This list highlights the biggest issues that happen when you don't track WIP properly:

  • Over state profits then suffer from profit fade when expenses and percent complete finally match up. 

  • Understate profits and can't secure that construction loan or bond you need.

  • Profits bounce around dramatically. 

  • Demonstrate to your bank, investors, and bonding companies that you cannot run your cash cleanly.

  • Cash flow is a mess. 


Check out the monthly WIP intro webcast and the monthly WIP training to get on top of this important topic. 





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