How To Calculate Work In Progress For A Construction Company

80% of building companies will fail in the next 5 years...

80% of the remaining companies will fail in the following 5 years…

That means that 96% of the building companies that are operating today will not be around in 10 years time.

And according to Dunn & Bradstreet, the reason is simple…

It’s not because of a lack of hard work, builders are without question some of the hardest working people on the planet.

It’s all because of a lack of skills and knowledge.

Not carpentry skills or building knowledge…

But business knowledge.

The Work In Progress Accounting Adjustment

Apprentices became carpenters and carpenters became builders without any formal training that covered procurement, scheduling, budgeting or financial management.

It’s not their fault, but they are the ones suffering the consequences and that is why 96% of building companies fail.

If you struggle to make sense of your financial reports each month, or you need to wait until year end to find out if you’ve made any money, or even if you have to wait until the end of a project to find out how much money you made on a job…

Then you need to pay VERY CLOSE ATTENTION because right now you are flying blind… and sooner or later, your building company is going to crash into a mountain.

Your building company cannot survive for long if it is losing money.

If you continue to trade without making a net profit after wages then you are creating a hidden liability that gets bigger every month and you’ll NEVER be in a position to pay it back…

If you understand that a $180,000 progress claim does not mean you go out and buy a new Toyota Hilux, a Jet Ski or a new boat, then you already know that the cash in your bank account is not profit. It’s simply money that you are temporarily responsible for, it’s OPM or Other People's Money.

But what happens when you have 4 or 5 jobs on the go and they are all at different stages of construction, how much of the $500k in your bank account is really yours?

95% Of Accountants Are Giving Out Bad Advice

It’s a question that has not only baffled builders, it has completely confused 95% of accountants who confuse the Work In Progress calculation for a construction company with the Work In Progress calculation for a manufacturing company.

95%!!

I’ll say that again…

95% of accountants are giving out bad advice to construction companies, which results in them paying tax on profits they never made!

This only compounds the problem and accelerates the downward spiral for a building company.

If you are leaving the Work In Progress calculation to your accountant then chances are you are paying too much tax and you are going to experience severe cashflow problems as soon as your sales stop growing.

A building company that does not calculate its WIPAA, which is the Work In Progress Accounting Adjustment figure each month, is nothing more than a giant ponzi scheme.

And when the music stops, and it will stop, those guys will be left wondering where it all went wrong.

The Association Of Professional Builders have helped over 1,451 building companies to calculate their WIPAA and establish their true financial position.

Builders like Adrian who is a very experienced builder in Brisbane, Australia who commented after going through the training “Thanks for last night, it was the best information on WIP I have ever heard in over 30 years of building”

To learn more about the most important numbers in a construction company's financials, click on the link below.