You need to answer a VERY important question.
If you get it wrong it could result in the collapse of your building company.
Tell us, do you know the difference between Workflow and Work In Progress?
Most builders either get this completely wrong or believe they are the same thing.
Just last week we were speaking to a builder in Sydney who told us they had pretty good 'Work In Progress'. When we asked what that meant he said "I've got 3 jobs ready to start"
Right then and there it dawned on us. When we have been warning builders about work in progress they assumed we were talking about the amount of work they had in their pipeline, the workflow.
If you believe Work In Progress is the amount of work in your pipeline, you need to pay attention because what we're about to tell you will shatter everything you thought you knew about your building company...
Let's start with workflow.
What Is Workflow?
Workflow is the total contract value of jobs you have signed up to contract, less the amount you have invoiced the client. Think of it as work that has been ordered but not yet completed.
The reason workflow is so important is due to the long sales cycle for builders of new homes. It's too late to effect the revenue for the next 3 months by increasing your marketing so it is essential to maintain a good workflow to ensure your cash flow remains constant.
But Work In Progress, that is something entirely different!
What Is Work In Progress?
Calculating the Work In Progress for a building company is the most misunderstood concept in the construction industry and every year it leads to failure for thousands of builders.
Work in Progress for a company constructing new homes is a liability not an asset...
We'll say that again...Because it's that important...
If you are building new homes, you have a cancer growing in your business that you are not even remotely aware of, Work In Progress is a liability!
Why do you think building companies collapse every month owing hundreds of thousands of dollars?
They didn't just have a bad year, the truth is they never made a cent for a very long period of time and survived purely on cash flow.
You're probably competing against some of those guys right now, you know, the ones that submit a quote that is $80k below your price and well below what it cost to do the job. They are so desperate for cash flow they buy jobs to keep their company running a little bit longer.
Don't Worry, There Is A Solution
If you are concerned, and believe us, if you are relying on your accountant to work this out you should be...We have created a full training courses for builders that will take you through the fundamentals of accounting and financials for a residential building company so that you can calculate your own Work In Progress every month without relying on your accountant.
If you would like to discover more about accounting and financials, or get some expert mentoring to help with the bottlenecks in your building company, click on the Watch Now button below to learn more about what's inside APB Membership.