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Maximize Your Profit: Implementing a Work-In Progress (WIP) Report for Commercial General Contractor

Note – This guide only applies to construction businesses that utilize the accrual-based method of accounting.


The commercial construction industry is very fluid and changes almost constantly. Profit margins are often tight, and all projects come with their own set of complexity. Managing project finances and ensuring schedules remain on track are significant challenges.

There is a powerful accounting tool that construction businesses can utilize to provide clarity into their project finances and drive profitability – the Work-in-Progress (WIP) Report. Here’s the process to implement WIP reporting into your commercial general contracting business.


What is a WIP Report?

A WIP report is a financial management tool that allows you and your accounting team to track the financial status of all your projects in progress. The primary function of the WIP is to show you how your business is performing from a financial perspective on all your projects. The WIP recognizes revenues and expenses for each month and is commonly calculated on a project’s percentage of completion method. Properly implementing a WIP Report provides a real-time view of your project financials, helps you make better management decisions, and can help identify future cash requirements.


Step 1: Setup a Structured Accounting System

The foundation of successful WIP reporting is a well-structured system. The first step is making sure you have appropriate accounting software that can handle the intricacies of construction accounting. Ensure that your chart of accounts is tailored to your specific needs, including a detailed job costing system that allows you to allocate expenses accurately.


Step 2: Consistent & Accurate Data Entry

Consistency is key to effective WIP reporting. You want to make sure that all project-related costs are recorded consistently and accurately. You must capture all costs, such as: materials, labor, subcontractor costs, and any portion overhead that you are charging to the project for WIP reporting to be beneficial. A key component of this process is making sure your field teams and all subcontractors are submitting timely payables to the accounting department for recording. Any missing costs here will cause inaccurate reporting.


Step 3: Revenue Recognition

One of the primary goals of the WIP report is recognizing revenue at the right time. In construction, this is challenging because revenue is commonly recognized based on the percentage of completion. Again, confirm that your accounting software can support this revenue recognition method. Effective communication between your accounting department and PM staff is critical during this step – you want to make sure that the revenue that you recognize on paper is an accurate representation of what is happening on the project. Otherwise, you will end up being overbilled or underbilled. Note – being slightly overbilled (around 5%) is healthy to ensure you remain cash flow positive throughout the project.


Step 4: Regular Reconciliation

To maintain the accuracy of your WIP report, you should be keeping up with your reconciliations on a regular basis, I recommend monthly at minimum. This includes comparing your WIP report to your general ledger to make sure they align. Any discrepancies should be reviewed timely, with any corrections made before your monthly close.


Step 5: Review and Analysis

Detailed and accurate data entry provides you with the foundation for a robust WIP report. Regularly analyze your WIP report. You want to identify any projects that may be overbilled or underbilled. Look for any cost overruns or shortages that appear to be significantly under budget to make sure you are not missing any costs (especially subcontractor costs - these are the most common to be missed). Take note of any projects that are ahead or behind schedule. This information is essential to making good management decisions. Again, your PM staff should be heavily involved during this process, as they are best informed to what is happening in the field.


Step 6: Corrective Action

Any insights gained from the WIP report can trigger corrective action. If a project is over budget, you can make strategic decisions to bring it back on track. If a project is behind or ahead of schedule, you can choose to allocate more resources to the project or reallocate resources to other projects that are more urgent.


Step 7: Continuous Improvement

WIP reporting is an ongoing process that takes time to properly implement into your operations. It is iterative by nature and needs continuous improvement and process adjustments based on lessons learned from each completed project. To maintain effective WIP reporting, your PM staff and any new hires involved in the reporting process should receive specific WIP training and fully understand the process for entering projections the next month. As construction technology and best practices continue to evolve, adapt your WIP reporting to stay ahead.


Benefits of Effective WIP Reporting:

Properly implementing WIP reporting into your commercial general contracting business provides several benefits:

· Improved profitability – Accurate revenue recognition and cost allocation lead to higher profits – As Drucker put it - “What gets measured gets managed.”

· Better Decision Making – More informed, data-driven decisions lead to more effective outcomes.

· Resource Allocation – You will be more efficient in your resource allocation based on the real-time financial status of your projects.

· Improved Client Satisfaction & Confidence – An effective WIP will help you deliver more projects on time and within budget, leading to higher satisfaction and more trust from your clients.

· Risk Mitigation – You will reduce your overall risk by identifying financial concerns early and taking corrective action.


What Should Be Included in a WIP Report:

Generally, an effective WIP report should include the minimum for each project under contract:

1. Total current value of the contract (including any approved change orders)

2. Total original estimated costs

3. Revised estimated costs

4. Total costs incurred to-date

5. Total amount of earned revenue to-date

6. Amount billed to-date

7. Percentage completion of the project

8. Underbilled or Overbilled Status

9. Gross Profit or (Loss)


How Often You Should Run or Update a WIP Report:

It can vary based on your particular contracting business needs, but a good rule of thumb is to maintain your WIP report monthly. Some smaller businesses may opt to only run or update their WIP reports upon completion of projects.

You want to be as proactive as possible with WIP reporting. If you run your WIP report based on the previous month’s data, your decisions are already a month behind actual costs – making it harder for you to make critical decisions timely.


Have any Questions or Want Further Info?

For any questions related to WIP Reporting, or to explore what implementing a WIP report would look like for your commercial general contracting business, schedule a 30-minute, no charge introductory call with me here: https://calendly.com/fwconsulting/30min

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Ford Wyatt is a Fractional Construction CFO/COO, helping construction business owners and CEOs gain financial clarity, streamline operations, and leverage technology through his entity, FW Consulting. Connect with Ford on LinkedIn.

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