From Confusion to Clarity: Unlocking the Power of WIP Reports

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ℹ ABOUT THIS EPISODE

Stop the confusion between your accountant saying you owe taxes on invisible money and your bonding company cutting your credit line. 

Wade Carpenter and Stephen Brown reveal how proper Work in Progress (WIP) reports transform your construction business from reactive to proactive. 

Learn the essential components, avoid common mistakes, and discover why monthly WIP reports are your secret weapon for maximizing profitability, securing bonding capacity, and making smarter business decisions.

⌚️ Key moments in this episode:

• 00:00 Accountant vs. Bonding Company: Why Your Numbers Don’t Match
• 00:22 What a WIP Report Really Tells Underwriters (and You)
• 02:58 WIP Must Tie to Financials: Software Limits & Data Quality
• 04:43 Core WIP Inputs: Contract, Costs, Billings, Change Orders & Retainage
• 07:11 Percentage of Completion 101: Earned Revenue vs. Billed Cash
• 09:31 Overbillings vs. Underbillings: Balance Sheet Impact & Bonding Red Flags
• 13:09 Loss Jobs, GAAP Loss Recognition & Avoiding Underwriter Surprises
• 15:21 Stored Materials, Near-Completion Issues & Other GAAP Gotchas
• 17:21 Warning Signs on a WIP: Rising Costs, Missing Change Orders & Patterns
• 21:46 Common WIP Mistakes: Miscoded Costs, Unrecorded Invoices & Stale Estimates
• 24:13 Monthly WIP Best Practices + Checklists, Forms & How Often to Run It
• 30:20 Wrap-Up: Resources & Contact Info

The Contractor Profit Blueprint is a complete guide that breaks down exactly how to identify where your money's going and start keeping more of it. This isn't theory. It's the same framework I use with contractors I work with every single day.

Head to profitfirstconstruction.com/blueprint to download your free copy. 

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Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com

Transcript

[00:00:00] 

Wade Carpenter: Your accountant says you got taxes to pay on money you can't find. Bonding company says profit isn't there, and is going to have to cut your bond line down. Same year, two stories, which one is right? Today we're gonna clear that fog for you.

This is the Contractor Success Forum. I'm Wade Carpenter with Carpenter Company CPAs alongside Stephen Brown with McDaniel Whitley Bonding and Insurance. Stephen, I know we're talking today about WIP Reports. And I know that we have a lot of things that happen with WIP reports and how they can be modified, and most people don't wanna talk about them, but this is where you live, right?

It is. It's my playground, WIPs, and I can tell you that they'll make or break a Contractor as far as their bonding capacity. Because here's the thing, the WIP tells an underwriter so much. You remember, Wade, I was telling you that bond underwriters underwrite on the future?

Well, the WIP is showing how the jobs in progress, your work in [00:01:00] progress-- in the old days it was called a work on hand report. But a WIP is your work in progress, what do you have going on? How much have you billed for it? Are you underbilled or overbilled on this particular project? What's your estimated gross profit? Are you making money or losing money on a job? Are they widely fluctuating?

At the year end, you look at a WIP and you see a job has lost money. The first question any underwriter's gonna ask is, why did this one lose money? You can't say, I don't know. Be cause there's a reason.

The WIP is a wonderful thing. And also it's wonderful in a way that it can help an underwriter get comfortable with Backlog Gross Profit. What is your Backlog Gross Profit? What's your track record of bringing these projects in on time, and making the profits you generally are gonna make?

So that's worth its weight in gold, Wade. I can't wait to see where we're going today.

Yeah, and I know a lot of times what I see too is, the companies that [00:02:00] do a monthly WIP are so much better run and make so much more profit when they know how things are going, and it goes a long way with the bonding company. But the WIP report has a lot of uses, not just for the bonding company.

I know you probably get these in the middle of the year, bond requests and you gotta fill out a WIP report. And we're gonna go through some of the things that go into that today. Some of the problems with coming up with the schedule and just give you a little bit of how to, but also hopefully some insights that will make you think about where you're going and your profitability with these jobs.

Stephen Brown: Okay.

Wade Carpenter: Stephen, I want you to chime in on all this stuff as we go. Again, why should they care about this? Obviously your bonding capacity. Talk about that for a little bit. How does your work report and having a good WIP report that you can rely on, I know you were talking about one of them recently that didn't have all the columns filled in. Talk to me.

Stephen Brown: Sure. A WIP report, [00:03:00] first of all, it has to tie into your balance sheet and income statement. If you give me a balance sheet and income statement without a WIP, you're giving me about 10% of what I need to do my job. But if a WIP ties in with your balance sheet and income statement properly, it all makes sense.

And it's a fundamental to accounting. It is absolutely fundamental. And the more jobs you have, the more important that you do this WIP. If you just have one job and you may not think a WIP's important, but you got to learn how to do them and add them.

So WIP is a feature on QuickBooks. But you can't just push a button and create an accurate report. Can you, Wade?

Wade Carpenter: Well, it's a part of the enterprise version. But it is definitely not automated in QuickBooks, any of them like that. Some of the more sophisticated software can come up with stuff like that. But it's only as good as the input that goes into it. These things can affect your banking relationships.

I always say, you probably say the same thing, this is key to knowing where you are, so you [00:04:00] can run better decisions if things are going south on a job and, know it before things really hit that, maybe you can do something about it or at least make some adjustments to it.

I know what you were talking about, these accurate financials and I'm just thinking from your standpoint I see it too okay, you turn in a WIP report year end financial statement that has last year over and under billings.

Well it's exactly the same as last year. They haven't adjusted any of it. How accurate is all that? And I think we're gonna get into that.

As we were saying in the introduction, I think the cash basis can fluctuate up or down really quickly. But the WIP report is really what sort of evens the score, I think. Agree?

Stephen Brown: Agreed.

Wade Carpenter: If you were trying to pull a WIP report together, what are the different things that you would need?

Stephen Brown: Yeah, these are the criteria. And if you're missing any of these and yet you have them, then everything's not gonna compute properly because each item in there [00:05:00] depends on how the other item is calculated. For example, you got your original contract amount or your revised contract amount, and then you've got your cost to date.

And let's just assume that all those costs are posted properly at the time you run the WIP report. Then you've got a total estimated cost to complete. And you subtract that from the rise contract amount and that's your estimated profit on the job.

What if you haven't billed it properly? What if you've done the work and you haven't billed it yet? Then you have an under billing. And what if you've overbilled the job and you haven't done the work, then you have an under billing and that affects your balance sheet.

Wade Carpenter: Absolutely. The inputs are very important to this part. The change orders that I was talking about like, okay, maybe we put a change order in there, but did we adjust our cost to complete? Do we actually have accurate cost to complete?

One thing I see all the time, like the billings part of it, that's part of what we're gonna talk about too, [00:06:00] is does it include the retainage?

A lot of people just booked in their net billings after retainage. So that's gonna perpetually show you're underbilled.

You can talk better about this, but what does that do to your bonding capacity if they start seeing you're perpetually underbilled?

Stephen Brown: Well, if you can't explain it by showing them the retainage you have, it's just gonna be tossed out in what they evaluate to give you bond credit. You don't want that.

Wade Carpenter: This is the components that actually go into these things. That's where it matters, and I want to talk some more about this, because if we're using the wrong cost to complete or whatever, all these things can affect it.

Your project managers aren't really tracking these things. If the costs aren't up to date and if you don't have good job cost records or good tracking, you probably are missing not only just having the costs in there, but a lot of people still never put that relationship together because it doesn't make sense. You put more costs on a job, it makes it more complete. It actually [00:07:00] bumps up your revenue, which is counterintuitive, but as we go through the conversation here, I think it'll make more sense.

Stephen Brown: Okay. Let's do it. 

Wade Carpenter: All right. Well, let's see. When we're talking about percentage of completion, I've got an example here. Let's say a whole job's gonna cost us $800,000 to do, is what we estimate and we're $400,000 into it. Easy math. We're at 50% complete.

Stephen Brown: Okay.

Wade Carpenter: A lot of people think, I billed 50% of it. But have you actually earned it?

So that's where we're going with this. Obviously from a cash flow standpoint, you wanna front load that as much as you can. Sometimes you can't. But are you way overbilled or way underbilled?

I think you probably can talk better than I can about the bonding relationship, when they start getting nervous. If you go too far extreme on one way or another--

Stephen Brown: Yeah, usually you'll see a mix of both under billings and over billings in an overall group of projects. And it won't be a large percent of the overall [00:08:00] revenue. But of course that happens, because different things happen. You wanna bill when you can, as much as you can, even if you hadn't developed the cost.

But if you don't have the right system in place, you could be robbing Peter to pay Paul getting that money in and using it on another project, and then you're getting into a lot of trouble. So that's why bonding companies look at this so carefully. 

Wade Carpenter: Exactly. I mean, somebody's showing like 80% complete and they've only done 35% of the job.

Stephen Brown: That doesn't mean the bonding company's gonna say, oh, well you don't have any work going on, so we'll give you more bond credit. No, they're gonna go ahead and assume that you've got 65% left to do on that particular contract.

Wade Carpenter: Well also oh, okay. You're gonna skip out and leave town and leave everybody hanging.

Stephen Brown: Take that cash and and hit the road. 

Wade Carpenter: Right. Well, in the calculation, this is where we're having the accurate cost to date and all this total estimated costs. But just walking through this simple example, let's build on this.[00:09:00] 

So let's say we had a million dollar job and we're 50% complete. That would mean we've earned half a million dollars, right?

Again, we're just doing simple math today for an example here.

What does that have to do with how much we've actually billed? Well, we start looking at what our gross margin is, we expect that we got a million dollar job as far as revenue, and then it's gonna cost us $800,000. That leaves us $200,000, 20%. Not rocket science.

Stephen Brown: Right.

Wade Carpenter: In this case, if we're at 20% gross margin and we had already billed $550,000, how's that math work? We billed more than we've earned. So talk to me a little bit about like overbilling versus under billing.

Stephen Brown: When you're over billed, it shows up as a liability, a current liability because a current asset and a current liability are what you have in cash. Cash and accounts receivable.

So if you have overbilled a [00:10:00] job, then you've got the cash in, but you haven't associated the cost with it.

There has to be a counter posting as a liability, right? You can't just over bill and use that as extra working capital. It has to be offset. Over billings are a liability, and under billings are an asset, and they show up as a current asset.

So if you have a lot of either, the bonding company's gonna ask questions. Why? What's going on?

Wade Carpenter: I know it's a case by case basis, but in general, would you say that there's any kind of rule of thumb that you get X amount overbilled or underbilled that they start getting nervous?

Stephen Brown: Well, I think they look at your overall program. Sometimes over billings are as much as 50% of your program. And that's scary. You see a lot of that where you see one or two jobs that are way overbilled, and there's other jobs that are losing money. That's gonna be a prime example for that cash disappearing.

And then under [00:11:00] billing, are you under billed because you've got a lot of costs because you forgot to put a change order in? We see that all the time. 

Wade Carpenter: Yeah, there's a lot of things that can cause these things and cause them to be wrong. I remember, well, this was a continual problem because I had a school Contractor that had a May year in and we did audits for them. Obviously the biggest part of their work was done in the summer when the kids were out of school. And they had one county they were doing a whole bunch of stuff for, and they took off the whole summer.

So they actually allowed them to bill ahead because they weren't gonna get paid over the summer, so we were showing like $3 million over billing, which everybody was really nervous about that.

It was great from the cash flow standpoint, but the reality is like they understood it, the school system understood it, and everybody's happy if you can explain it. I'm sure you see situations like that all the time. 

Stephen Brown: Yeah, it's not necessarily good or bad. [00:12:00] But if it's habitual, then you gotta ask why. Can it be explained as a function of the work you're doing, or can it not be explained? And that's the key. 

Wade Carpenter: Yeah. We could play with numbers here, but our simple example, if you're listening to this on the podcast, you may want to check out the YouTube channel for this, because we're doing stuff on the screen.

 If we raise our cost to date and we actually got that extra-- we're starting off with our gross profit and we add another $10,000. What does that do to our revenue? Our estimated gross profit doesn't change, but our over billings change.

Stephen Brown: And Wade I'd love for our listeners that aren't looking at this online, what we're looking at is a calculator called Interactive WIP Calculator that you put together.

Wade Carpenter: Yeah. So, let's just say that's $ 700,000. Whether it's $10,000 or $20,000 over/under billed, that can swing this number. And it's surprising to people that, okay, if we add something to that cost [00:13:00] number, it actually bumps up, assuming we've got a profitable job. 

Stephen Brown: Right.

Wade Carpenter: Again, we've got a couple of different scenarios, like a healthy job versus whether we are getting under billed. I don't think we have time to walk through all these, but I just sort of stumbled into the lost jobs.

I know typically a lot of people don't report this properly or don't report it to you that they're gonna lose money at all if they're turning in their internal WIPs, but what's your perspective on when contractor's got a loss on a job?

Stephen Brown: Well first of all, they didn't estimate it properly. That's the first thing. Or there's some unit costs involving the original estimate that just weren't correct. That's the first thing that you need to check. And then the second thing is what other criteria is making you lose money on this job?

A lot of jobs that I see the contractor's bidding it tight, needing to get the job for any number of reasons they're bidding it without their normal profit margin involved [00:14:00] there, hoping to get more work, hoping to keep their employees busy, and they end up losing money on something that they thought they were gonna be close to breaking even on.

Wade Carpenter: And construction is pretty volatile. Things happen in construction, things will go wrong sometimes. I guess you wanna take a look at why. But if a contractor comes to you in the middle of the year and just has something to bid and they turn in their own WIP schedule on your form and didn't talk to their accountant about it, I was curious how they were reporting it to you. Because GAAP accounting rules say you're supposed to recognize that loss as soon as you see, you know, you're gonna have it.

But in the real world, when it is getting to you how are you seeing that?

Stephen Brown: Well, the reporting the loss, that's not the issue. It's the jobs that are making money, that are making a big profit, that they wanna offset that loss. So you might have some losses on some jobs and some big profits on other jobs and you tweak that to help your taxes.

Wade Carpenter: Well, it depends again [00:15:00] on the method of accounting and that kind of stuff, and probably don't want to go too deep on that today. But the point is, the calculation does get affected when you got a loss. And if you're turning these into your bonding company, they want to know about it, number one. I think they'd rather not be surprised.

Stephen Brown: That's right.

Wade Carpenter: Is that fair to say?

Stephen Brown: Absolutely.

Wade Carpenter: I know we're playing with numbers, but this is another thing that I see all the time. We talk about change orders that are not in there. The costs are not in there, but there's also, if you've ever done an AIA billing, you've seen the stored materials. And Generally Accepted Accounting Principles say you can't recognize profit on stored materials. Maybe you bought a bunch of materials up front for the job, but until you got it installed on the job, you're not supposed to be picking it up as income. You can pick it up to the extent of the cost, but not the profit part of it.

Stephen Brown: Right.

Wade Carpenter: So a lot of people don't take that into account, and if it's $2,000 and depending on the size of your jobs, maybe that doesn't make that big a [00:16:00] difference. But I've seen some pipeline contractors spend hundreds and hundreds of thousand dollars in pipe up front. You know where I'm going with this?

Stephen Brown: Yes.

Wade Carpenter: I'm not sure that this is gonna be a master class in it in 20, 30 minutes here today. But, I just want our listeners thinking about what's going into these things and understanding what should be in here.

So let's keep going. When we start getting closer to a hundred percent complete, we have some other considerations. That probably is a topic for another day of what is really considered complete from the accounting standpoint, from the bonding company standpoint, from the IRS standpoint, it all can be different. Any comments on that? 

Stephen Brown: No, that makes perfect sense. And a lot of times when you're pre-ordering materials on a job, an owner agrees. I'll let you go ahead and pre-order those materials because of the current economic climate out there and getting them on time. We understand the importance of that, but we're gonna only [00:17:00] reimburse you for your invoice.

And also we're gonna need insurance proof that we're gonna need to store those materials on our site and we're gonna need you to insure them as well. So there's some cost involved there.

Wade Carpenter (2): Absolutely. We see a lot more of that since COVID when we had all those price spikes and people got very wary, some losing jobs there.

What are some of the warning signs if we're looking at a WIP schedule?

Say we got renovation project from schools. From the bonding company standpoint, when are we starting to worry that something might be going wrong? In this case , they budgeted $720K and now they're seeing it's pushing up to $800,000.

Stephen Brown: Yeah you're showing your estimated cost to complete as going up, yet your contract amount and change order isn't going up. And they're gonna ask if you just forgot to put a change order in there, or is this some cost you hadn't anticipated? That's just the most fundamental warning sign you can have when you're looking at a [00:18:00] WIP.

Wade Carpenter: And also, being accurate at these things too. I'd love your take on this. So you have one job that we report a year. You're gonna make 15% gross profit and then they come in the next year after reporting it on the review and oh, it tanked by 15%, you know.

Stephen Brown: Yeah. Well, what if you're sitting down with your bond agent or your underwriter, you're looking over the WIP and they're asking questions. And on this particular job for Metro Builders you're showing additional cost of the asbestos remediation.

So that's getting ready to be booked as additional cost, which is gonna affect your bottom line. And then you go back and you say, well, we've got a change order we're expecting any minute now. You're like, really? So you incurred the cost without a change order? Well, we've had to take them to court. That's more costs involved. But bonding companies say, okay we'll we're gonna take this out and when you refund your money it'll affect it in the future. So that's the way they look at it.

Wade Carpenter: [00:19:00] Absolutely agree and as we said, things will go wrong in construction. You miss that bid one year and then the next year you have fades between multiple years. If it starts becoming a pattern, how do they look at it?

Stephen Brown: A lot of times you're shooting to break even, okay? You're living vicariously outta your company and you're saying, Hey, if I break even, I'm okay. If you lose money three years in a row, for a bonding company, that's usually the kiss of death. You could still get credit scoring bonds, but that's about it.

Wade Carpenter: And that gets a little more expensive too.

Stephen Brown: That's right.

Wade Carpenter: Yep.

Stephen Brown: Bond premium goes up.

Wade Carpenter: What I was hoping people would get out of it was what is making the bonding company nervous? I shouldn't say this, I don't wanna offend any bankers, but most of the bankers are not sophisticated enough, they're not diving into these jobs the way a bond underwriter would.

Stephen Brown: And there's so many other things that different bond underwriters read into WIPs that they ask questions [00:20:00] about. Your ability to answer those really let them have a comfort level of, how well you control your cost, how well you control your jobs.

So you're pushing the edge of the envelope on a bond program that already has an underwriter questioning your data, then they're just not gonna be easy about saying yes to what you want them to do.

Wade Carpenter: Yeah.

Stephen Brown: I know that sounds like an understatement of the century, doesn't it, Wade? But it's the whole power of the WIP. It's got to be there. You need it to operate your business. If you don't have it to operate your business, why? Well, that's what this podcast is about.

And also, if you do have it to operate your business, is the data correct? And how are you managing the fluctuations and estimated profit? This is usually not a big deal. Good contractors, this is a pretty routine discussion that you get through.

Wade Carpenter (2): Both of us see contractors, sometimes they'll take off and they went from no structure to all of a [00:21:00] sudden they doing millions and millions of dollars and they have never put the structure underneath it.

Getting their cost codes and that kind of the whole system is one thing, but they can get to this level, obviously, when the numbers get bigger, it gets a lot more risk.

This is where we really need to you know, real handle on, from my perspective, and I think you agree with me, this is really how we're doing. Cash basis can fool us because money can go in, come out just as fast. We can have a lot of money stuck in a billing, but if we're way over billed, that doesn't mean we've actually earned that profit.

Stephen Brown: You are exactly right. That couldn't have been stated any better, Wade. You are overbilled on a job and you're showing a lot of working capital and you think you're gonna get bond credit for that? No.

Wade Carpenter (2): I had a couple more scenarios. What I would like to do is talk about some of the things that we've already said. Miscoded Costs. I see it all the time that a project manager will bury the costs of sticking on [00:22:00] somebody else's job.

And it can swing the gross profits and the over and under billings quite a bit if you put it on the wrong job. 

Stephen Brown: Absolutely.

Wade Carpenter: We've already said the unrecorded costs. You got a sub invoice that didn't get in there, you're not timely enough. It's sitting on a project manager desk, or it was riding around in the field supervisor's truck for two weeks before he turned it into accounting. As we said that can affect it.

Stale estimates, if you originally bid a job, but we've got some change orders on it and the costs are going up or whatever. I mean--

Stephen Brown: What about when materials were hard to get and you thought you anticipated properly what the costs were gonna be in the bid and put some padding in there, and the worst case scenario is worse than you anticipated? You gotta go in and plug those estimates back in of the true cost or your whole bid is stale.

Wade Carpenter: Yeah. 

Stephen Brown: You mentioned unrecorded costs, Wade, [00:23:00] the first thing that popped into my head is, office manager name is Patty, and everybody in the construction company said, well, Ms. Patty came blowing into a job trailer. You are gonna get a cussing. And that was a long time ago.

So unrecorded costs, miss coded costs. You think to yourself, if I'm gonna get on top of miscoded costs, someone could be stealing from me. They could be padding another job and padding their own profit. Miscoded costs is huge. 

Wade Carpenter: Yeah. One of the biggest things is using that gross amount of billings, not your net amount after backing out retainage.

And it can make it look worse than it actually is. If you were just to give it an accrual basis statement, you've got a bid this due tomorrow. And he doesn't see that. It probably might look like you're really losing money.

Stephen Brown: Because what is mishandling a change order? Well, first of all, to me that means not putting it in writing and invoicing them for it. Or [00:24:00] you have it in writing, they approve it and you haven't invoiced them yet.

A lot of contractors assume that I'm not going to issue a change order in billing until I finish the work form them. And that's not good business.

Wade Carpenter: Yeah. We could probably spend a lot of time talking about the things that go into a good WIP schedule. We're sort of scratching the surface today. I'd like to talk about our monthly checklist.

Stephen Brown: Yeah, go ahead, please. Best practices.

Wade Carpenter: Yeah, I did put together a booklet for anybody that's interested if you wanna download it, you can go to carpenterCPAs.com and get it.

But just making sure those job cost entries are in there. Accounts payable, invoices. Everybody still thinks that, hey, I don't wanna get those costs in there. It's gonna make it look worse. But if you're actually doing your WIP properly, it's gonna help you. 

Stephen Brown: It is not only gonna help you, but it's gonna help your vendors get paid on time, which makes them more than a fairweather friend when tough things come up.

Wade Carpenter: Project [00:25:00] managers, I know they have a tough job, but sometimes they don't realize, or maybe they do, but getting those bills out the door, make sure they reviewed them and updated those cost estimates. Making sure those are in properly and the bills get in properly.

But, are we updating change orders? Are we identifying the stored materials? Maybe it's on the AIA billing, but we didn't tell accounting about that.

Making sure the billing, is everything in there for the retainage is in there. Your total estimated cost is actual what you expect it to be. Maybe it was your original bid, and you haven't updated since your original bid. I see that all the time.

The projected losses. That's another thing, when I was in the auditing days, part of the steps would be we'd go out and visit a job. And does the percent complete that's on paper compared to if you go out there and you see nothing, nothing's done physically, I mean, that can be a red flag. 

Stephen Brown: Absolutely.

Wade Carpenter: I mean also like [00:26:00] this completed jobs too. We've seen some like county maintenance contract or something like that, and it was maybe more than they were ever gonna get just as a contingency. But, the job is done and all that stuff and they leave it on the schedule. It's like, okay, well you're not actually gonna get that money, the rest of that contract, so closing that. 

Stephen Brown: And Wade, the completed job schedule and looking at your year in financial statement and your WIP, Work In Progress report, they have the identical information in them. Your completed job schedule to a bond underwriter is as important as the WIP.

Wade Carpenter: Properly figuring you're over and under billings. I know we've talked about this before. McDaniel Whitley has their own form. I'm sure you'd be glad to share that with our listeners as well if you had something like that.

Stephen Brown: Yeah. Absolutely. It's a self calculating Excel spreadsheet that will help you do a WIP. But here's the thing, if your WIP's really accurate, it's tied into your accounting system, so it's really hard to do them [00:27:00] individually if your system isn't pulling out the exact data you need for them.

And if it is your system should be producing these reports for you and they should be pretty accurate. And so you look at those red flags and you ask yourself, well, I'm looking at this WIP. How accurate is it? Well, you're reading it over as owner of a construction company. Well, we know we just paid out so and so, and I know that hadn't been billed yet.

You're thinking in your mind, so here's our snapshot. Here's the changes that are gonna occur to this snapshot, and here we go. So you don't just send it. You help explain what's going on, on any given day. Because a WIP is a moving, evolving product that helps you understand how you're doing and it changes, people usually don't run them every quarter. How often do you think they should be run?

Wade Carpenter: Oh, the best one's running every month.

Stephen Brown: Every month?

Wade Carpenter: Every month. And we're adjusting it every month.

Stephen Brown: Yeah.

Wade Carpenter: It is a little more rare, but [00:28:00] the ones that do really know how they're doing, and do really well, I see it all the time.

Stephen Brown: Yeah. Some of my best companies can turn over an accurate WIP and balance sheet that's a month and a half old, you know, a month, oh boy, that's a great goal if you can do that.

Wade Carpenter: Even a quarter, I mean six months. A lot can happen to your bids in 90 days. The jobs that things are going on. So that's my take on it. And we don't see it all the time. When I can convince a Contractor to really run it that way. They eventually get it. A lot of times people struggle to pull these things together.

and, 

Stephen Brown: It's certainly powerful, and you get a WIP on just a one particular job when you sit down as an owner with the project manager, and you either say that this job's on track or it's not on track. And if it's not on track, what's the problem? What are we gonna do about this?

So when you say, for bonding and banking, that's not as important to me as the third one you show here for internal [00:29:00] decisions.

Wade Carpenter: I believe the same thing. You can make better decisions when you have great information. And yes, obviously if you can show your bonding agent that, their underwriters like, hey, we could produce this really quickly. I think that still goes a long way.

Stephen Brown: And for banking purposes too. Your financial statement may not mean much to a bank, but you go to a bank and you say, I've got this contract and here's the documents. They're letting me pre-bill for these materials. And I wanna borrow the money to do that.

I built that into my cost when I'm bidding this job. So I'm gonna use the bank's money to finance this until the owner reimburses me. That's a good business practice.

Wade Carpenter: Yeah. I say that all the time too. Sometimes the bankers are not as sophisticated on the job stuff, but if you're going in and trying to get a loan, and you give them, I say, cash flow projection and the numbers just look, everything's rounded and all this stuff, they're not gonna put any stock in that.

Same thing with a WIP schedule. They may not completely understand them, but if you [00:30:00] can sit there and say, here's what I've got coming up and this is what profit we're gonna see, and I need some help to get through this cashflow crunch as we're growing, and you can prove it to them and you know, give them something to go by, I think that's one of the underutilized ways a WIP can help.

Stephen Brown: That's right.

Wade Carpenter: So, I know we've gone really long on this one, but I'm sure we could spend a lot more time talking about some of these scenarios. I hope this has been helpful. Any final wrap up takeaways for us?

Stephen Brown: No, I think we've covered everything. Just to summarize the podcast, WIP is an important tool. It's one of the important accounting tools you have in your bag. The elements that create them are simple. The things going on behind the scenes can be complicated. But the faster you master it, the more money you're gonna make. 

Wade Carpenter: Wow. I love that. End on that. For those of us listening I did actually put together a how to book on this. So if you're interested, go to [00:31:00] CarpenterCPAs.com and we can offer that or Stephen, I don't know if you wanted to offer your WIP schedule.

Stephen Brown: Sure. You can reach out to me at stephen@mcwins.com and I'd be happy to email that to you.

Wade Carpenter: Great. Okay, well I hope this has been informative for everybody. We do this every single week and appreciate it if you like, share or subscribe. It always helps the channel out. And we will see you on the next show.