Why WIP is Critical for Builders!

If you’re a builder and you want to know the true health of your business, there’s one accounting item that holds the key: WIP (Work in Progress).

“Really?” I hear you say….“aren’t we chasing metrics like Gross Profit and Net Profit?”

Sure, Net Profit is the ultimate prize… BUT… if you don’t have an accurate WIP figure dialled into your financials, it’s impossible to see your true profit position – particularly when you’re in the middle of a job. And this is when you need profit visibility the most… when you have time left on a project to claw things back.

Why is calculating WIP so important for Builders?

• If calculated correctly, it gives you transparency on what profit your business is making at a point in time – not months after a project has finished – you cross your fingers – and hope you have finished in the black
• WIP recognises the value of your works underway, irrespective of when you raise a claim/invoice to the bank or a client. It gives you transparency if you are making a profit or a loss on a project and you can complete a call to action now to stop any margin hemorrhaging.
• If you respect the WIP process and invest time in it, it should give you a complete story as to how your jobs are progressing and give you a better understanding of what the cash in your bank account means.
• If you have a large positive WIP balance and you have plenty of cash – you are doing well.
• If you are carrying a negative WIP balance and you have no cash – give us a call as you are in some hurt!

What happens if you don’t factor in WIP (or get it wrong)

• If you don’t have WIP in place and you try and look at your monthly financials you will commonly see huge profit, loss, loss then huge profit – all centred around the timing of when you raise invoices.
• In addition to blurring your visibility of profit, you’ll also compromise your ability to share a successful narrative with external parties like financial lenders and regulators like QBCC. We have seen businesses breach their QBCC Minimum Financial Requirements because they didn’t have WIP in play.
• And… what’s the ultimate price of not having accurate profit figures? Sleepless nights and poor decision making.

Wouldn’t you like to get to an end-of-the-month and know exactly what money you are making (not 9 months to complete the build and then hope no more invoices come in)?

WIP completes a builder’s financials and gives the owners the information to make better decisions on your business.

Rather than flying your business blind, invest in time getting WIP accurate so you are better equipped with the information you need to make better decisions in your business.

Visit our WIP Accounting For Builders page to learn how to master Work In Progress accounting and download our free WIP Calculator.

Don’t let WIP whip you.

We hosted a webinar about the best practices for calculating Work In Progress (WIP), a critical yet often overlooked aspect of construction accounting. Led by Daniel Wilkinson, Client Director and Head of CFO Advisory, and Phil Brown, Partner and COO at Xact Accounting, the session provided valuable insights into how miscalculating WIP can impact profit visibility and financial reporting.

Watch the webinar and get a FREE WIP Calculator Template – as featured in this webinar!