Let me paint you a picture I've seen more times than I can count.

A contractor has two related entities. Maybe it's an operating company and a holding company. Maybe it's two sister companies under the same ownership. Doesn't matter — what matters is they're both touching the same job. Both entities are cutting checks to subs, buying materials, covering costs. Money is flying out of two different bank accounts for the same project.

And nobody is reconciling the intercompany activity.

Here's what happens next. The project manager pulls up the job cost report and says, "We're looking great on this one." But they're only looking at one set of books. The other entity paid $180,000 to a sub last month that never hit the job cost report they're staring at. That "great" job? It might be underwater. They just can't see it yet.

This is not a hypothetical. This happens all the time in construction.

Why It Gets Messy

Construction companies love to set up multiple entities — and for good reason. Liability protection, bonding capacity, tax strategy, you name it. But the more entities you create, the more discipline you need on the back end to keep everything straight.

The problem is that most contractors didn't get into this business because they love accounting. They got into it because they're builders. So when Entity A pays a sub invoice that really belongs on Entity B's job, it gets coded somewhere, maybe even coded correctly in that entity's books, but the offsetting entry on the other side? That's where things fall apart.

Now you've got costs sitting in one company's books that should be reflected in another company's job costs. The intercompany receivable and payable are out of balance. And the job cost report — the single most important financial tool a contractor has — is telling a lie.

What's Actually at Stake

This isn't just an accounting housekeeping issue. This is a management decision-making issue.

When intercompany transactions aren't reconciled, you lose visibility into the true cost of a job. Period. And in construction, where margins are already thin and cash flow is everything, that's a dangerous place to be.

Think about what flows from inaccurate job costs. Your WIP schedule is wrong. Your over/under billings are off. You might be overbilling on a job you think is profitable but is actually burning cash — and when that correction hits, it's going to hurt. Or you might be underbilling because you don't realize how much has actually been spent, which means you're financing the job out of your own pocket longer than you need to.

And if you're a bonded contractor? Your surety is looking at those financials. They're looking at your WIP. If the numbers don't tie out because intercompany activity is a mess, that's a conversation you don't want to have.

The Fix Isn't Complicated — It Just Takes Discipline

Reconciling intercompany activity isn't rocket science. It comes down to a few basics.

First, every dollar that one entity pays on behalf of another needs a corresponding entry on both sides. Entity A pays a sub invoice for Entity B's job — Entity A books an intercompany receivable, Entity B books an intercompany payable and the job cost. Every single time. No exceptions.

Second, those intercompany balances need to be reconciled monthly. Not quarterly. Not at year-end when your CPA is pulling their hair out. Monthly. You sit down, you compare the intercompany receivable on one set of books to the intercompany payable on the other, and you figure out why they don't match. Because they won't match at first. They never do.

Third, the job cost reports need to reflect ALL costs on the job regardless of which entity wrote the check. If management is making decisions based on a job cost report that only captures half the spend, they're flying blind.

The Bottom Line

If you've got related entities and they're both spending money on the same jobs, you have to reconcile the intercompany activity. There's no way around it. Without that reconciliation, your job cost reports are incomplete, your WIP is unreliable, and you're making decisions based on bad information.

I've sat across the table from contractors who were genuinely shocked to find out a job they thought was making money was actually losing it — all because intercompany costs weren't being captured properly. That's not a fun meeting for anybody.

Get the process in place. Reconcile monthly. Make sure every dollar shows up where it belongs. Your future self — and your project managers, your bonding company, and your bank — will thank you.