Contractors commonly need a work-in-progress (WIP) report when a bank, surety, CPA, or prospective customer asks for one. Owners also need the information before taking on more or larger jobs, when they have to decide whether the business can support the additional work.
A WIP report brings together the contract amounts, job costs, estimates of the work remaining, and billings for your projects. It shows the expected profit on each job and whether billings are ahead of or behind the revenue earned.
You may already have someone keeping the books and sending you financial statements. Preparing a reliable WIP takes additional work, including current information from the people managing the jobs. The need often becomes apparent when someone starts asking questions the accounting reports alone can't answer.
When someone asks you for one
The immediate reason may be simple: someone needs a WIP report before they can finish their work or make a decision about your company.
Your bank or surety wants to understand the work underway
You apply for a line of credit, ask for a higher limit, or pursue a project that requires a bond. The bank or surety asks for financial statements and a current WIP schedule.
They're looking at the obligations your company already has. What will it cost to finish the existing jobs? Are those jobs still expected to make money? Have the profit estimates changed? Are there billing differences that need an explanation?
The WIP helps them evaluate the work underway alongside the rest of your financial information. A profitable prior year doesn't tell them enough about the contracts you're responsible for completing now.
Before preparing the schedule, confirm the reporting date and any specific requirements. If you've never prepared one, allow time to gather the records and get current estimates from your project managers.
Your CPA needs support for the financial statements
If your financial statements recognize contract revenue as work progresses, your CPA needs support for how much revenue has been earned. The invoices you've sent don't necessarily answer that question.
A WIP schedule connects the status of the jobs to the revenue and profit reported in the financial statements. Your CPA may need it to prepare the statements or as support for a review or audit.
This is also when gaps can become difficult to work around. A job is still open, but the project manager has moved on. The estimate hasn't been updated. Nobody has reconciled the change order log to the contract amount. Reconstructing that information after year-end takes time and can delay the financial statements.
A prospective customer wants to know you can finish the job
As you pursue larger projects or work for different customers, you may encounter more detailed financial prequalification requirements. A general contractor or owner may request a WIP schedule along with your financial statements.
They want to understand the commitments you're already carrying and your ability to take on another contract. The schedule gives them information about your existing work that a revenue total or list of completed projects doesn't provide.
Before you take on more or larger jobs
You don't have to wait for an outside request. When you're considering growth, the owner needs a current understanding of the work already in the business.
A larger backlog brings more work to perform, more costs to fund, and more demands on the people managing the jobs. Before adding to it, you need to know what you're committing the company to.
When you're deciding how much more work to take
Start with the expected profit on the jobs you have. Are the margins holding, or have the remaining costs increased? Are you counting on profit that the latest estimates no longer support?
That matters when you're considering another project, hiring office staff, or committing to equipment. Those decisions create obligations of their own. You need to understand what the existing work is expected to contribute before making them.
The remaining work matters too. A job may have been on the schedule for months and still require substantial labor, equipment, and management attention. A current WIP, read alongside the project schedules and staffing plan, helps you assess when those resources may be available for the next job.
When growth will require more cash
Taking on more work can mean funding payroll, materials, and subcontractors before the related customer payments arrive. Existing jobs may need cash during the same period.
The WIP helps identify billing positions that deserve attention. If earned revenue is ahead of billings, you need to understand why and when billing can occur. If billings are ahead of earned revenue, you still have work to perform against those billings.
Neither position tells you whether the customer has paid. Review the WIP with receivables, retainage, upcoming payments, and a cash forecast. Together, they help you assess whether you can support the next project and when additional financing may be needed.
If growth is already stretching the business, make the WIP review part of the monthly routine. Update the estimates with the project managers, explain significant changes, and follow up on unresolved items. An old schedule won't help much with a decision about work you're taking on now.
If someone has requested a WIP, start by confirming what they need and when. If you're planning to grow, prepare it early enough to use in the decision. In either case, the report needs complete job records, current estimates, and a reconciliation to the financial statements.
Levvigo helps contractors prepare WIP schedules and understand what they say about the work underway. If you've been asked for a report or need a clearer picture before taking on more work, learn about our WIP preparation services.
