Your Biggest Financial Risk Isn’t a Lack of Work. It’s Not Knowing Whether Your Work Is Actually Profitable.
By Michael Jamison, CPA, CGMA
If I had to identify one financial reporting issue that consistently separates successful construction companies from those that eventually struggle, it would be this:
They do not adequately track Construction-in-Process (CIP) or Work-in-Progress (WIP).
This is especially true for construction companies in the $5 million to $50 million annual revenue range that are performing larger jobs from $500,000 to several million dollars. At this stage, the company is often no longer doing short projects that start and finish in the same month or quarter. It may be building custom homes, commercial buildings, large renovations, tenant improvements, site work, or specialty trade projects that span one year or more.
That is when the financial risk changes.
A contractor can have a strong bank balance, plenty of work, and a full backlog, while still losing money on the jobs it has already committed to finish.
The reason is simple: cash flow and profitability are not the same thing.
A Growing Contractor’s Most Common Financial Blind Spot
When a construction company is small, the owner can often keep a pretty good pulse on the business by watching the bank account, knowing which invoices are outstanding, and staying close to each job.
That approach becomes dangerous as the business grows.
Once a company has multiple projects underway at the same time, each with different billing terms, change orders, retainage, subcontractor schedules, and cost pressures, the owner can no longer rely on instinct alone.
The bank account may show cash that has been collected from customers but not yet earned.
That distinction matters.
If a customer pays ahead of the work completed, the company may feel strong financially. But that cash represents a future obligation. The contractor still has to pay labor, materials, subcontractors, project managers, warranty costs, insurance, equipment, and overhead to finish the job.
If the company spends that money as if it is profit, the problem may not appear immediately. It may show up six months later when the remaining contract balance is not enough to complete the remaining work.
A $1 Million Project That Looks Good Until It Doesn’t
Let’s look at a simple example.
A contractor wins a $1 million project expected to take fourteen months. The original estimate looks solid:
Contract value: $1,000,000
Estimated cost: $850,000
Expected gross profit: $150,000
Expected gross margin: 15%
The project starts well. The customer approves early draw requests, and the contractor is paid quickly.
By month six:
Billings issued: $700,000
Cash collected: $650,000
· Costs incurred to date: $575,000
Cash position: strong
If the owner is looking mostly at cash, the project feels healthy. The company has collected most of the contract value, vendors are being paid, and the job appears to be moving forward.
But the CIP schedule tells a very different story.
After updating the estimate to complete, management discovers:
| Project Measure | Amount |
| Contract value | $1,000,000 |
| Original estimated cost | $850,000 |
| Expected gross profit | $150,000 |
| Billings by month six | $700,000 |
| Cash collected by month six | $650,000 |
| Revised total estimated cost | $1,150,000 |
| Projected result | ($150,000) loss |
| Profit swing from original estimate | $300,000 |
The project is only 50% complete.
Revised total estimated cost is now $1,150,000.
The project is expected to lose $150,000.
The company has billed $700,000 but only earned $500,000 of revenue based on progress.
The company is overbilled by $200,000.
That $200,000 of overbilling is not profit. It is money the company has collected for work it still has to perform.
And worse, the project that was supposed to generate a $150,000 profit is now projected to lose $150,000.
That is a $300,000 swing from the original expectation.
Without a CIP schedule, the owner may not catch this until the back half of the project, when the company has already used much of the cash and still has substantial work left to complete.
This is how profitable-looking contractors get into trouble. Not because they did not have revenue. Not because they did not have customers. But because they did not know the true economics of the work they had already sold.
Real-World Warnings From Homebuilder Bankruptcies
These issues are not theoretical.
Over the last several years, several homebuilders and contractors have been in the news after customers paid significant amounts toward homes that were not completed, subcontractors claimed they were not paid, and homeowners were left with unfinished projects.
One example involved Davis Custom Homes in Iowa. Local news reports described families who had paid substantial amounts toward custom homes, only to later encounter stalled construction, unpaid subcontractors, mechanic’s liens, and lawsuits. In one report, homeowners said they had signed off on bank draws for work, then later heard from unpaid subcontractors and discovered the work was not lining up with the funds that had been advanced. Other reporting described multiple lawsuits against the company and homeowners trying to determine where their money had gone.
Another example involved Van Der Valk Construction in Citrus County, Florida. According to news reports, Van Der Valk Construction filed for Chapter 11 bankruptcy in 2025 while dozens of homebuyers were left with unfinished homes. Court filings referenced in those reports indicated more than $1 million in liabilities, less than $100,000 in assets, and at least 58 homebuyers impacted. Homeowners interviewed by the media described paying hundreds of thousands of dollars toward retirement homes that remained unfinished years after construction began.
Every construction company bankruptcy has its own facts, and no outside observer should assume that one financial reporting issue caused the entire failure.
But these stories do illustrate a risk that every growing contractor should understand:
A construction company can collect money faster than it earns it.
When that happens, the business may look strong on a cash basis while actually building a future cash shortage into its remaining backlog.
The Bigger the Job, the Bigger the Risk
This becomes especially important for contractors in the $5 million to $50 million revenue range.
At this size, the company is often large enough to take on meaningful work, but not yet large enough to absorb multiple major project losses.
A $50,000 estimating mistake on a small project may be painful.
A $300,000 estimating mistake on a $2 million project can wipe out the profit from several successful jobs.
Two or three problem jobs at the same time can put the entire company at risk.
Large, long-duration projects create more exposure because more can change between the date the contract is signed and the date the work is completed:
- Labor rates can increase.
- Materials can cost more than expected.
- Subcontractors can miss deadlines or increase pricing.
- Change orders can be disputed or delayed.
- Productivity can fall below estimate.
- Weather, permitting, inspections, or customer decisions can slow progress.
- Retainage can tie up cash.
- Warranty obligations can emerge after completion.
If the financial statements do not capture these changes through updated job estimates and percentage-of-completion reporting, the owner may not see the loss until it is too late to respond.
What a Good CIP Schedule Should Show
A Construction-in-Process schedule should help answer one very important question:
- How much profit have we actually earned, and how much risk remains in the jobs we still have to finish?
A good CIP schedule should include:
- Original contract amount
- Approved change orders
- Revised contract amount
- Estimated total cost
- Costs incurred to date
- Estimated cost to complete
- Percentage complete
- Revenue earned to date
- Billings to date
- Overbillings
- Underbillings
- Gross profit earned
- Projected gross profit or loss
- Backlog remaining
This schedule should not be prepared once a year for the CPA firm after the year is over.
For contractors performing larger projects, it should be reviewed monthly or at least quarterly by management.
The value is not just accounting compliance. The value is better decision-making.
A good CIP schedule helps identify which jobs are producing the margin expected, which jobs are slipping, which project managers estimate accurately, which customers create scope problems, and which types of work the company should pursue or avoid.
Why Reviewed Financial Statements Matter
As construction companies move into larger projects, the audience for their financial statements changes.
The owner is not the only person who cares about the numbers.
Banks care.
Bonding companies care.
Large customers care.
Developers care.
Government agencies care.
Sophisticated private companies care.
When a contractor is bidding on a $2 million, $5 million, or $10 million project, the customer wants confidence that the company can finish the job.
A reviewed financial statement prepared by an independent CPA firm gives outside parties more confidence than internally prepared cash-basis financials.
When those reviewed financial statements are supported by accurate CIP schedules, they show that management understands its work in process, backlog, overbillings, underbillings, and projected profitability.
That creates credibility.
Sophisticated customers do not just want the lowest bidder. They want a contractor that will still be financially healthy when the project is supposed to be completed.
Bonding Capacity Often Depends on This
CIP reporting is also critical for bonding.
A surety company is taking real risk when it provides a performance bond or payment bond. If the contractor fails, the surety may be responsible for stepping in or financing completion of the project.
Because of that, sureties pay close attention to:
- Working capital
- Net worth
- Backlog
- Gross profit trends
- Overbillings and underbillings
- Completed contract history
- Current job performance
- Reviewed or audited financial statements
A contractor that cannot produce reliable WIP schedules will often struggle to increase bonding capacity.
A contractor that can show accurate financial statements, disciplined job costing, and reliable gross profit tracking is in a much stronger position to earn the confidence of the bonding company.
That can be the difference between staying at the same project size or being able to compete for larger, more profitable work.
The Bottom Line
For a construction company doing $500,000 to multi-million-dollar projects that span one year or more, cash-basis thinking is not enough.
The question is not simply:
- How much cash do we have?
The better questions are:
- How much of that cash have we actually earned?
- How much work do we still owe the customer?
- Are our remaining billings enough to complete the remaining work?
- Are our projected margins improving or deteriorating?
- Do our financial statements create confidence with banks, bonding companies, and sophisticated customers?
A well-maintained CIP schedule helps answer those questions.
It can reveal project losses months before the bank account shows a problem.
It can prevent owners from mistaking customer deposits and progress billings for profit.
It can improve decision-making, bonding capacity, customer confidence, and long-term financial stability.
Most construction companies do not get into trouble because they have no work.
They get into trouble because they do not fully understand whether the work they already have is actually profitable.
And once your company is doing large jobs that stretch over many months or years, that is not a detail you can afford to guess at.
Sources Referenced
- WHO 13 News, ‘Another family’s dream home turns into nightmare after contractor stops communication,’ July 20, 2025.
- KCCI 8 News, ‘Central Iowa contractor Davis Custom Homes facing multiple lawsuits,’ August 21, 2025.
- ABC Action News / Tampa Bay 28, ‘Citrus County homebuyers left with unfinished homes as builder files bankruptcy,’ May 15, 2025.
- Realtor.com, ‘Florida Homebuyers Left With Unfinished Homes After Builder Goes Bankrupt,’ May 25, 2025.
