Many small contractors don’t take the time to evaluate their current jobs in progress. Here are a few reasons that may lead you to do so:
- Profitability Evaluation: by keeping close tabs on your job’s price quote, your expenses related to the job (don’t forget about salaries, including those of management and office personnel), and any change orders, you will have a much better idea of the level of expected profitability. Bonus – you’ll learn what jobs are and aren’t meeting your target profitability, and how to adjust quotes and/or adjust expenditures to reach your goals.
- Scheduling: looking at your list of jobs and targeted completion dates can help you better plan your schedule. Best scheduling practices make for more efficient crews. And efficiency leads to profitability.
- Backlog measuring: sometimes it pays to look at work in progress (WIP) in a different light. Look out over the next 6 months or year and forecast your expected amount of work. What do you have to do? Is it enough, or do you need to be looking for new work to bid on? Is it too much? Maybe you need to look at expanding your crew(s) or hiring temporary help? A thorough WIP evaluation can help you plan for the future. Bonus: your bank may like to see these numbers, too!
- Billing: As a CPA that works with contractors, I am well aware that ability to bill a customer doesn’t always match up with the perfectly timed billing that the accounting world says you should have. But, a thorough WIP evaluation can help you catch jobs that billing is behind on. It can also help you evaluate financing needs, the alternative to perfect billing.
- Taxes: depending on your size, clientele, and business structure, WIP can have anywhere from a major to minor effect on your tax bill at the end of the year. Don’t know where you stand? Ask your accountant! You might find that going thru a WIP list before your year end can help!