Ask ten small contractors how their current jobs are performing and nine will tell you “good” or “fine” based on whether checks are clearing. That is not financial control. That is hoping the bank balance keeps lying to you in a friendly direction. The Work in Progress report — WIP for short — is the single document that separates contractors who know what is happening on their jobs from contractors who find out at the closeout meeting.

A WIP report compares what you have billed to what you have actually earned, job by job, every single month. It is the construction industry’s version of the truth serum. Run it wrong and you will pay taxes on phantom profit, miss bonding capacity, or quietly burn through cash because you have been spending money that belongs to the next job. Run it right and you will catch profit fade in week three instead of month nine.

What a WIP Report Actually Measures

A WIP report has one job: reconcile the gap between billings and earnings. Billings are what you invoiced. Earnings are what you have actually completed, measured by cost. Those two numbers are almost never equal, and the difference is the most diagnostic piece of information in your entire business.

The core formula is straightforward. Take your costs to date on a job and divide by your estimated total cost at completion. That percentage — cost-to-cost — is your percentage of completion. Multiply it by your contract value and you get revenue earned. Compare revenue earned to revenue billed and you have either overbillings or underbillings.

If you have billed more than you have earned, you are overbilled. That is not extra profit. That is a loan from your customer that you owe back in labor and materials.

The trap is treating overbillings as cash you can spend. Plenty of contractors have funded the next mobilization with the previous job’s overbilling, then watched the math catch up when production slows and the billings cannot keep racing ahead of costs.

Building a WIP Report From Scratch

You do not need accounting software with a five-figure annual license to run a credible WIP. You need eight columns and discipline. For every active job, track the following:

  • Contract value — original contract plus approved change orders only. No verbal promises.
  • Estimated cost at completion — your latest honest forecast, not the original budget.
  • Estimated gross profit — contract value minus estimated cost.
  • Costs to date — everything that has hit the job, including labor burden, materials, subs, equipment.
  • Percent complete — costs to date divided by estimated total cost.
  • Revenue earned — percent complete times contract value.
  • Revenue billed to date — sum of pay applications submitted.
  • Over/under billing — revenue billed minus revenue earned.

If billed exceeds earned, the difference is a liability on your balance sheet — literally money you owe the project. If earned exceeds billed, it is an asset, and it usually means you are financing the customer with your own working capital. Both situations need attention. Neither is automatically bad. Both become disasters when ignored.

The Estimated Cost at Completion Is Where Contractors Lie to Themselves

The whole WIP depends on one number: estimated cost at completion. Get that wrong and every other figure on the report is fiction. The temptation is enormous — if you leave the original budget in place even though you know labor is running 18 percent over, the percent complete looks healthier and the report shows phantom profit you can sleep with.

That phantom profit is exactly what causes profit fade. The job looks like it is making money for nine months because nobody updates the cost forecast, then in month ten reality lands all at once. Update the estimate every month. If you blew through 40 percent of your framing budget to get 25 percent of the framing done, the estimate to complete framing is not the remaining budget — it is whatever the actual run rate suggests it will be.

The discipline is brutal but simple: every cost code gets a monthly forecast review. Anything trending hot gets its estimate at completion raised. You cannot manage what you refuse to write down.

Smaller contractors get away with this on instinct for a while because they are personally on every jobsite. Once you cross two or three concurrent jobs, instinct fails and the spreadsheet has to do the remembering. Tools like TrestleBook make this easier by keeping job costs current as they hit, so the cost-to-date column is never two weeks stale when you sit down to do WIP.

Ready to put this into practice? Download TrestleBook Free — it’s free and works offline.

Reading the Story the WIP Tells

A WIP report is not a grade. It is a story about what is happening on your jobs. Once you have built the columns, the patterns start jumping off the page:

  • Heavy overbilling early, slim margin late — classic front-loaded schedule of values. Cash looks great until the back half of the job, when you are working without much money coming in.
  • Persistent underbilling — you are doing work faster than you can bill for it, usually because pay apps are not being submitted promptly or change orders are sitting unsigned.
  • Estimated profit shrinking month over month — profit fade in real time. Something is costing more than you bid and the estimate at completion keeps rising.
  • Costs to date exceed revenue earned by a lot — the job is bleeding and your cash position is hiding it.
  • Big jump in percent complete with no schedule progress — cost overruns being absorbed quietly. The denominator should be moving up too if the work has not moved forward.

The contractors who survive ten years are the ones who treat the WIP like a weather forecast. A storm in column seven this month is a problem you can still steer around. The same storm three months from now is a job you have to write a check to close.

How Often to Run It

Monthly is the bare minimum, and that is for the formal version your bookkeeper or CPA touches. For your own management, look at the simplified version weekly. On a residential remodel running eight to twelve weeks, monthly is too slow — the job is over before the second WIP lands.

Set a recurring time, ideally the same day every week. Pull the latest costs, update the estimate to complete on anything that moved, recalculate. The whole exercise on five to ten active jobs takes under an hour once your data is clean. The data being clean is the hard part — which is why contractors who track costs in the field on the same day they happen find this trivial, while contractors who reconstruct the week from a shoebox of receipts on Sunday night find it impossible.

WIP is not an accounting exercise. It is an early warning system. Run it weekly and small problems stay small. Run it quarterly and small problems become the reason you are calling your accountant in a panic.

The Tax and Bonding Reasons You Cannot Skip This

For contractors filing on the percentage of completion method, the WIP literally drives your taxable income. Overbilled jobs reduce taxable revenue in the current period. Underbilled jobs increase it. Skip the WIP and you either pay tax on money you have not earned, or you skate one year and get hammered the next when the truth catches up.

If you are chasing bonding capacity, your surety is going to demand a WIP every quarter and sometimes every month. Sureties read WIPs more carefully than your spouse reads the mortgage. They are looking for jobs trending sideways, over/under patterns that suggest aggressive billing, and any sign that your cash position is being propped up by overbillings rather than retained earnings.

This is the same financial discipline that separates a working contractor from a real business in any trade. The same logic applies to anyone running independent work — a solo electrician tracking jobs in Stintly for freelancing and self-employment income, or a small landlord managing rental units through KeyLoft — the format changes but the question does not: how much have you actually earned versus how much have you been paid?

Common WIP Mistakes That Hide Real Problems

Even contractors who run WIPs religiously make the same handful of errors:

  • Counting unapproved change orders in contract value — if it is not signed, it is not in the contract. Putting verbal change orders in inflates revenue earned and hides the reality that you are working for free until the paperwork lands.
  • Letting cost-to-date lag — if invoices from subs are sitting unentered, your percent complete is artificially low and you look more profitable than you are. Enter costs as they hit, not when you reconcile.
  • Forgetting labor burden — raw wages are not the cost. Burden adds 25 to 40 percent on top. A WIP using only direct wages systematically understates costs to date and overstates profit.
  • Treating retainage as billed — you billed it, but it is sitting in the customer’s account, not yours. Track it separately so cash flow projections do not assume money you have not received.
  • Never trending — a single month’s WIP shows position. A six-month trend shows direction. Save them. The trend is where profit fade hides until it is too late.

The contractors who graduate from spreadsheets to a real job-costing system — whether that is TrestleBook for the field side or a full ERP for larger outfits — do it because the manual WIP keeps getting harder as job count grows. There is a window where five jobs fit on one spreadsheet. Past that the data entry burden eats the value, and stale data makes the WIP worse than useless because you start trusting numbers that are not true.

From Surviving to Steering

Contractors who run a real WIP every month do not have fewer problems. They have the same problems, found earlier. A job trending toward a 4-point margin miss in month two is fixable — you can tighten scope, push a change order, renegotiate a sub, slow down spending. The same miss discovered at closeout is just a check you write to make the job go away.

Start simple. Eight columns, every active job, updated weekly. Look at the over/under column and ask the boring question every time: is this billing pattern sustainable, or am I borrowing from a future invoice to feel okay today? That single question, asked weekly, will catch more profit leaks than any sophisticated software ever will. The WIP is just the format that forces you to ask it.