The work in progress job schedule is a critical report to review at year end. The WIP can affect your current year end financial results, via the under and over billings adjustment, and it can help set up the coming year for success. All it takes is a little bit of review and discussion and keeping these 5 points in mind.
Here are our top tips to get the WIP Job Schedule, and your company financials, ready for year-end and the new year:
- Make sure your list of jobs is complete – Sometimes you want to “clean-up” the job list. This is great, don’t remove a job from the Job Schedule that may have open costs (warranty, open punch list items). Jobs are typically done when all the costs have been recorded for the job, not necessarily when the job is final billed. If you think there will be warranty costs, you may want to leave the job on the job schedule and include those costs in your total estimated cost. Don’t forget to account for any change orders in the schedule as well.
- Double check your cut-off – Because we want to make sure the job schedule is accurate, make sure that you are done posting costs to the year before you finalize this schedule. Adding costs after you have completed the WIP schedule will misstate your under and over billings (and net income as a result). To fix it requires you to then go back and rework the schedule. No one enjoys rework!
- Give it your best estimate – We tell clients to plan the contract amount and the estimated cost totals as though it was the end of the job and you are looking backwards. What will you final bill the customer? What will your final costs be? Construction accounting relies heavily on the estimates of our project managers and estimators. Sometimes it is easier if you envision the end of the job to come up with the best total contract and estimated costs.
- Get real – There is a second part to giving it your best estimate. This is the time to accept the true cost of your job, especially if it is below the original estimate. We don’t want to sandbag and we don’t want to over-glorify a job, but the best, realistic estimate of how the job is doing will prevent any unnecessary adjustments to your under and over billings (and profit) next year. For many contractors, this won’t be the last time this job schedule is reviewed. It can be a part of the look-back calculation for the subsequent year. It can be tested as part of your outside accountant’s work. Make sure your numbers are accurate.
- Check your backlog – One thing we like to monitor with our clients is backlog going into the new year. Our consistent performers go into the new year with about 30% of their full year’s revenue goal under contract or in progress. This is a good time to take a hard look at how you are starting the year.
Year-end is a busy time. January is especially busy between getting the year closed and tax filings done. Even though there is a lot to be done and the to-do lists are long, don’t miss this opportunity to do a thorough scrubbing of that work-in-progress job schedule. You’ll be glad you did!
Want to learn how to create your own Work-In-Progress job schedule? We’ve got a whole class on it! Click here to learn more!