A contractor can have a strong year and a set of monthly statements that swing wildly between profit and loss. The business is fine. The books are recording cash movement rather than the jobs that caused it.
Work in progress is the whole problem
A job started in March, progress-billed in May and finished in July generates costs and revenue in different months. Without work-in-progress accounting, March looks like a disaster and May looks like a windfall, and neither describes anything real.
- Costs accumulate against the job rather than the month they were paid
- Revenue is recognised as the work is performed, not as the invoice is raised
- The difference between the two, over- and under-billing, sits on the balance sheet where it belongs
Holdbacks are receivables, not losses
A ten percent holdback retained until substantial completion is money earned and not yet collected. Coded as a reduction in revenue, it understates the job's profitability and disappears from anything that tracks what is owed. It belongs in its own receivable account, visible and chased.
Job costing, at the level you will actually maintain
Job costing fails when it is too detailed to keep up. Materials, labour, subcontractors and equipment per job is enough to tell you which work makes money. Thirty cost codes per job is a system that gets abandoned in a busy month and is then worse than nothing.