How to calculate work in progress in construction

When you first started your construction business, most of your projects were probably relatively small and fairly short. Most new construction businesses tend to take on smaller jobs that they can finish within a few weeks or even days. This means that you very rarely have a lot of work that carries over from one month to the next.

However, as your business grows, your projects will likely become larger and more complex, and they will take longer too. This is usually the time that your accountant starts asking you for WIP or work in progress. Here’s what you need to know about what that is and how to calculate work in progress in construction.

Accounting, construction, and work in progress

If you were to try to pick two things that were as far apart as possible, you wouldn’t do too badly if you chose construction and accounting.

Accounting is all about rules and hard deadlines, while construction is more flexible and tends to change from one day to the next. However, even though you like to go with the flow in your construction business, it’s still a business, so your accountant will want certain financial information by very specific dates.

Work in progress is one of the things they will need to know.

Work in progress, or WIP, as it’s also known, is simply the amount of work that has been completed on a project but not yet billed by the date your accountant needs it.

Because accountants have to compare revenue and money coming into expenses and money going out, this helps them to create a clearer picture of where you stand at a particular moment in time, even if that moment does not conveniently line up with the day you invoice your completed project.

How to calculate WIP in construction

In the construction world, most contractors and construction companies progress bill projects on a monthly basis, but if you haven’t billed a project by the time your accountant wants a figure for WIP, all you need to do is calculate what you would be progress billing on that project up to that point (less any progress billing you’ve already submitted.)

So, in the very simplest terms, work in progress in construction is any work that has been completed but has not yet been billed to your customer.

Better construction estimating software makes construction accounting easier

If you’ve recently reached the point in your construction business where your accountant is asking for things like work in progress and you’re finding it hard to get the information they want, it might be time to upgrade your construction estimating software.

Better construction estimating software like Bolster, which breaks quotes down into easy-to-work-with line items, makes it much easier to calculate work in progress and progress billing when you need to. So, if you need a little help getting your construction accounting processes dialled in, contact our team, and let’s talk about upgrading your construction estimating software.