The Work In Process Schedule

The WIP Schedule The POC Calculation Underbillings Overbillings How to use our system reports Reconciling the WIP and P/L Constructing a P/L from just a WIP Cash Flow in WIP Analysis

The POC Calculation Need the 4 basic WIP Figures Contract Price, Total Estimated Cost, Cost to Date, Billed to Date Can use Estimated Gross Profit or Cost to Complete Three step Process Calculate percent complete Calculate Total Earned on Project and Earned Gross Profit Calculate Under/Over Billing

The POC Calculation Calculate the Percent Complete Need Total Estimated Cost and Cost to Date Divide Cost to Date by Total Estimated Cost Cost to Date/Total Estimated Cost = Percent Complete

The POC Calculation Calculate the Total Earned on Project Contract Price x Percent Complete = Total Earned on Project Calculate Earned Gross Profit Not needed here, but useful in determining current period earnings 2 ways to do it Total Earned on Project – Cost to Date = Earned Gross Profit or Total Estimated Gross Profit x Percent Complete = Earned Gross Profit

The POC Calculation Calculate Over/Under Billing Total Earned to Date – Billed to Date = Over/Under Billing If number is >0, it is an Underbilling If number is <0, it is an Overbilling

Underbillings “Underbillings never come from something good!” Contractor has not billed for the amount of cost and profit they have put in place Early stage Underbillings are sometimes explainable Late Stage Underbillings are nearly always an issue Unapproved Change Orders Profit Fade not yet recognized Always a negative cash flow effect

Overbillings Can be an indication of deferred profit increases Can be a cash flow tool if used correctly Becomes an issue if overbilled and heavily into the bank line Also can indicate job cost system issues Can create Pure Job Borrow

Pure Job Borrow Occurs when you have billed your entire profit before it is earned Looks at total billings and cost to date only, excluding earned profit If Billed to Date – Cost to Date > Total Estimated Gross Profit, then there is pure job borrow If cash balances are low, then this is a much larger issue, as they will need the cash in the future

P/L Reconciliation Should use to check CPA’s work if the schedule is not included Can also use if you have a new CPA firm and want to check their work Have an excel spreadsheet that can be used

WIP Cash Flow Analysis Contractor Cash Flow Analysis