How does retainage affect construction cash flow?

Most construction contracts hold back a percentage of each payment — typically 5 to 10 percent — until the project is complete. This means subcontractors may not collect the full value of their work until months after the job closes. On a $1M contract at 10 percent retainage, that is $100K sitting outside the business until final completion and acceptance.

Why does growth make construction cash flow worse?

As construction companies grow, they take on larger projects and run more jobs simultaneously. This increases payroll exposure and material spending while payments continue to arrive on delayed schedules. Without structured cash forecasting, owners discover financial pressure only after it has already built up across multiple jobs.

What financial systems fix the profit vs cash problem in construction?

Three systems working together close the gap: disciplined job costing that tracks actual costs against estimates in real time, WIP reporting that shows overbilling and underbilling on active jobs, and a 13-week cash flow forecast that maps when money goes out and when it comes in so the owner sees pressure before it becomes a crisis.

How do I know if my construction company has a cash flow problem vs a profitability problem?

If your P&L shows profit but your bank account is consistently tight, you have a timing problem — not a profitability problem. If jobs are closing at lower margins than estimated, you have a profitability problem. Job costing shows which one it is. Most subcontractors are surprised to find both happening at the same time on different jobs.

What does a construction CFO do?

A construction CFO focuses on the financial systems driving a construction company's operations — financial forecasting, project profitability analysis, cash flow planning, and financial system design. Where an accountant records what happened, a CFO helps the owner understand what those numbers mean for the future and makes sure the right decisions get made before problems show up.

What is the difference between a construction accountant and a construction CFO?

Accounting focuses on recording past financial activity — transactions, reconciliations, tax filings. A construction CFO focuses on interpreting that data and planning for the future — cash flow forecasting, job performance analysis, and helping the owner make better decisions about projects, hiring, and growth. Both roles are important but they serve completely different purposes.

Does a small subcontractor need a CFO?

Not a full-time one. Most subcontractors in the $1M to $12M revenue range get everything they need from a fractional CFO — someone who handles the financial leadership function part-time at a fraction of the cost of a full-time hire. The key is having someone who understands construction operations, not just accounting.

How does a construction CFO help with growth?

By making sure growth happens in a controlled and sustainable way. The financial system that works at $2M breaks down at $5M. A construction CFO builds the job costing structure, cash forecasting, and reporting that lets the business scale without the owner losing visibility into what every job is actually making.

How much does a fractional construction CFO cost?

SPM's fractional CFO services start at $2,900 per month for the Executive Financial package, which includes monthly CFO advisory, controllership, job costing, bookkeeping, and strategic accountability meetings. Services are tiered by the client's last 12 months of revenue.

Can my CPA handle my construction company's financial management?

A CPA can handle tax and compliance work, but most are not set up to manage the operational financial side of a construction business — job costing, cash flow forecasting, WIP reporting, and monthly financial reviews tied to what is happening on active jobs. Those functions require someone inside the business, not just at tax time.

Do I need both a CPA and a CFO for my construction company?

As a construction company grows, financial complexity increases and most businesses benefit from both. A CPA ensures compliance and accurate reporting. A CFO provides operational clarity and forward-looking financial leadership. Together they cover both regulatory requirements and the day-to-day financial decisions that drive profitability.

When should a subcontractor hire a construction CFO?

When the owner is spending more than five hours a month on financial questions, when cash flow is unpredictable, when jobs are closing without a clear picture of what they actually made, or when the business is growing faster than the financial system can track. Those are all signs financial leadership is needed — not just accounting.

What is job costing in construction?

Job costing assigns every expense — labor, materials, equipment, subcontractors, and overhead — to a specific project. This lets a contractor compare what a job actually cost against what was estimated, see which projects are most profitable, and identify where costs are running over before the job closes.

Why do subcontractors need job costing?

Without job costing, a subcontractor has no way to know which jobs make money and which ones don't. The P&L shows the total but not the breakdown by project. Job costing answers the questions that actually matter: which scopes are profitable, which GCs are worth working with, and where costs are consistently beating estimates.

What are the most common job costing problems for subcontractors?

Delayed cost entry, unclear or inconsistent cost categories, and incomplete tracking are the most common issues. When costs get entered weeks after the work is done, the data is too stale to act on. When cost categories do not match the estimating structure, actual vs estimated comparisons are meaningless.

How do you set up job costing for a construction company?

Start by standardizing cost categories across every project so they match how you estimate — labor by trade, materials by type, equipment, subcontractors, and overhead allocation. Then build a process for timely cost entry from the field. Finally, set up a monthly review comparing actual costs to estimated costs on every active job. SPM uses ControlQore to build this structure for subcontractors.

What software is best for construction job costing?

ControlQore is SPM's preferred platform for subcontractor job costing — purpose-built for the trades, more affordable than legacy systems like Sage and Foundation, and priced at approximately $100 per month per $1M in revenue. It scales without the overhead of enterprise systems.

What is a construction WIP schedule?

A WIP schedule tracks the financial status of every active job. It shows total contract value, costs incurred to date, percentage of completion, revenue recognized, and billings completed. This tells a contractor whether each project is overbilled or underbilled and whether the financial statements accurately reflect what is actually happening on active jobs.

What is overbilling and underbilling in construction?

Overbilling means a contractor has billed more than the percentage of work actually completed — they are ahead of the work. Underbilling means the contractor has completed more work than they have billed — they are behind on collections. Both show up in the WIP schedule and both affect cash flow and financial accuracy in different ways.

Why do lenders and bonding companies require WIP reports?

Because a balance sheet alone does not tell the full story for a construction company. WIP reporting shows whether the revenue on the books is real — backed by actual work performed — or whether it is a billing position that could reverse. Lenders and bonding companies use WIP schedules to assess the true financial health of a contractor before extending credit or bonding capacity.

How often should subcontractors update their WIP schedule?

Monthly at minimum, tied to the billing cycle. The WIP schedule should be updated every time a pay app goes out so the percentage complete and billing position stay current. For contractors with multiple large active jobs, updating WIP more frequently gives earlier warning on jobs that are developing problems.

How does WIP reporting help manage project risk?

It surfaces problems early. A job that looks fine on the P&L may show significant underbilling on the WIP schedule — meaning collections are falling behind costs. Catching that in month two of a six-month job gives the owner time to accelerate billing, review cost-to-complete estimates, and address the issue before it becomes a cash crisis at closeout.