YOUR P&L SAYS YOU'RE PROFITABLE. ARE YOU SURE?
Construction businesses can report solid net profit while the owner has no cash, the line of credit keeps growing, and every project underperformed without anybody saying so out loud. That's fake profitability, and it comes from three accounting habits that are endemic in this industry: overbilling that pulls revenue forward, deferred job losses that never reach the P&L until year end, and overhead misallocation that makes margins look better than they are.
Real profit reaches the bank. Fake profit reaches the report. That single test settles most arguments about whether a good year was a good year, because over twelve months honest profit turns into cash and the other kind turns into a bigger line of credit. The three sources are mechanical rather than dishonest. Nobody set out to cook the books. Billing got ahead of completion, a losing job stayed open, and supervision cost went to overhead instead of to the job that consumed it. Fix the mechanics and the report starts matching the work again.
WHAT IT MEANS.
Fake profitability is net profit that appears on the P&L but never reaches the bank, produced by overbilling, unrecognized job losses, and overhead misallocation.
The three sources of fake profitability aren't fraud and they aren't rare. They're the default behavior of construction books that nobody reconciles monthly. Each one is a timing problem: revenue recognized before it was earned, a loss recognized long after it was known, and a cost charged to the wrong place. None of the three changes the total over the life of a job, which is why an annual tax return can be correct while every monthly report inside that year was wrong.
WHERE THE NUMBER COMES FROM.
Overbilling that inflates current period revenue
When you bill 60% of a contract that's only 40% complete, the extra 20% reads as revenue now and the P&L looks profitable. You still have to spend the labor and materials to finish that 60%, and those costs come in over future months with no matching revenue behind them. Current period profit is inflated and future periods will deflate to pay for it. The year end number may be fine, but the monthly number is misleading everybody making decisions from it.
Deferred job losses that never reach the P&L
A job is trending to lose $40K. The project manager knows it and the superintendent knows it. Unless somebody calculates a cost to complete and recognizes the loss in the current period, it stays in work in process and doesn't reach the P&L until the job closes. If the job doesn't close until Q4, the first three quarters of the year look better than they should. Decisions made in Q2 on inflated profitability produce results nobody reads until Q4.
Overhead misallocation that keeps job cost out of view
Direct supervision, project specific insurance, and equipment dedicated to a single project all get posted to overhead on most subcontractor books. Every one of those makes the jobs look more profitable than they're while making overhead look higher than it is. The P&L nets out the same, so nobody catches it. The job level data is wrong, and job level data is what your bidding depends on.
WHAT IT LOOKS LIKE IN DOLLARS.
Here is the whole problem in two figures: 8% net profit showing on the P&L and $0 of cash built over the same period. The distance between those two numbers is where fake profitability lives. Over a full year, real profit converts to cash, so when it hasn't converted, either the profit was never there or it left through a door nobody is watching.
FOUR CHECKS YOU CAN USE.
A clean WIP schedule reports overbilling and underbilling by job. If the total net overbilled position is significant, meaning more than 10% of monthly revenue, then the P&L has been pulled forward by that amount. Real profitability is lower than the report says, and by a knowable figure rather than a guess.
If any open job is trending to lose money, that loss belongs in this period and not in the one where the job closes. The GAAP standard is to recognize a loss immediately once it's probable. Most subcontractor accounting doesn't do that unless somebody is reviewing cost to complete every month, job by job.
Add up the job level margins on every project for the month. That number should tie to the P&L gross profit after adjusting for WIP. If it doesn't tie, there's a misallocation somewhere in the cost coding. Finding it's the first step to fixing it, and it's usually one or two codes doing all the damage.
Over a full year, real profit converts to cash. If the business is showing 8% net profit and cash hasn't built, something is wrong. Either the profit is fake, from overbilling or deferred losses, or the profit is real and going somewhere else, into owner draws, debt service, or badly timed AP. Both answers are fixable, but they're fixed differently.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing. No payroll. The one-time onboarding fee is right here in the table.
| Last 12 months revenue | Monthly fee | One-time onboarding |
|---|---|---|
| Under $1M | $1,900 to $3,300 | $1,000 |
| $1M to $3.5M | $2,600 to $5,300 | $1,500 |
| $3.5M to $6.5M | $3,800 to $8,300 | $3,000 |
| $6.5M to $9.5M | $5,100 to $11,800 | $4,500 |
| $9.5M to $12.5M | $6,100 to $14,900 | $6,000 |
| $12.5M to $15.5M | $7,400 to $17,650 | $7,500 |
| $15.5M to $18.5M | $9,400 to $22,400 | $9,000 |
| $18.5M+ | Quoted individually | Quoted individually |
The onboarding fee covers migrating your books back to the start of your last taxable year and getting you fully operational in 60 days. It's billed once, with your first invoice. It's the same for all three tiers. Your first month is prorated, and your monthly engagement starts on the first of the first full month.
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items. The onboarding fee is right here in the table.
You stop guessing.
You get the CFO work. Job costing built against the way you estimate, a 13 week cash forecast, monthly WIP, and a meeting every month that ends in decisions and never in a report.
Your bookkeeper still does the books.
Every job shows its margin while it is still open.
Everything in Core, plus the bookkeeping and bank reconciliations done for you, and the job costing and WIP software set up, loaded with your cost codes, and managed every month. Use your own online software, or move to ours and we cover it.
A bookkeeper we choose does the books and reconciliations. No payroll.
You approve, and the money side gets handled.
Everything in Strategic, plus a controller we choose who handles your bills and receivables for you the way an in-house controller would. They call vendors, pay the bills and keep the accounting current. We plan the cash flow first, and you approve every payment because it is your money.
A controller we choose does the payables and receivables. No payroll, no pay applications, no collections.
FREQUENTLY ASKED.
