HOW TO READ CONSTRUCTION FINANCIAL STATEMENTS.
Commercial subcontractor owners need to read four documents fluently: the profit and loss statement, the balance sheet, the cash flow statement, and the work in progress schedule. Each one answers a different question, and each one has construction specific quirks that generic accounting knowledge misses. Reading all four takes about five minutes once you know what to look for.
The order counts. The P&L tells you whether the period made money. The balance sheet tells you what the business is standing on today. The cash flow statement explains why the profit isn't in the bank. The WIP tells you which jobs produced the profit and which ones are about to take it back. Read alone, any one of the four will mislead you. A P&L can look strong while the WIP says two jobs are fading, and a bank balance can look fine while the balance sheet says every dollar of it belongs to somebody's retainage.
WHAT IT MEANS.
A construction financial statement package is four documents read together: the profit and loss statement, the balance sheet, the cash flow statement, and the work in progress schedule.
WHAT EACH ONE ANSWERS.
The P&L, did you make money this period?
Revenue is total billings or earned revenue for the period, and under percentage of completion it reflects earned revenue rather than invoices, so a sub billing $10M monthly while completing only 60% of the work shows $6M of earned revenue. Cost of revenue is labor, materials, subs, equipment, and other job tied costs, broken into components you can analyze separately. Gross margin runs by trade and revenue band rather than to one figure for everybody: concrete at $1M to $5M averages 21% and electrical at the same band averages 25%, against CFMA's 21.8% gross profit margin across all respondents and the 15% to 25% specialty contractor range Jones Maresca and Company publish. On overhead, Jones Maresca and Company put total indirect cost at 8% to 15% of revenue and CFMA reports SG&A at 11.8%. CFMA also reports net income before taxes at 6.3% across all respondents, with the best-in-class top quartile at 11.9% before taxes, so most commercial subs in the $1M to $12M range running 4% to 8% are sitting around the industry average rather than well under it. SPM's floor is 10% net profit before taxes, and /construction-subcontractor-financial-benchmarks-by-trade carries the figures for your own trade and band.
The balance sheet, what do you own and what do you owe?
It's a snapshot of the business on one specific day. AR gets aged into 0 to 30, 30 to 60, 60 to 90, and over 90 days, and more than 15% over 90 days is a collections problem. Retainage receivable is typically 5% to 10% of pay apps and belongs on its own line as locked cash returning at substantial completion. Underbillings are a current asset covering costs incurred but not yet billed, which is normal in moderation and dangerous when it grows month over month without resolving. Overbillings are a current liability, good for cash and a warning when they keep growing, because they represent future revenue already collected. Six months of line of credit balances tells you whether the business generates cash or consumes it.
The cash flow statement, where did the cash go?
It reconciles net profit with cash movement, because net profit can be positive while cash bleeds out, and the reverse. Operating activities is what the work generated or consumed, and negative operating cash flow is the warning signal. Investing activities is equipment, vehicles, and real estate, usually negative for a growing sub. Financing activities is debt and equity, including line of credit draws, term loan payments, and owner contributions or distributions. The most useful read is positive net profit alongside negative operating cash flow, which means the money is sitting in AR or in underbillings. The business is profitable on paper and constrained at the bank.
The WIP schedule, which jobs are making money?
No other industry has it, and every commercial subcontractor needs to read it. Each row is one job with contract value including approved change orders, cost incurred to date, estimated cost to complete, percent complete as cost incurred divided by total estimated cost, earned revenue as percent complete times contract value, billings to date, and the over or under billed position. Two questions do most of the work. Does any job show earned revenue more than 10% below billings, which means cash is good now and future earnings are owed? Is estimated cost to complete rising month over month on the same job, which means profit fade is developing? Top quartile commercial subs run profit fade below 2% across the portfolio, while the bottom quartile runs 6% or more.
WHAT IT LOOKS LIKE IN DOLLARS.
Top quartile commercial subs run profit fade below 2% across their portfolio, and the bottom quartile runs 6% or more. The monthly WIP review is the only place that difference becomes visible early enough to do something about it, which is why the cost to complete column is the one to read first and the one most subs update least honestly.
AR aging with more than 15% over 90 days. The retainage receivable trend. Underbillings growing month over month. And the line of credit balance over six months, where consistent growth means the business is consuming cash even while the P&L looks profitable. Any one of the four is worth a conversation, and two of them together is a forecast.
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, and no add-ons.
| Last 12 months revenue | Monthly fee |
|---|---|
| Up to $1M | $1,900 to $2,900 |
| $1M to $3.5M | $2,600 to $3,900 |
| $3.5M to $6.5M | $3,800 to $5,700 |
| $6.5M to $9.5M | $5,100 to $7,100 |
| $9.5M to $12.5M | $6,100 to $8,500 |
| $12.5M to $15.5M | $7,400 to $11,000 |
| $15.5M to $18.5M | $9,400 to $13,500 |
| $18.5M+ | Quoted individually |
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.
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 rather than a report.
Your bookkeeper keeps doing the books.
You stop touching the books.
Everything in Core, and we run the bookkeeping and the controllership as well. Nobody in your office is answering coding questions or chasing a reconciliation at month end.
We do the books. No payroll.
Every job shows its margin while it's still running.
Everything in Executive, plus the job costing and WIP platform set up, loaded with your cost codes, and managed for you every month. You never have to learn it.
We do the job costing.
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