Calculating work-in-progress for builders with Cabbage and Sage 300 CRE

Building companies have to calculate many different numbers to monitor their business effectively.

Work-in-Progress is one of the most beneficial figures any organization can have. But for building companies, it is common to struggle with getting an accurate picture including this data.

Even the accountants and financial experts that work for building companies sometimes struggle to calculate WIP accurately. Part of the problem with calculating this figure for building companies is the differences between this industry and others. Another issue that can complicate things is the unique labor arrangements building companies use to complete their jobs.

Understanding WIP and How it is Calculated

A WIP report is a tracking tool, showing management how a project is progressing and helping them see if their financial projections are on point as a project moves along.

In most traditional businesses (such as those in the manufacturing sector), tracking WIP involves valuing goods that haven’t reached their final stage. When raw materials are transformed partially through labor, their value and their role within the project changes. WIP involves placing a value on these goods and determining how far a project is from being finished.

What is the Difference for Builders?

Building projects are usually laid out differently than those in other industries. Companies tend to list a lot of materials at the beginning, because their projects are more complex than those in other industries.

This can make it complicated for accountants who have never worked with construction businesses before. Even those with previous experience may struggle to accurately calculate costs, especially when it comes to the complexities of logging labor.

Construction and building companies use subcontractors very often. Since this is somewhat rare in other industries, building companies’ WIP reports are a bit more complex on the labor side of things.

Factoring in the Changes to WIP

WIP reports list a lot of assets at the beginning if they’re made for construction companies. This can show a lot of assets at the beginning, but it is important to know how costs will pile up along the way. The unique nature of the construction industry can pose challenges for WIP reporting. However, being aware of the complexities in the building industry can make things a little easier.