The financial challenges behind the work
- Projects exceeding estimated labor and material costsOverruns come straight out of gross profit. If they aren’t caught until the job closes, the same assumptions go into the next bid.
- Change orders that aren’t documented or billedExtra work without a signed change order or an invoice is work you paid for and didn’t get paid for.
- Customer deposits mistaken for available profitA deposit is money for work still ahead. Spending it on overhead or the last job leaves the next one short of cash.
- Subcontractor costs reducing expected marginsSub pricing that drifts from the estimate, or extras billed without approval, quietly narrows every job’s margin.
- Inconsistent progress billingWhen billing falls behind the work, you finance the project yourself and cash gets tight even on profitable jobs.
- Limited visibility into work in progressWithout a current view of each open job, a problem project usually shows up only after it’s too late to fix.
The numbers that matter
These are the measures that tell contractors and remodelers the most about how the business is really doing.
Estimated vs. actual job costs
What it measures: Whether projects are finishing within their original budgets, by materials, labor, subcontractors and other costs.
Why it matters: Shows where estimates need adjusting before the next bid.
Gross profit by project
What it measures: How much remains after the project’s direct costs.
Why it matters: Tells you which project types and customers are worth pursuing.
Labor cost variance
What it measures: Whether actual labor is exceeding estimated labor.
Why it matters: Points to scheduling, productivity or estimating issues while you can still act.
Unbilled change orders
What it measures: How much completed extra work hasn’t been billed yet.
Why it matters: Unbilled work is profit and cash left on the table.
Cash flow by project
What it measures: Whether customer payments are keeping pace with project expenses.
Why it matters: Shows which jobs are funding themselves and which are draining the bank account.
A $200,000 project that didn’t produce the expected profit.
Hypothetical illustration—not a client result and not a guarantee of results.
| Estimated | Actual | |
|---|---|---|
| Original contract | $200,000 | $200,000 |
| Direct costs | $150,000 | $175,000 |
| Gross profit | $50,000 | $25,000 |
| Gross margin | 25% | 12.5% |
Where the extra $25,000 came from
| Labor overrun | $12,000 |
|---|---|
| Material increases | $8,000 |
| Unbilled change-order costs | $5,000 |
The contractor completed a $200,000 project but earned half the expected gross profit: $25,000 instead of $50,000.
Gross profit is before company overhead such as office staff, insurance and vehicles.
The business lesson
None of these overruns had to be a surprise at the end. Tracking costs against the estimate during the project creates chances to spot a labor overrun, push back on a price increase, or bill a change order while the job is still running.
How AM Financial helps
Your financial reporting should help you understand more than total revenue and expenses. It should show project costs, gross margins, outstanding payments and upcoming cash requirements.
- Job-profitability reporting: Compare estimated and actual costs on each project, including approved change orders, so you can see what every job earned.
- Cash flow planning: See collections, retainage, supplier payments and payroll on one timeline before cash gets tight.
- CFO services: Use your numbers for pricing, hiring and growth decisions, with a budget and forecast to measure against.
- Financial operations support: Add progress billing support or advanced construction reporting, such as a WIP schedule, where it’s in scope.
Monthly bookkeeping is included in every package. Job-profitability reporting and a monthly cash outlook are part of Profit & Cash Flow and above. Budgeting, forecasting and decision analysis are part of Strategic CFO Partnership. Cleanup, initial job-costing setup and financial operations support (such as payroll, invoicing or advanced construction reporting) are scoped separately. Your written proposal spells out exactly what’s included.
What working together looks like
What we review
To build an accurate picture of the business, we typically review:
- Estimates and contract values for open and completed jobs
- Supplier and subcontractor invoices coded to each job
- Labor hours or crew assignments by job
- Customer deposits, progress billings, retainage and approved change orders
We work from your accounting software, bank and credit card activity, and the records your team already produces. Documents are shared through our secure client portal or a shared folder, and you don’t have to change field or estimating software to get started.
Reporting you may receive
Depending on your package and agreed scope, reporting for your business can include:
- Gross margin by project, including approved change orders
- Subcontractor costs by job compared with the estimate
- Customer deposits and progress billings still to be earned
How it supports your decisions
Reviewed together, these reports help you decide which projects to bid, how to price them, when you can afford to add a crew or project manager, and how much cash to keep on hand. We walk through the numbers with you in plain English at your agreed review meetings.
Questions contractors and remodelers ask
How do I know whether each construction project is profitable?
Every cost needs to land on the right job: materials, subcontractors, labor and job-specific equipment. Then compare each job’s revenue, including approved change orders, with those costs. Consistent project coding on bills and timesheets matters more than extra detail.
Should customer deposits be treated as profit?
No. A deposit is money received for work you haven’t done yet. It’s recorded as a liability and earned as the work is completed and billed, so a large deposit doesn’t make a month look more profitable than it was.
How should change orders affect job profitability?
Each approved change order should add both revenue and cost to the same job. That way the job report reflects the project as it was actually built, and unbilled extra work shows up instead of quietly reducing your margin.
What financial reports should a general contractor review?
Monthly financial statements, a job profitability report comparing estimated and actual costs, accounts receivable including retainage, and a cash flow forecast. If you run several longer projects, a work-in-progress schedule adds a lot of insight.
Why can a profitable contractor still struggle with cash flow?
Profit is earned as work is completed, but cash moves on its own schedule. Deposits, progress billing, retainage, supplier terms and payroll timing all create gaps. A cash flow forecast shows those gaps ahead of time.