Your P&L says you lost $75,000. You didn't.
A builder came to me last year convinced they'd had a shocking twelve months. Revenue down, costs up, a loss sitting on the bottom line. They'd already started talking about cutting staff.
Except they'd paid for materials, subcontractors and labour on three jobs that hadn't been invoiced yet. All of the cost, none of the income. On paper it looked like a disaster. In reality they were sitting on a profit.
This is work in progress, and it's the single most common reason a building business misreads its own numbers.
What work in progress actually is
Every other business gets paid at roughly the same time it incurs the cost. You buy the stock, you sell the stock, both land in the same month.
Building doesn't work like that. You pour the slab in May, you frame it in June, and you might not claim any of it until July. The money goes out weeks or months before it comes back in.
Work in progress is simply the value of work you've done but haven't billed for yet. It's real money and it belongs to you. It just hasn't arrived.
If nobody accounts for it at year end, your profit and loss shows every dollar you spent and none of the income those dollars are going to produce. So it shows a loss. A loss you never actually made.
Why it matters more than it sounds
You make decisions off a number that isn't true
The builder I mentioned was about to let people go over a loss that didn't exist. That's the version of this that keeps me up at night.
Your tax gets lumpy and unpredictable
If a big WIP adjustment lands in one year and not the next, your taxable income swings around in a way nobody warned you about. That's often the real story behind a tax bill that comes out of nowhere.
And in Victoria, it now limits how much work you can take on
Since 1 July 2026, a domestic builder's revenue is capped at twenty times their net tangible assets. A phantom loss reduces your retained earnings, which reduces your net tangible assets, which reduces the amount of work you're permitted to take on.
At twenty times, a $75,000 loss that isn't real still costs you $1.5 million of building capacity. That's an expensive way to keep tidy books.
How to know if this is happening to you
A few signs, and any one of them is worth a look:
Your profit swings wildly from year to year without your workload changing much
You finished a busy year with a loss you can't explain
Your accountant makes a large adjustment at tax time that you don't really understand
You have jobs part-complete at 30 June, which is most builders, most years
How we fix it
At its simplest, it's four numbers per job: what the job is contracted for, what it's cost you so far, what you've billed so far, and how complete it is.
From those you can work out how much of that job's revenue you've actually earned, and whether you're over-billed or under-billed on it. Under-billed means you've done work you haven't charged for yet, and that's the part that goes missing from your accounts.
Done once a year at balance date, it stops your accounts lying to you. Done monthly, it tells you which jobs are drifting while you can still do something about it. That's the version I'd push for.
Where to start
Pull up any job you had running at 30 June. Add up what it cost you by that date, and what you'd invoiced by that date. If the costs are bigger than the billing, you were carrying work in progress, and unless someone adjusted for it, your accounts understated your profit.
If you'd like a hand setting this up so it happens every month without you thinking about it, book a free 30-minute call and we'll go through one of your jobs together.