WHY TRADE
CONTRACTORS
JOBS LOOK PROFITABLE
BUT AREN'T.
Trade contractor jobs look profitable because overhead costs are hidden inside the job costs, the estimate doesn't match what was spent, and revenue is being recognized before it's truly earned. The result is a P&L that shows profit while the bank account heads in the opposite direction.
You close a job. The numbers look okay, maybe even good. Then three months later, when all the costs finally show up, the picture is completely different. This isn't bad luck. It's a structural problem in how costs are categorized and tracked.
Overhead Is Being Job Costed Instead of Tracked as Overhead
When superintendent time, project management, office admin, and general equipment upkeep get charged to specific jobs, the jobs look expensive and overhead looks artificially low. But when you bid future work at that overhead rate, you're underbidding, because the real overhead is still there, just hidden. Jobs look profitable next to the estimate, but the company is bleeding from overhead that was never captured correctly.
The Estimate and the Actuals Speak Different Languages
Estimators think in phases. Accountants think in line items. When the structure is different, you can't compare apples to apples. A job can look profitable in the estimate and be a disaster in the actuals, but you can't tell, because the two documents don't map to each other. The variance stays hidden until it's too late to do anything about it.
Revenue Is Being Recognized on Unapproved Work
Draft invoices, unapproved change orders, and unapproved time and material tickets all inflate revenue that hasn't been earned. The job looks profitable because revenue is high, but that revenue hasn't been collected. When it doesn't come in, the job was a loss. Real revenue is only what you invoice with confidence you'll actually collect.
Blaming Labor
Labor is usually the scapegoat when jobs look profitable but aren't. In most cases, labor isn't the problem: the cost structure is. Labor costs get tracked in a way that makes them look higher than they are, because burden isn't separated from base wage, or non-productive time gets mixed with productive time.
Looking at the P&L Monthly
The P&L tells you what happened last month. It doesn't tell you why, which project caused it, or what you can do about it. Without job level data, the P&L is a rear view mirror. By the time you see the problem, the project that caused it has already closed.
Trusting the Software Report
The software shows you exactly what you put into it. If the job cost structure is wrong, if costs sit in the wrong categories, if overhead and job costs are mixed, the report will look clean and still be wrong. The structure has to be correct before the software output means anything.
Waiting Until Tax Time
Tax time accounting and management accounting are different things. Your CPA builds your tax return from your books, but your books were built to record history, not to give you real profitability. Most contractors get their first honest picture of profitability in April, for the year that already ended.
- Chapter 1: Separate job costs from overhead with the 7-category structure so costs land in the right place every time
- Chapter 3: Calculate overhead separately, and never bury it inside project costs
- Chapter 4: Align the estimate and the actuals to the same language so you can compare them at any point
- Chapter 5: Set up software so your PM can pull live job cost data in 30 seconds, not wait for a report
- Chapter 7: Run cost to complete every month and catch overruns while you can still fix them
CONTROL Chapter 1 covers the job cost structure that separates these costs correctly. Chapter 7 covers cost to complete, the tool that tells you whether a job is trending toward profit or loss while there's still time to act. Download the templates at constructioncfo.net.
Almost always because the estimate and the job cost codes don't match. When you can't compare them in the same structure, variance stays hidden. Chapter 4 of CONTROL covers the alignment meeting, getting estimating and accounting speaking the same language before the project starts.
Cost to complete is a monthly line by line projection of what you still need to spend to finish a project. It tells you whether you're trending toward your budgeted margin or away from it while there's still time to correct course. It's covered in Chapter 7 of CONTROL.
Look at what sits in your overhead account and what gets charged to jobs. If you see superintendent time, PM time, or general equipment maintenance in job costs, and those same cost types also show up in overhead, you have a categorization problem. Chapter 1 and Chapter 3 of CONTROL address this directly.
Gross profit is revenue minus the direct cost of building a project. Net profit is gross profit minus overhead. Both matter. A job can carry 30% gross profit and still produce negative net profit if your overhead runs 32%. Most trade contractors focus on gross profit but don't calculate overhead accurately enough to know their net.
A bookkeeper records history; a construction specific fractional CFO rebuilds the structure so the numbers mean something going forward. Sulphur Prairie Management installs the 7-category job cost structure and cost-to-complete reporting as part of the CONTROL system.
STOP GUESSING WHY YOU ARE BROKE.
CONTROL covers the financial operating system for trade based subcontractors, including trade contractors. Get the book.
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