Why Your Cost to Complete Number Hides Job Losses

Episode 168 of the Construction Accounting Podcast with George Ghazarian, CPA · 6 min 20 sec · Published 8 July 2026

Your financial statements say the job is profitable. The bank account says something else. In construction, most of that gap traces back to one estimate nobody in the office can actually verify.

Here is how estimated cost to complete drives your reported profit, why a small error rewrites your statements, and what a real monthly review should look like.

Construction Moves Huge Money and Keeps Almost None of It

Your company handles enormous amounts of cash, and very little of it belongs to you. You collect on the contract, then pay suppliers, subcontractors, labor, equipment, insurance and overhead. What you are actually trying to keep is profit, and for many contractors that is only two to three percent.

Sit with that for a second. One estimating mistake, one scheduling problem, one overlooked change order can wipe out an entire year of profit. That is why measuring job profitability correctly is not an accounting nicety. It is the business.

Your Bookkeeper Does Not Know What Happened Yesterday

Owners treat accounting as the accounting department’s responsibility. It is not. Bookkeepers record transactions. Accountants prepare financial statements. Neither one knows what happened on your jobsite yesterday.

Only your superintendent, project manager, estimator and field team know that a sub finished work and has not submitted an invoice, that material arrived and was never entered, or that labor overruns started this week. Accounting does not learn any of that by magic. Your financial statements are only as good as the information flowing in from the field, which means management has to participate.

Percentage of Completion Is an Estimate, Not a Fact

Everybody wants one number. What percent complete is this job? Nobody can honestly walk onto a project and declare it is exactly 62.5 percent complete. Yet that estimate determines how much revenue you report, how much profit you show, and how successful your company appears to be.

Here is the sensitivity: being off by only one to three percent can completely change your financial statements. That is the margin of error you are working inside every single month.

A $70 Million Contractor With a Negative Net Worth

A construction company had been operating for nine years. Revenue had grown to roughly seventy million dollars. Every year the financial statements looked great and profits looked healthy. Then someone looked deeper. The company actually had a negative net worth, and more than sixty-five percent of its completed projects had lost money.

How does that happen? Every year, estimated profits on projects still under construction covered up real losses on jobs that had already closed. Management believed everything was fine until the cash disappeared.

Estimated Cost to Complete Runs the Entire Report

Contract price minus estimated total cost equals estimated profit. That is the arithmetic your WIP schedule sits on, and the only soft number in it is the prediction of what the remaining work will cost. Nobody knows that figure exactly. You are making your best guess.

If your estimated cost is too low, profit looks higher than it is. If it is too high, profit looks worse. Everything downstream depends on that one estimate, which is why contractors should be updating it constantly as conditions change, not once a year at tax time.

Overbilling and Underbilling Are Normal. Misreading Them Is Not

Owners panic when they see these accounts, and they should not. If you have billed more than you have earned, that is a liability. If you have earned more than you have billed, that is an asset. Neither is automatically good or bad.

The real question is whether the estimates underneath them are accurate. If the estimates are wrong, these balance sheet numbers become misleading too, and overbilling starts to feel like guaranteed income when it is nothing of the kind.

What the Monthly Review Should Look Like

Management cannot fix a losing project if it does not know the project is losing money until the work is finished. After final completion you cannot renegotiate, cannot reduce labor, cannot change purchasing and cannot recover schedule delays. The money is already gone.

So contractors who stay profitable review job profitability every month. They compare estimated profit against actual profit on every job in progress. They pull project managers and field supervisors into the cost-to-complete estimate instead of accepting last month’s figure. They challenge unusual margins and flag jobs with compressed margins before closeout, while there is still time to act. If management cannot stay current on that, a controller or a construction-focused CFO is what closes the gap.

The short version

• Many contractors keep only two to three percent of revenue as profit
• A one to three percent error in percent complete rewrites your statements
• Contract price minus estimated total cost equals estimated profit
• Overbilling is a liability and underbilling is an asset; neither is automatically bad
• Review job profitability monthly with project managers, not once at year end

Related episodes

• How Your WIP Schedule Drives Taxes and Bonding Capacity
• How Underbilling Quietly Drains Contractor Cash Flow

Browse the full Construction Accounting Podcast archive

This episode is general information about how these rules work, not advice for your situation. Tax law changes and the right answer depends on your entity, your income and your circumstances. Talk to a CPA before acting on it.