The four causes on a $300,000 job
One job first. A $300,000 commercial fit-out carries $265,000 of estimated cost, so $35,000 of gross profit. A crew of six costs $11,700 a week burdened. Materials arrive in three deliveries on 30-day vendor terms. The contract allows a progress bill at each month end, less 10% retainage, paid 60 days later.
Month one costs $46,800 of labor. The first bill, $84,000 gross and $75,600 net of retainage, goes out on the last day. Month two costs another $46,800 of labor and the first $28,400 material delivery comes due. At the end of month three the first check lands, $75,600 against $210,100 already out the door, leaving the job $134,500 in the hole, 45% of the contract value, on a job that is going well.
Month four the second check arrives and the hole shrinks to $103,000. The job turns cash positive at the end of month six, by $5,000, and the $30,000 of retainage does not arrive until the punch list is signed off, often a month or two later. The profit was real from the first week, and the cash showed up in month seven.
Retainage is the portion of each progress payment, commonly 5 to 10%, that the customer holds back until the project is complete and accepted. On this job it is $30,000, most of the profit, sitting in someone else's account for the life of the job.
Run three of those jobs at once, staggered by a month, and the low point is closer to $300,000. Most contractors at this size do not have it. A 2016 JPMorgan Chase Institute study of 597,000 small firms found the median construction business held 20 days of cash, against 27 days across all industries. Invoiced puts the median days sales outstanding for construction and engineering at 82 days.
Overbilling and underbilling, plainly
Revenue earned on a job, under the percentage of completion method most contractors use, is the contract value times cost to date divided by total estimated cost, whatever has been invoiced.
Overbilling is when the amount you have invoiced on a job is more than the revenue you have earned on it. It sits on the balance sheet as a liability, labeled billings in excess of costs and estimated earnings. The cash is in your account. It is not yet yours. It belongs to the remaining cost of the job, and if it gets spent on another job's payroll, the first job will finish short.
Underbilling is the reverse: revenue earned is more than the amount invoiced. It is an asset, costs and estimated earnings in excess of billings, and it shows up on the P&L as profit with no invoice behind it and no cash on the way. It has two causes and only one is innocent. Either the billing is behind the work, which a phone call fixes, or the estimate is wrong and the job will cost more than planned, in which case the profit on the P&L is the problem rather than the delay.
The common advice to contractors is to bill early and overbill wherever the contract allows. Overbilling is fine when everyone in the business knows it is overbilling, and dangerous when nobody tracks it, because the bank balance looks like earned money and the owner takes a draw against it.
The WIP schedule on one page
A WIP schedule, or work-in-progress report, is a list of every open job with contract value, estimated cost, cost to date, percent complete, revenue earned, amount billed and the difference between the last two. A surety or lender will ask for it before anything else.
| Job | Contract | Est. cost | Cost to date | Complete | Earned | Billed | Over / (under) |
|---|---|---|---|---|---|---|---|
| Office fit-out | $300,000 | $265,000 | $229,900 | 86.8% | $260,300 | $258,000 | ($2,300) |
| Clinic | $148,000 | $121,000 | $36,300 | 30.0% | $44,400 | $74,000 | $29,600 |
| Warehouse | $412,000 | $371,000 | $297,000 | 80.1% | $329,800 | $288,300 | ($41,500) |
| Net | ($14,200) |
The clinic is overbilled by $29,600, cash in the bank that has to cover the remaining $84,700 of that job's cost. The warehouse is underbilled by $41,500, profit on the P&L with no invoice behind it. Net, the company is $14,200 underbilled. One job is lending to another. Nobody decided it should.
The schedule cannot tell you whether the warehouse estimate is right. Percent complete comes from the estimator's view of cost to complete, and an optimistic estimator makes every job look underbilled and profitable until the last month. The AR aging report is the page to read beside it, because the $258,000 billed on the office job is only useful if it is not sitting at 75 days.
The three-entity trades owner
An electrical contractor with 38 staff runs three companies. A service company runs service calls, paid by card on the day. A construction company holds the commercial contracts, billed monthly on 60-day terms. An equipment LLC owns the shop and eleven trucks and leases them to the other two. Three QuickBooks Online files and one bookkeeper, with a line of credit in the construction company's name.
In August the service company has $86,400 in the bank. The construction company has $9,200, $41,500 of underbilling and a line of credit drawn to $150,000. The equipment LLC holds $31,000 for the truck loans and has just collected $14,000 in lease payments from the other two. The construction file says crisis, the service file says relax, and the group as a whole has $126,600 in cash, $150,000 of debt and its best revenue month ever.
The transfers are where cash hides. The service company lends the construction company $40,000 for payroll in a bad week, recorded as an expense in one file and income in the other, or not recorded at all. The equipment lease is revenue in one entity and cost in two, and adding the three P&Ls counts it twice. Following the money from net income to the bank balance has to be done across all three files.
Navigator connects to all three files read-only and shows cash across the entities and by entity every morning, with AR aging and a brief by email. The owner can ask, in the app or a Slack thread, why cash is down in a record revenue month and get an answer that cites the transfers and loan draws it came from. The Pro plan adds a 13-week cash forecast across the entities and cancels the equipment lease and intercompany loans in the total. It reads the books, not the estimator's cost to complete, so the WIP schedule still comes from your job-costing system.
Margin benchmarks, with a caveat
The benchmarks below come from one advisory firm, Profitability Partners, published in June 2026 from its own clients' P&Ls at $2 million to $30 million of revenue. They are not an industry survey. They skew toward service-heavy electrical contractors. We include them because they are the most specific numbers available and they are labeled honestly.
| Measure | Great | Good | Red flag |
|---|---|---|---|
| Gross margin | 65% and above | 52 to 65% | Below 45% |
| Net margin | 20% and above | 12 to 20% | Below 8% |
| Overhead, excluding marketing | Below 20% | 20 to 27% | Above 27% |
A commercial contractor passing $200,000 of switchgear through a job at cost plus 10% will show a gross margin nowhere near 52% and may be perfectly healthy. Read the table for the service side and use your own history for the contract side.
The weekly numbers and the line of credit
The weekly reading is short. Cash in every account, the line of credit balance, over and under billing by job, and what is due in and out over the next two weeks. Extended to a quarter, that last piece is a 13-week cash flow forecast, the difference between a planned draw on the line and a panicked one.
The QuickBooks 2026 Late Payments Report found 59% of small businesses had invoices more than 30 days overdue, up from 47% a year earlier, and 39% said a single late payment had made payroll or bills hard to cover.
A line of credit is meant to bridge the gap between a Friday payroll and a Tuesday check. It becomes a habit when the balance never returns to zero, which is what happens when overbilling on one job quietly funds the next. The free accounting health check will show whether the three sets of books are clean enough to tell which of those is going on.
Questions owners ask
Why do profitable contractors run out of cash?
Because the profit is earned months before it is collected. Labor goes out every Friday, materials go out on delivery, and the customer pays 45 to 90 days after an invoice that itself came at month end, less retainage. A job that ends with a $35,000 profit can be $130,000 underwater in its third month, and three such jobs at once will empty an account that looked healthy in the spring.
What is underbilling?
Underbilling is when the revenue you have earned on a job, measured by how much of the estimated cost you have spent, is more than you have invoiced. It sits on the balance sheet as an asset and on the P&L as profit, but no invoice has gone out, so no cash is coming. It is either a lag in billing or a sign the job's cost estimate is wrong.
What is a WIP report?
A work-in-progress report lists every open job with its contract value, estimated cost, cost to date, percent complete, revenue earned, amount billed and the resulting overbilling or underbilling. It is the one page that reconciles the P&L to the cash position on jobs, and a bonding company or lender will ask for it before they ask for anything else.
What's a good gross margin for an electrical contractor?
One advisory firm's June 2026 benchmarks, drawn from its own clients' P&Ls at $2 million to $30 million of revenue, call 52 to 65% good and above 65% great, with anything under 45% a red flag; net margin is good at 12 to 20%. Those numbers skew to service-heavy contractors. A commercial contractor passing through a lot of material runs a much lower gross margin without being in trouble.
How much cash should a construction company keep?
More than it usually does. A 2016 JPMorgan Chase Institute study of 597,000 small firms put the median construction business at 20 days of cash on hand, below the 27-day median across all industries. Six weeks of payroll and fixed overhead is a reasonable floor for a contractor billing monthly on 60-day terms, and the 13-week forecast will tell you when even that is not enough.
Related
The week-by-week version of this is the 13-week cash flow forecast. If the puzzle is how the P&L can say profit while the account is empty, start with why net income doesn't match your bank balance, and for the billed-but-not-collected side, the AR aging report explained.
If you want to see cash across all three companies before the Friday payroll, the trial connects each file in about fifteen minutes and needs no card: navigatorhq.ai.
Published . Last updated . Reviewed by a CFO on the Navigator team.