Updated September 5, 2026.
A construction business can have work booked, crews busy, and profit on a report while cash is still tight. Before changing prices or taking another job, it helps to separate three questions: Is the job profitable? Are we billing for the work at the right time? When will the cash actually arrive?
At JAG CPA & Co., our purpose is to make people’s lives better through better management of their taxes and finances. For a Houston contractor, that starts with numbers you can explain and use when deciding what to do next.
Keep the job estimate connected to the books
Start each job with an agreed contract amount and a cost budget. Track labor, materials, subcontractors, equipment, and other job costs consistently. Record approved changes, identify pending changes separately, and update the estimate of costs still needed to finish.
Do not judge a job only by what has been paid. Costs incurred but not yet paid still matter to its economics. Likewise, a supplier payment may settle an earlier obligation rather than represent work performed this month.
If transactions and job records do not agree, resolve that foundation first. Our bookkeeping and QuickBooks services page explains how we discuss reconciliation, cleanup, and ongoing accounting scope.
Know the difference between margin and markup
Consider a hypothetical contract of $1,200,000 with estimated job costs of $1,000,000. Expected job gross profit is $200,000.
| Measure | Calculation | Result |
|---|---|---|
| Gross margin | $200,000 profit ÷ $1,200,000 revenue | 16.67% |
| Markup on cost | $200,000 profit ÷ $1,000,000 cost | 20% |
Those percentages describe the same job using different denominators. A 20% markup does not produce a 20% margin.
For a smaller hypothetical job with $100,000 of costs, a price designed to produce a 20% gross margin would be $100,000 ÷ (1 − 20%) = $125,000. Simply adding 20% to cost produces a $120,000 price and a 16.67% gross margin.
Be clear about what your job-cost budget includes. Gross profit still has to support any company overhead excluded from that budget, along with other expenses. It is not the same as the owner’s take-home cash.
Separate progress, billing, and cash
Return to the $1,200,000 contract with $1,000,000 of estimated total job costs. Assume $250,000 of costs have been incurred, invoices total $280,000, customer collections total $220,000, and cash paid for job costs totals $230,000.
The table below is a management illustration. It assumes that cost-to-cost is an appropriate measure of progress and that all $250,000 of incurred costs belongs in that measure. Actual revenue recognition depends on the contract and applicable accounting requirements; buying materials or recording a cost does not automatically establish earned revenue.
| Question | Illustrative answer |
|---|---|
| What progress does the cost measure indicate? | $250,000 ÷ $1,000,000 = 25% |
| What contract value corresponds to that progress? | 25% × $1,200,000 = $300,000 |
| What is the resulting illustrative job gross profit to date? | $300,000 − $250,000 = $50,000 |
| How much has been billed? | $280,000 |
| What cash has come in and gone out for the job? | $220,000 collected − $230,000 paid = a $10,000 outflow |
The job can show positive gross profit under these assumptions and still use cash. The $20,000 difference between the progress-based contract value and billings deserves a review of billing timing and contract terms. The $60,000 of invoices not yet collected deserves a separate collection review. Neither amount is cash available to spend.
Retainage, unapproved change orders, billing disputes, and customer payment delays need their own attention. Label them clearly so the forecast does not treat every outstanding dollar as a receipt next week.
Update the cost to finish before the problem grows
If estimated total costs on that same contract rise from $1,000,000 to $1,100,000 while the contract price stays at $1,200,000, expected total job gross profit falls from $200,000 to $100,000. The expected gross margin falls to about 8.33%.
That change should prompt a conversation while there is still work left: What caused the increase? Is a change order supported and approved? Does the schedule need attention? What can be changed within the contract? Update any progress calculations that depend on the revised cost estimate, too.
Make the cash forecast useful to the person running the business
List expected receipts and payments by week. Use the dates customers are likely to pay, not just the dates invoices are issued. Include payroll, suppliers, subcontractors, debt payments, overhead, and tax obligations. Then test a realistic delay in one significant customer payment.
The useful output is a decision: follow up on a payment, address a billing issue, adjust discretionary spending, or discuss financing before a shortage arrives. For help connecting forecasts to those decisions, see our CFO services. Ongoing records and reporting are a separate part of our client accounting services discussion.
Review the tax method separately
A management job report does not determine the tax method a contractor may use. Long-term contract rules, exceptions, and possible look-back calculations depend on the contract and taxpayer’s facts. The IRS instructions for Form 8697 explain the look-back framework, while IRS Publication 538 addresses accounting methods more broadly.
Our contractor cash-method case study follows the separate decision about keeping cash accounting while applying the required treatment to particular contracts.
Include required tax payments in the cash plan. Holding money for operating needs does not remove an estimated-tax obligation, and late or insufficient payments can lead to penalties. See the IRS estimated-tax guidance.
Our Houston tax planning work starts with your business, contracts, records, and decisions. Planning and annual tax preparation have separate scopes. Bring the questions you need answered so we can discuss the appropriate work before it begins.
Joe Gallegos, CPA/CVA
Partner-in-Charge · JAG CPA & Co.
Author of The Ultimate Guide to Choosing a CPA
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