What is a Balance Sheet?

Cash accounting is a financial accounting method often used within the construction industry. It is characterized by recognizing revenue and expenses only when cash is received or paid out. This means that transactions are only recorded when the business physically sees the money. For instance, if a construction company performs a job in June but doesn't receive payment until July, the income will be registered in July's financial statements, not in June's. This method works well for smaller construction businesses as it allows them to track cash flow accurately and in real-time. Furthermore, cash accounting in construction provides a straightforward representation of how much actual cash the business has at any given moment, allowing for better financial management and planning.

Assets, in the context of the construction industry, refer to any owned resources or properties that add value and can be converted into cash. There is a vast range of assets in construction, including land, buildings, machinery, vehicles, materials, and tools. Even intangible items like contracts, licenses, brand reputation, and technical know-how are also considered assets. Investments in staff training, software systems, patents, and copyrights also represent assets as they contribute to the operational efficiency and competitiveness of the construction company. Therefore, asset management is vital in construction for optimal utilization and maintenance of these assets.

Billings in excess of costs (also called overbillings) occur when you’ve invoiced your client for more work than you’ve actually completed or incurred costs for. In other words, it represents getting paid ahead of your work schedule.

Here’s how it works: If you’re a concrete subcontractor on a $100,000 job and you bill 50% upfront ($50,000) but have only completed $30,000 worth of work, that $20,000 difference is your billings in excess of costs. You owe your client that work, and until you complete it, that $20,000 remains as a liability on your balance sheet.

For subcontractors, understanding billing in excess of costs is essential because it can be a strategic cash flow tool when used carefully. For example, when bidding on a job, you can be smart about how you structure your schedule of values (SOV)—breaking work down into more detailed line items that allow earlier billing. However, this strategy requires regular monitoring to ensure:

• Your billing somewhat aligns with your actual percentage complete, and 
• The remaining contract value will still cover your remaining costs.

The biggest risk of overbilling is thinking your margins look better than they are, simply because you’re collecting cash faster. Surety companies and lenders also scrutinize overbillings closely, as excessive amounts can signal poor project management or potential cash flow problems down the road.

With Siteline, you can easily track whether you’re billing in excess of your costs by pulling your month-to-month incurred costs and comparing them against your billing progress. This real-time visibility helps ensure you’re billing appropriately while maintaining realistic profitability expectations. If you’re interested in seeing for yourself, schedule a personalized demo of Siteline here.