Job and client profitability
Estimating the final profit on a building job
The bills entered so far only tell you part of a building job's cost. Add the outstanding commitments and a realistic estimate of the work left to do, then compare the total with the price actually agreed.
The invoices entered so far can understate the cost of completing a building job. Outstanding orders and work not yet booked need to be included, while extras without an agreed price need separate attention.
In the fictional example below, the accounts show £50,000 of costs against a job worth £110,000. The remaining work changes the expected result.
Calculate agreed job value minus the whole expected job cost. Include each cost once and have the remaining-work estimate checked by someone responsible for the job.
This guide is for the owner of a small building company delivering extensions or refurbishment jobs in England. It is a live-job management check, rather than a calculation of how much revenue or profit to recognise in the statutory accounts.
Agreed job value and variations
Start with the accepted quote or contract, then add approved changes. Keep a short record of each variation: what changed, the agreed price, the supporting approval and its effect on costs and timing.
Keep requested, disputed and unpriced extras in a separate list. Follow up conversations on site to establish whether a change and its price have been agreed.
Where the quote contains allowances or provisional sums, check what has changed as selections become firm. The expected final selling value and final cost must cover the same scope of work.
Use the list to chase missing approvals. A disputed amount still needs resolving under the contract.
The three cost groups
You need the records up to a stated date, the current order and booking list, and the project owner's estimate of the remaining work.
Scroll across the table to read every column.
| Cost group | What belongs here | The check that matters |
|---|---|---|
| Costs recorded so far | Job-coded materials, labour, subcontractor work and other direct costs, including agreed adjustments for costs incurred but not yet invoiced | Include credits and check for missing bills or work already done |
| Open commitments | The cost of orders and booked work still to be included in job costs | Remove amounts already included in the first group |
| Further work not yet committed | Materials, labour, finishing work and specific risk allowances still needed, but absent from the first two groups | The responsible builder checks quantities, rates and overlap |
Reliable bookkeeping and supplier reconciliations support the first group. Check the merchant account against delivery and return notes, not just the bank payment. One statement can cover several sites, while a credit for returned materials can arrive after the job has moved on. Match the credit to the original job and account for any agreed restocking deduction; do not assume everything sent back has been credited in full.
For labour, use a consistent cost basis. Include the relevant employment costs and the site supervision you intend this job view to cover. If owner time has been left out, say so; otherwise, a job can appear attractive because some of its labour has been treated as free.
Show costs that have not yet been assigned to a job separately so they remain part of the business's total costs.
Worked example: total job cost
This fictional example uses VAT-exclusive figures and assumes any input VAT is recoverable. It includes direct job costs, with head-office overheads, financing costs and tax excluded. The estimates cover the agreed work, including an explicit allowance within the remaining-work figure for identified risks.
Scroll across the table to read every column.
| Job forecast at the review date | Amount |
|---|---|
| Original contract | £100,000 |
| Approved variations | £10,000 |
| Current agreed job value | £110,000 |
| Costs recorded so far | £50,000 |
| Remaining open commitments | £20,000 |
| Further work not yet committed | £25,000 |
| Estimated total direct job cost | £95,000 |
| Expected contribution before the excluded costs | £15,000 |
The total expected cost is £50,000 + £20,000 + £25,000 = £95,000. That leaves £110,000 − £95,000 = £15,000 towards overheads, finance costs, tax and profit.
The cost still to be included after the £50,000 already recorded is £45,000. Some of that is ordered; some still needs pricing or booking. Both parts matter.
There is also a proposed extra worth £5,000. It is not approved, so it stays outside the £110,000 base case. If it is agreed later, add both its selling price and its additional costs. An extra £5,000 of sales is not automatically an extra £5,000 of profit.
If work on that extra has already started, include the costs already incurred even while its selling price remains unresolved. Record any further unavoidable costs too. Keeping uncertain income out must not become a reason to hide real costs.
Move invoiced orders into recorded costs
Suppose £8,000 of the open commitments is delivered and its invoice enters the job costs. The agreed price and all other expectations stay unchanged.
Scroll across the table to read every column.
| Cost position | Before invoice | After invoice |
|---|---|---|
| Costs recorded so far | £50,000 | £58,000 |
| Open commitments | £20,000 | £12,000 |
| Further uncommitted work | £25,000 | £25,000 |
| Estimated total job cost | £95,000 | £95,000 |
The cost moves between groups. The total does not change. Leaving the full order open as well as recording the invoice would overstate the forecast by £8,000.
The same principle applies when a bill replaces an estimate for work already done. Replace or adjust the existing cost allowance; do not simply stack the bill on top. Paying a supplier deposit also needs separate treatment: a payment on account is not necessarily a cost already consumed by the job.
Where CIS applies, a deduction is part of the subcontractor payment withheld for HMRC, rather than an extra job cost on top of the underlying invoice. Reconcile the invoice, net payment and deduction together. The actual deduction depends on HMRC verification and the eligible calculation base. HMRC's contractor deduction guidance.
Reviewing the remaining-work estimate
The £25,000 remaining-work estimate needs an explanation: quantities, labour, rates, finishing tasks and the risks allowed for. Include the awkward last visits: snagging, a trade returning after another finishes, waste removal and final clean. A job that looks nearly finished can still have several paid days left in it.
Check the remaining weeks as well as the remaining materials. Site-running costs, often called preliminaries, can continue while progress waits: welfare hire, supervision, temporary services or plant still on hire. Separate any fixed setup cost from charges that continue with time. Check the actual hire terms and agreed off-hire date; the last day you used a machine is not enough evidence of when its charges stop.
Keep those job-specific costs in the forecast even though head-office overheads are excluded from this example. If delays increase them, update the cost first. Whether the customer owes more is a separate question under the contract.
If another £5,000 of unavoidable cost emerges without an agreed price increase, the expected contribution falls from £15,000 to £10,000. Review whether the purchasing plan or the remaining work can be changed, and whether a variation needs to be agreed.
A weekly review may suit an active job; a material change should trigger an update sooner. Keep the previous estimate and a short explanation of what changed, so the latest total does not erase the warning signs.
Finance support can prepare the cost report and check for missing records. The builder or responsible project manager must confirm the physical work remaining.
Payment timing and cash shortfalls
Expected job contribution and available cash answer different questions. Put the next customer payment beside the dated supplier, subcontractor and payroll amounts that fall due before it. Include delays, retentions or approval conditions where the contract contains them.
For example, a fictional job may expect a £20,000 stage receipt on the 30th while £14,000 of payments fall due on the 25th. If only £4,000 is available after other commitments, the business has a £10,000 gap to address before the receipt. The expected £15,000 job contribution does not fund that gap today.
Use the actual payable and receivable amounts for this cash check, including the correct VAT treatment. The construction domestic reverse charge is conditional; it does not apply to every invoice just because building work is involved. HMRC's reverse-charge guidance.
The job review record
For each live job, keep one dated page showing the agreed value, the three cost groups, expected contribution and upcoming cash requirements. List missing bills and unresolved changes or estimates, with a named person responsible for each.
In Good Order offers bookkeeping and finance support for builders, with management reporting and work on handoffs between quotes, approvals and finance available under an agreed scope.
Technical estimates stay with the project team. Forecasting, CIS, payroll, tax work and historical clean-up are included only where agreed. The initial conversation is free, with any subsequent work scoped separately.
Review a live job’s expected cost
Tell Andrew how a job’s costs, open orders and variations are recorded today, and where the estimate of remaining work comes from. He can go through one job with you and say whether the records support a reliable cost-to-complete figure.
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Related service: Bookkeeping and job costs for builders