Work in Progress Calculations for Australian New Home Builders 2022 photo

Work in Progress Calculations for Australian New Home Builders 2022

Trying to estimate the work in progress value of your business is hard, especially if you are an Australian new home builder at the end of the financial year 2022. Your tax accountant will expect a number but where do you start? Its not like a retail shop where you can count the shelves on the 30th June. The bigger your business gets the worse the puzzle gets as there are so many moving parts. What makes things worse is the answer has a material affect on your financial reports so its worth getting an accurate number.

You don’t want to be caught out by the Australian Taxation Office, and you want to get it right for your financial statements. Work in progress has such a massive impact on the business numbers and yet is very difficult to calculate as your business grows. The solution is to use gross margin percentage to calculate work in progress over the whole business in one calculation rather than labour through job by job. If you have used an estimating system that produces a complete bill of quantities for each job prior to commencment and you are also tracking the actual gross margin achieved on each job that is completed you will be able to identify your average actual and anticipated gross margin as a percentage of turnover at any time (including 30th June).

Once you know your gross margin percentage you can just run the financial reports at the 30th June without a WIP adjustment. Any variance between the gross margin percentage in this report and your actual known gross margin percentage (calculated as described in the previous paragraph) becomes your WIP amount for that date.

Sound simple? If this sounds like double dutch to you don't despair. Most builders core skill set is not analysing the numbers, its on the tools. nevertheless the numbers are critical and I'm happy to give you a working example using your own numbers at a time that suits you. Just book a 30 min introductory meeting with me here and I'll show you how.