What Should a Contractor's Monthly Financial Close Include?

A contractor's monthly financial close should create a complete and reliable financial picture of the company and its projects for the period.

A disciplined construction close may include:

cash reconciliations;
receivables;
payables;
payroll;
job-cost review;
WIP;
debt;
equipment;
credit cards;
accruals; and
financial statement review.

The objective is not simply to close the accounting system.

It is to produce financial information management can actually use.

A strong monthly close creates the foundation for reliable:

WIP → job margins → cash forecasting → dashboards → management decisions.

Why the Monthly Close Matters in Construction

Construction accounting depends heavily on information coming from both:

accounting

and

operations.

A general ledger may show what has already been entered.

But project managers may know about:

costs incurred but not yet invoiced;
change orders;
subcontract commitments;
revised project schedules;
cost-to-complete changes; and
emerging margin problems.

The monthly close brings that information together.

A Fast Close Is Helpful—A Reliable Close Is More Important

Contractors benefit from timely reporting.

But speed should not come at the expense of accuracy.

Financial statements produced on day three but missing:

subcontractor costs;
payroll accruals;
WIP adjustments;
or major project changes

may be less useful than accurate information available several days later.

The goal is a repeatable, timely, and reliable close.

Establish a Closing Calendar

A strong process starts with clear deadlines.

For example:

Day 1–2

bank activity;
credit cards;
AP cutoff;
payroll information.

Day 3–5

reconciliations;
job-cost review;
accruals;
debt;
fixed assets.

Day 5–7

project-manager WIP review;
WIP adjustments;
financial statement preparation.

Day 7–10

management review;
dashboard;
cash forecast;
decisions.

The exact timeline depends on the contractor.

Consistency matters more than a particular number of days.

Define Who Owns Each Close Task

Each recurring close step should have:

an owner;
a due date;
supporting documentation;
and a reviewer where appropriate.

For example:

Accounting

bank reconciliations;
receivables;
payables;
credit cards.

Payroll

payroll reconciliations;
benefit liabilities;
payroll taxes.

Project Managers

cost-to-complete estimates;
project status;
change orders;
WIP assumptions.

Controller or Finance Lead

accruals;
WIP review;
balance-sheet reconciliations;
financial statements.

Leadership

final review;
forecast;
decisions.

The close should not depend on one person remembering everything.

Start With Cutoff

A reliable monthly close requires transactions to be recorded in the appropriate period.

Management should consider whether:

vendor invoices are complete;
customer billings are recorded;
payroll is captured;
material receipts are recorded;
subcontractor costs are recognized appropriately;
and significant accrued costs are identified.

Poor cutoff can distort monthly margins.

Reconcile Cash

Every significant bank account should be reconciled.

That includes:

operating accounts;
payroll accounts;
savings accounts;
money-market accounts;
and other cash accounts.

The reconciliation should identify:

outstanding checks;
deposits in transit;
transfers;
bank fees;
unusual transactions;
and unreconciled differences.

Review Old Outstanding Items

A check outstanding for a few days may be normal.

A check outstanding for nine months deserves investigation.

Monthly bank-reconciliation review should identify:

stale checks;
duplicate payments;
unusual transfers;
and items that need adjustment.

Reconcile Credit Cards

Construction companies often have multiple company cards.

Each should be reconciled to:

the statement;
receipts;
project coding;
cost codes;
and the general ledger.

Missing receipts and uncoded charges should be resolved before reporting is finalized where practical.

Review Accounts Receivable

The close should include an accounts-receivable review.

Management may review:

total receivables;
current balances;
31–60 days;
61–90 days;
over 90 days;
retainage;
disputed amounts;
and significant customer balances.

Receivables should reconcile to the general ledger.

Identify Collection Problems

Aging should lead to action.

Ask:

Which customers are late?
Why?
Has billing documentation been accepted?
Is there a dispute?
Who owns the follow-up?
When is payment now expected?

Those answers can feed directly into the cash forecast.

Reconcile Retainage

Retainage should be tracked separately where appropriate.

Review:

retainage receivable;
retainage payable;
project;
expected release date;
and aging.

Large old retainage balances should be investigated.

Review Customer Billing

Confirm that expected billings were actually submitted.

Look for:

missed billing deadlines;
incomplete pay applications;
unapproved change orders;
retainage errors;
and unbilled work.

A project can perform well operationally and still create cash pressure if billing is delayed.

Review Accounts Payable

Accounts payable should reconcile to the general ledger.

Review:

current invoices;
overdue invoices;
major vendors;
subcontractors;
retainage;
disputed invoices;
and unusual balances.

The company should understand what it owes—not only what it has paid.

Look for Missing Vendor Costs

Invoices often arrive after month-end.

Accounting and project teams should identify significant costs that belong in the current period but have not yet been invoiced.

Examples may include:

subcontractor work completed;
delivered materials;
equipment usage;
freight;
professional services;
and utilities.

Those may require accruals depending on the facts.

Review Committed Costs

Accounts payable shows invoices already received.

Committed costs show obligations that may not yet have been billed.

Review:

subcontract commitments;
purchase orders;
material orders;
and approved project commitments.

This information is particularly important for cost-to-complete estimates.

Review Payroll

Payroll should reconcile between:

payroll system;
bank;
payroll tax liabilities;
benefits;
and general ledger.

Review significant:

bonuses;
commissions;
overtime;
reimbursements;
and payroll adjustments.

Review Payroll Cutoff

Payroll periods frequently cross month-end.

Depending on the accounting basis and circumstances, a portion of payroll may need to be accrued.

Accurate payroll cutoff can be especially important for labor-intensive contractors.

Review Job-Cost Coding

Before WIP is finalized, review whether project costs have been coded correctly.

Look for:

uncoded expenses;
costs charged to the wrong project;
costs assigned to closed jobs;
unusual negative costs;
overhead incorrectly charged to jobs;
and incorrect cost codes.

Job-cost errors flow directly into project margins.

Review Major Project Costs

Project managers should review significant costs for reasonableness.

A contractor may use exception reports highlighting:

large costs;
unexpected cost codes;
budget overruns;
new commitments;
and cost categories materially different from estimate.

The goal is to catch errors before WIP is calculated.

Update Cost-to-Complete Estimates

Current project estimates are essential to reliable construction financial reporting.

For each significant project, management should consider:

actual cost to date;
committed cost;
remaining labor;
remaining materials;
remaining subcontract work;
change orders;
schedule;
and known risks.

The estimate to complete should reflect what management knows now—not what it believed at project start.

Review Project Margins

Compare:

Original estimated margin

with

Current estimated margin.

Material differences should be understood.

Possible explanations may include:

labor productivity;
material changes;
scope changes;
subcontractor performance;
schedule delays;
estimating issues;
or unapproved change orders.

Update WIP

Once project information is current, prepare or update the WIP schedule.

A WIP review may include:

contract value;
approved change orders;
estimated total cost;
cost incurred to date;
percentage complete;
earned revenue;
billings;
gross profit;
underbillings;
overbillings;
and backlog.

Do Not Treat WIP as an Accounting-Only Exercise

Accounting can calculate the schedule.

But project managers and operations often hold the information needed to make it accurate.

The close should include a recurring WIP conversation between:

finance

and

operations.

Investigate Margin Fade

If a project margin declines materially, understand the cause.

For example:

Original expected margin: 18%

Prior month: 16%

Current month: 12%

That trend should not pass through the close unnoticed.

Investigate Margin Gains Too

Unexpected gains should also be understood.

Potential reasons may include:

conservative original estimate;
productivity improvement;
favorable subcontractor performance;
approved change orders;
or costs missing from the forecast.

A large unexplained gain can be a warning that remaining costs are understated.

Review Underbillings

Material underbillings should be investigated.

Ask:

Why are we underbilled?
Is a billing delayed?
Is there an unresolved change order?
Is project progress accurately estimated?
Is the balance collectible?

Underbillings can affect both working capital and cash.

Review Overbillings

Overbillings should also be understood.

They may support current liquidity.

But the contractor still needs to complete the related work.

Review:

remaining costs;
project cash needs;
and whether overbilled cash is being preserved appropriately.

Review Change Orders

For each material project, review:

approved changes;
pending changes;
disputed changes;
associated costs;
billing status;
and expected resolution.

Change-order information affects:

contract value;
WIP;
margins;
billing;
and cash.

Reconcile Debt

Each debt account should reconcile to supporting statements or amortization schedules.

Review:

principal balance;
current portion;
interest;
payments;
new borrowing;
and covenant requirements where applicable.

Avoid simply posting the entire payment to interest expense.

Review Line-of-Credit Activity

For revolving credit, monitor:

beginning balance;
draws;
repayments;
ending balance;
borrowing availability;
and interest.

Increasing line usage can be an important liquidity indicator.

Review Equipment and Fixed Assets

Review significant purchases and disposals during the month.

Potential items include:

vehicles;
machinery;
computers;
tools;
and other equipment.

Determine whether transactions were:

properly coded;
capitalized where appropriate;
financed correctly;
and reflected in depreciation records.

Review Equipment Loans

Equipment purchases may involve both:

fixed assets;
and new debt.

Both sides should be reconciled.

Record Accruals and Prepaids

Depending on the accounting basis and reporting requirements, monthly adjustments may include:

accrued payroll;
accrued bonuses;
interest;
insurance;
professional fees;
subcontractor costs;
prepaid expenses;
and other significant items.

The goal is to report the period consistently and appropriately.

Avoid Excessive Small Accruals

A close can become unnecessarily complicated if accounting attempts to estimate every minor invoice.

Materiality matters.

Establish practical thresholds so the close focuses on items that could influence financial decisions.

Reconcile Major Balance-Sheet Accounts

Significant balance-sheet accounts should have supporting reconciliations.

That may include:

cash;
accounts receivable;
retainage;
contract assets;
prepaid expenses;
fixed assets;
accounts payable;
retainage payable;
payroll liabilities;
debt;
contract liabilities;
and equity accounts.

The balance sheet is often where close problems accumulate.

Review Suspense and Clearing Accounts

Accounts such as:

uncategorized expenses;
payroll clearing;
undeposited funds;
intercompany clearing;
and miscellaneous receivables

should be reviewed regularly.

Large old balances often indicate unresolved accounting issues.

Review Sales and Excise Taxes Where Applicable

Contractors should reconcile applicable:

sales taxes;
excise taxes;
use taxes;
and other transactional tax liabilities

based on their jurisdiction and activities.

Tax liabilities should not simply accumulate without reconciliation.

Review Owner Transactions

Identify and appropriately classify:

owner distributions;
contributions;
shareholder loans;
reimbursements;
and personal expenses.

Owner transactions can materially affect:

cash;
equity;
working capital;
and tax reporting.

Review Related-Party Balances

If the company has transactions with:

owners;
affiliates;
related entities;
or commonly controlled businesses,

reconcile those balances regularly.

Unreconciled intercompany accounts can grow quickly.

Prepare the Financial Statements

Once reconciliations and adjustments are complete, prepare the core financial statements.

That commonly includes:

balance sheet;
income statement;
and other relevant management reports.

Depending on the contractor, reporting may also include:

cash-flow information;
departmental reporting;
or job-level schedules.

Compare Actual Results With Budget

The monthly review should compare actual performance with the annual plan.

Analyze significant variances in:

revenue;
gross margin;
payroll;
overhead;
and operating income.

The purpose is not merely to report the variance.

It is to understand why it occurred.

Compare Actual Results With Forecast

The budget answers:

What did we originally plan?

The forecast answers:

What do we currently expect?

Both views are useful.

Update the Forecast

Once the books are closed and project information is current, update expectations for:

revenue;
gross margin;
payroll;
overhead;
backlog;
and cash.

That converts close information into forward-looking planning.

Update the Cash Forecast

Actual ending cash becomes the new starting point.

Then update expected:

customer collections;
payroll;
subcontractor payments;
materials;
debt;
taxes;
equipment;
and distributions.

Update Backlog

The close should also incorporate changes in:

new contracts;
completed work;
approved change orders;
project cancellations;
and revised timing.

Leadership should understand both:

total backlog

and

expected backlog gross profit.

Prepare the Management Dashboard

Once financial information is reliable, summarize the metrics leadership needs.

A contractor dashboard may include:

revenue;
gross margin;
net income;
WIP;
margin fade;
backlog;
cash;
forecasted cash;
working capital;
DSO;
underbillings;
and concentration.

Hold a Monthly Financial Review

The close should culminate in a management conversation.

Review:

What happened?

What changed?

Why?

What do we expect next?

What requires action?

That meeting is where financial reporting becomes financial management.

Focus the Review on Exceptions

Leadership does not need to spend equal time on every number.

Focus on items such as:

largest margin fades;
largest underbillings;
overdue receivables;
unexpected costs;
cash below target;
forecast changes;
new debt;
or rapid backlog growth.

Exception-based review keeps the meeting useful.

Document Follow-Up Actions

If the financial review identifies an issue, assign:

action;
owner;
and due date.

For example:

Issue: $350,000 receivable over 60 days
Owner: Controller
Action: Confirm payment with customer
Due: Friday

The close process should result in action when action is needed.

A Practical Monthly Close Checklist

Cash

Reconcile all bank accounts
Review old outstanding items
Confirm transfers

Receivables

Reconcile AR
Review aging
Review retainage
Identify collection issues

Payables

Reconcile AP
Review significant unpaid invoices
Identify missing costs
Review subcontract retainage

Payroll

Reconcile payroll
Review liabilities
Record material accruals
Review job coding

Projects

Review job costs
Update committed costs
Update cost to complete
Review change orders
Update WIP
Investigate margin changes

Balance Sheet

Reconcile debt
Review fixed assets
Reconcile credit cards
Review accruals and prepaids
Review tax liabilities
Review owner and related-party accounts

Reporting

Prepare financial statements
Compare actual to budget
Compare actual to forecast
Update backlog
Update cash forecast
Update dashboard
Hold management review

That process creates a repeatable foundation for monthly financial management.

How Long Should the Close Take?

There is no universal answer.

The appropriate timeline depends on:

company size;
project volume;
systems;
staffing;
accounting complexity;
and reporting requirements.

But leadership should know when information will be available.

A recurring close that unpredictably takes:

10 days one month

and

30 days the next

makes financial management difficult.

Measure Close Performance

Contractors may track:

days to close;
late reconciliations;
number of post-close adjustments;
delayed WIP submissions;
unreconciled accounts;
and reporting date.

These can reveal process weaknesses.

Do Not Leave WIP Until Year-End

If WIP is only prepared for the CPA or surety once per year, management may spend most of the year without reliable project profitability information.

Regular WIP allows management to identify problems earlier.

Do Not Let the Income Statement Be the Entire Close

A contractor can have a reasonable-looking income statement while carrying problems in:

receivables;
underbillings;
debt;
retainage;
payables;
or cash.

The balance sheet and project schedules matter too.

Automate Where It Makes Sense

Technology may help automate:

bank feeds;
reconciliations;
invoice workflows;
credit-card feeds;
payroll entries;
recurring journal entries;
and reporting.

Automation can improve efficiency.

But it does not replace:

project judgment;
cost-to-complete estimates;
WIP review;
or management analysis.

Standardize the Close

A strong close should be repeatable.

Use:

recurring checklists;
standard reconciliations;
consistent naming;
documented responsibilities;
close calendars;
and review procedures.

That reduces reliance on memory.

Build a Close That Can Scale

As a contractor grows, transaction volume increases.

The close should be designed so additional growth does not automatically create:

longer reporting delays;
less reliable WIP;
more uncoded costs;
or greater dependence on one employee.

Good systems and clear ownership support scale.

The Monthly Close Creates the Management Baseline

Reliable monthly financial information allows leadership to understand:

where the company stands today

before deciding:

where it is headed next.

That is why the close connects directly to:

forecasting;
budgeting;
hiring;
equipment decisions;
financing;
bonding;
distributions;
and growth.

Common Contractor Close Mistakes

Common mistakes include:

failing to reconcile every bank account;
leaving credit cards unreconciled;
ignoring missing vendor invoices;
poor payroll cutoff;
relying on stale job costs;
updating WIP only quarterly or annually;
failing to update cost-to-complete estimates;
overlooking change orders;
failing to reconcile debt;
leaving old balance-sheet items unresolved;
focusing only on the income statement;
and producing reports nobody reviews.

Closing the books is not the final step.

Using the information is.

The Bottom Line

A contractor's monthly financial close should create reliable information across:

cash

receivables

payables

payroll

job costs

WIP

debt

equipment

credit cards

accruals

and

financial reporting.

Then management can use that information to understand:

project performance

profitability

liquidity

backlog

cash flow

and

emerging risk.

A strong close creates the foundation for a recurring financial-management rhythm:

Close → Analyze → Forecast → Decide.

How Bilotta & Company Can Help

Bilotta & Company, CPAs, LLC works with construction contractors on monthly close processes, accounting, WIP reporting, job costing, financial dashboards, cash-flow forecasting, working-capital planning, tax, assurance, and financial leadership.

Through our Contractor Compass® Financial Stewardship program, we help contractors build a recurring close and reporting process that connects:

accounting

projects

WIP

cash

forecasting

and

management decisions.

Our Financial Stewardship as a Service® rhythm is:

Close → Analyze → Forecast → Decide.

Because the quality of every forecast and decision starts with the quality of the information coming out of the close.

Explore Contractor Compass® →

Visit the Construction Contractor Financial Resource Center →

This article is provided for general educational purposes and should not be considered accounting, tax, legal, bonding, lending, or financial advice for a specific contractor. Appropriate close procedures, accounting adjustments, reporting frequency, and review requirements depend on the contractor's accounting basis, contracts, systems, company size, reporting requirements, and other circumstances.