Stop the Profit Leaks: 6 Gut checks for Contractors

1/23/2026 - By Stacie Gaffrey, CPA

Sometimes, gross profit looks great on paper. But something just feels off. Other times, it’s swinging from job to job, and it’s hard to tell if the issue is in the field, estimate, or the way it’s being tracked. If you’re trying to make sure your gross profit margins reflect the real story, here’s a simple gut check to walk through:

Gut Check #1: Is your job cost tracking keeping pace with actual progress?

Tracking job costs against actual progress is critical to staying on budget. Ensure all costs, labor, materials, subs, and equipment are properly posted. Watch for these red flags:

  • Underbilling despite clear progress
  • Strained cash flow
  • Profit margins that seem inflated

Job cost management pitfalls include field progress outpacing billings, delayed timecard and expense entries, and unpriced or unapproved change orders that aren’t reflected in the budget.

How to Fix:

To ensure job costs align with actual progress, start by confirming that all labor, materials, subcontractor, and equipment charges are accurately and promptly posted to the job. Delays in timecard entries, unpriced change orders, or field progress outpacing billing can create serious discrepancies. Financial red flags, such as underbilling despite visible progress, strained cash flow, or profit margins that appear inflated, often signal that costs are lagging behind reality. To fix this, contractors should conduct weekly reviews of job cost reports, sync field updates with billing schedules, and use integrated project management software to ensure real-time visibility. Establishing consistent communication between field and accounting teams helps catch issues early, maintain budget accuracy, and protect profit margins.

Gut Check #2: Is your percentage-of-completion method built on accurate and timely data?

The cost-to-cost method is widely used for revenue recognition in construction, but its accuracy hinges on reliable estimates and timely updates. When cost data lags or is off the mark, revenue gets misstated, margins skew, and compliance risks rise. 

How to fix it:

Update actual and budgeted job costs regularly. Use integrated project management and accounting tools to sync field data with financials. Shared visibility and consistent communication across teams ensure revenue is recognized accurately throughout the project lifecycle.

Gut Check #3: Has the original estimate been revisited and adjusted to match reality?

Comparing the original estimate to actual job conditions is critical. If material costs spike 15% mid-project or a surge in labor hours can quickly erode profit margins if the original estimate isn’t revisited and adjusted.

How to fix it:

Continuously compare actual conditions to the original estimate. Document major cost changes promptly, revise projections, and communicate updates to stakeholders. Proactive estimate reviews help teams stay aligned with financial goals and make informed decisions throughout the project lifecycle.

Gut Check #4: Are overhead costs quietly slipping into your job cost reports?

Contractors often face blurred lines between direct job costs and overhead expenses. When overhead expenses, like supervision, fuel, or shared tools are misclassified as direct job costs, they can quietly distort profitability and mislead financial reporting. To ensure accurate cost allocation, use job cost coding systems to assign expenses directly to specific projects, implement expense tracking tools, and review cost reports regularly to catch overhead items mistakenly charged to jobs.

How to fix it:

Use detailed job cost coding systems and expense tracking tools to assign costs accurately. Review reports regularly to catch overhead items mistakenly charged to jobs. Clear separation between direct and indirect costs improves profitability analysis, strengthens financial statements, and supports smarter forecasting.

Gut Check #5: Are you comparing jobs to spot performance trends?

Evaluating jobs in isolation can mask patterns that impact profitability. Contractors who regularly compare active jobs side by side gain insights that help them refine estimating, forecasting, and business strategy. Some job types may consistently outperform others, while a single problem project can drag down overall margins and skew financial benchmarks.

How to fix it:

Regularly compare active jobs to identify trends. If a project underperforms, investigate root causes, reforecast based on current data, and involve both field and office teams in corrective planning. Post-job reviews help refine estimating, staffing, and strategy. This proactive, data-driven approach leads to smarter job selection, stronger margins, and more sustainable growth.

Gut Check #6: Are field and office teams working in sync to keep job schedules accurate?

When project managers and accountants are aligned, job schedules and cost tracking reflect reality, not assumptions. Regular monthly walkthroughs of job schedules help teams catch discrepancies early, adjust forecasts, and ensure revenue recognition stays on track.

How to fix it:

Establish recurring meetings to review job progress, cost updates, and billing status. Use construction management software to enable real-time data sharing and shared dashboards. When field and office teams take joint ownership of job forecasts, accountability rises and so does accuracy. A culture of collaboration leads to stronger margins and more predictable project outcomes. Fostering a collaborative culture starts with open communication among project managers, superintendents, and accounting staff. Creating shared dashboards or reports that everyone can access encourages transparency and informed decision-making. Finally, recognizing and rewarding cross-functional teamwork reinforces the value of collaboration and leads to more accurate forecasts, stronger margins, and healthier project outcomes.

If you’re reviewing your gross profit margins and something isn’t adding up, this checklist might help you pinpoint it.

At Saltmarsh, we help contractors dig into the numbers behind the work, identify trends, and bring clarity to complex project data. Because understanding your margins isn’t just about spotting issues, it’s about staying ahead of them. Ready to turn your numbers into strategy? 

 

About the Author | Stacie Gaffrey

Stacie is a supervisor in the Audit & Assurance Services practice of Saltmarsh. Her primary area of expertise is construction accounting, where she has established herself as a trusted advisor to many clients. She is passionate about supporting the construction industry and takes pride in helping companies build a solid financial foundation through accurate and reliable financial statements.

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