179. WIPAA, The Builder’s Blindspot With Andy Skarda

Traditional accounting formulas (income - expenditure = profit) are often misleading for residential builders due to the unique timing of invoices and payments; a builder's Work in Progress is typically a liability, not an asset.

Inaccurate Work in Progress (WIP) tracking can lead to misguided financial decisions, such as overspending on non-essential items or marketing, as builders may overestimate their true profitability.

Implement a Work in Progress accounting adjustment (WIPAA) monthly to accurately assess profitability and ensure you're not spending money that belongs to future liabilities (unpaid subcontractors/suppliers).

Utilize specialized WIPAA calculators (like those offered by APB) to simplify the tracking process, which involves comparing invoiced client revenue against received supplier invoices relative to the budget to build.

If WIPAA reveals a significant financial shortfall, focus on increasing margins on new projects, cutting costs, and creating a robust cash flow plan to recover and cover liabilities, rather than immediately seeking loans which can compound the problem.

Understand the distinction between management accounting (using WIPAA for internal decision-making) and tax accounting (using WIPRA for tax liability based on completion rate of expenses, not client revenue) to avoid tax surprises and maintain accurate financial records.