A contractor I worked with had $3M in profit sitting on his balance sheet.

He didn't even know it was there.

The job started in 2019 and finished years ago.

But because of how the timing worked between audit, tax recognition, and over-billings, that profit got buried.

He's not a bad operator. He's a great operator. $37M backlog, $700K revenue per employee, with a strong cash position.

But when you run a construction business at scale, the money you earned five years ago can still be hiding from you today.

Over-billings. Under-recognized revenue. WIP that ran on provisional numbers because engineer approvals lagged 25 days. Audit adjustments that pushed profit into a different period than the work itself.

It adds up. And it sits there until someone goes looking for it.

Most owners I meet are watching their P&L every month and feeling pretty good about the year.

They're not wrong. But the P&L is a snapshot, not the whole story. 

The balance sheet is where the timing games live.

If you've been in business more than 10 years, and you've never had a CFO comb through your historical WIP, audit adjustments, and revenue recognition?

You might be sitting on more profit than you think. Or less.

Either way, you should know.
 

So how does $3M in profit go missing?

Three thing usually:

1. Over-billings that never got trued up.

You bill ahead of cost to keep cash flowing. That’s standard practice. But when the job closes, if the final WIP reconciliation isn't airtight, that over-billing can stay on your books as money you owe even after you've already done the work to earn it.

Your profit gets stuck looking like money you still owe.

2. Audit and tax timing mismatches.

Your auditor and your tax guy don't count revenue the same way. The difference has to go somewhere. It goes on your balance sheet. And it stays there, because both of them are technically doing their job.

3.  Slow engineer approvals.

Say your engineer takes 22-25 days to approve your billing. For those three weeks, your books are guessing. You earned the money. Your reports don't know it yet. Sometimes they never figure it out. Stack that across a few years and a few big jobs, and there's significant money sitting in the wrong place.

Nobody cheated. Nobody messed up. This is just what happens when a contractor grows faster than his accounting can keep up.

Here's what to do this week:

Pull your balance sheet.

Look at billings in excess of costs. Look at any deferred revenue line. Look at retainage that's been sitting longer than the project that generated it. If any of those numbers look stale, older than 18 months on a closed job, that's where to start digging.