What Should a Construction Company Balance Sheet Look Like?

If you run a construction company, your balance sheet is a window into your firm’s health, capacity and credibility. When lenders, bonding agents or potential partners want to know if you can handle a project, this is often the first place they look. And it doesn’t take long to spot trouble if the balance sheet isn’t telling the right story.

Every construction company should be able to explain and stand behind the numbers on that page, whether you’re chasing larger contracts or preparing for a year-end financial review.

Balance sheet basics for construction firms

Let’s start with the basics. A balance sheet is a snapshot of your company’s financial position at a specific point in time. It summarizes what you own (assets), what you owe (liabilities) and what’s left for the owner (equity). It’s built on a simple equation:

Assets = Liabilities + Equity

In the construction world, this equation takes on added complexity. You’re not just tracking cash and payables. You’re managing job costs across multiple phases, navigating retainage receivables and accounting for major equipment investments that affect depreciation and long-term debt. On top of that, you often need to demonstrate strong financial footing to satisfy bonding requirements or obtain favorable credit terms.

A construction company balance sheet includes the typical sections (current assets, long-term assets, current liabilities, long-term liabilities and equity) but with several industry-specific nuances. For example, many firms carry a significant amount of retainage receivable. This is money earned but held back by clients until project milestones or completions are reached. Without tracking this properly, your books can look weaker than they actually are.

Contractors also typically include their work in progress (WIP) schedules. WIP reflects the profitability and billing status of ongoing jobs. An inaccurate or outdated WIP schedule can distort your financial picture and potentially undermine your ability to secure financing or bonding.

And let’s not forget the emphasis on equipment. Construction companies often carry heavy equipment on their balance sheets, and managing that depreciation accurately is essential for both tax and valuation purposes.

While the balance sheet follows a standard format, its contents must reflect the unique way construction companies operate. Treating it like a one-size-fits-all financial form is a missed opportunity and a risk.

 

 

Key components of a construction company balance sheet

Understanding what belongs on a construction company’s balance sheet starts with breaking it down by section. These sections are strategic indicators that help you evaluate performance, meet compliance requirements and support growth planning.

Current assets

This section includes anything expected to convert to cash within a year. In construction, that often includes:

• Cash and cash equivalents
• Accounts receivable, including retainage
• Costs and earnings in excess of billings (underbillings)
• Inventory, such as materials purchased for upcoming projects

Retainage receivable deserves special attention. Unlike standard receivables, this portion of your earnings may not be collected for several months. A company with significant retainage on the books should be sure its working capital can sustain operations in the meantime.

Non-current assets

These are your long-term investments. For construction companies, this typically means:

• Buildings and land
• Heavy machinery
• Trucks and trailers
• Furniture and fixtures
• Office and construction software systems
• Accumulated depreciation

When it comes to equipment, depreciation schedules should be carefully managed to reflect true asset value. This is where a strong controllership process makes a difference. If your fixed asset ledger is outdated or inaccurate, it can distort both your balance sheet and your tax liability.

Current liabilities

These are obligations due within the next 12 months. Common items include:

• Accounts payable
• Credit lines
• Accrued expenses
• Subcontractor payables
• Payroll liabilities
• Billings in excess of cost (overbillings)

Billings in excess of cost reflect money you’ve billed a client for work not yet completed. If this number is growing, it might indicate aggressive billing or schedule delays. It could also mean you’re being too conservative on the cost to complete estimates on your WIP schedule.

Either way, it should be monitored closely. Proper review of estimated job costs can reduce your billings in excess, which in turn will improve the current ratio of your balance sheet.

Long-term liabilities

These represent debts or obligations due beyond the next year, such as:

• Equipment loans
• Mortgages on facilities or land
• Long-term notes payable
• Long-term leases

Owner’s equity

This includes the owner’s investment in the company and retained earnings. For contractors looking to build bonding capacity, consistent growth in equity over time is a positive signal. Sureties and lenders often focus on this line as a measure of financial strength.

Special considerations and ratios for construction firms

Beyond the raw data, several key metrics help interpret a construction company’s balance sheet. These indicators help lenders, sureties and owners assess a company’s ability to weather slow periods, take on new jobs and support growth.

Net working capital

One of the most important indicators on the balance sheet, net working capital is the difference between current assets and current liabilities. Construction companies with strong net working capital are seen as financially stable and capable of absorbing job delays, slow pay cycles, or material price swings.

Net working capital is evaluated by surety underwriters as part of your bonding capacity. A company with a ratio near 2.0 and strong cash flow will usually qualify for more favorable bonding terms.

Debt-to-equity ratio

This ratio compares total liabilities to owner’s equity. A high ratio may signal financial risk. While a growing company may take on debt to expand, lenders and bonding agents look for balance. Ideally, your equity grows along with your borrowing capacity.

For bonded contractors, a debt-to-equity ratio between 1:1 and 3:1 is generally acceptable, with 1:0 and under being ideal.

Backlog-to-equity ratio

Backlog refers to work awarded but not yet completed. If your backlog is significantly higher than your equity, it may indicate you are overextended. The higher this ratio climbs, the more scrutiny your company may face from bonding agents. A ratio of 10:1 or higher should prompt a closer review of project timing and resource capacity.

Working capital turnover

This ratio measures how efficiently a construction firm uses its working capital to generate revenue. Higher turnover often means greater efficiency, but it can also indicate undercapitalization if projects are being run too lean. Contractors who know their numbers can better plan for growth, identify risk and build trust with outside stakeholders.

For construction firms, a healthy range is between 5 and 15. A turnover ratio that’s too low means your assets aren’t being used efficiently to produce sales. One that’s too high could still mean strong efficiency but might indicate tight cash flow.

 

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What a healthy balance sheet looks like for a construction company

Every construction business is unique, but strong balance sheets tend to have a few things in common. They reflect stability, readiness and a smart use of financial resources. If your company is planning for expansion, seeking better bonding capacity, or simply working to improve its financial position, it pays to know what the benchmarks look like.

Positive working capital and strong liquidity

A healthy construction balance sheet shows that your company can meet its short-term obligations without straining operations. This means your current assets comfortably exceed your current liabilities. At a minimum, you want a current ratio of 1.2 or higher. In construction, ratios closer to 1.5 or even 2.0 are preferred when preparing for bonding evaluations or bank line renewals.

Consistent growth in equity

Equity should trend upward over time. This tells lenders and bonding agents that your company is profitable and retaining earnings to support future operations. For mid-sized contractors, retained earnings are one of the strongest signals of financial discipline.

Manageable leverage

Debt can be a smart tool when used correctly. However, if liabilities significantly outpace equity, your company may appear overleveraged. A debt-to-equity ratio between 1.0 and 2.0 is generally acceptable in construction, although this varies based on project type and company size.

Healthy backlog-to-equity balance

Contractors with large project backlogs should have sufficient equity to support the work. Sureties often use the backlog-to-equity ratio to assess risk. If the backlog exceeds 10 times your equity, it may be time to reassess project scheduling or capital reserves.

Well-documented assets

A balance sheet is only as reliable as the data behind it. Make sure fixed assets are regularly depreciated, WIP schedules are updated monthly and accounts receivable aging is closely tracked. For retainage, provide a breakdown that includes amounts, expected release dates and any contingencies.

Practical steps to prepare and maintain an effective balance sheet

Creating a solid balance sheet requires consistent effort from your accounting and leadership teams. Here are practical steps to keep your construction company’s balance sheet accurate and ready to use for making crucial decisions.

Reconcile accounts monthly

Bank accounts, accounts payable, accounts receivable and loan balances should be reviewed and reconciled every month. Waiting until year-end is too late to correct missing entries or misclassified costs. Monthly closings help keep your financial data clean and reliable.

Update WIP schedules regularly

Your work in progress schedule should be updated at least monthly. It connects directly to your revenue recognition and helps identify overbilling, underbilling or margin issues before they escalate. Inaccurate WIP reporting is one of the top reasons bonding companies flag financials for review.

Track retainage separately

Retainage often sits in accounts receivable, but it should be tracked in a separate general ledger account. This gives you better visibility into delayed cash flow and helps manage expectations for project closeout collections.

Maintain an accurate fixed asset ledger

Construction companies rely heavily on equipment. Keeping your fixed asset records updated helps with depreciation calculations, insurance and planning future investments. Include acquisition dates, costs, useful life estimates and accumulated depreciation.

Use software designed for construction

General accounting platforms may not provide the job costing and WIP functionality you need. Tools like Viewpoint, Procore, Foundation or Sage Construction Management are built specifically for contractors and make it easier to produce job-level financials that roll up into accurate balance sheets.

Conduct quarterly internal reviews

Rather than waiting for your CPA to review your year-end books, schedule quarterly internal reviews. This allows your team to catch errors early, evaluate trends and stay ahead of any financial reporting requirements.

Coordinate with your CPA or controller

Whether you use an in-house accounting team or outsourced controllership support, make sure you maintain open communication. Your CPA should understand your project pipeline, financing needs and long-term goals. This allows them to advise you proactively on balance sheet strategy, not just reactively during tax season.

For resources tailored to your needs, explore our outsourced accounting services for construction companies to see how we help firms prepare, manage and explain the numbers that matter.

Ready your balance sheet for long-term growth

Your balance sheet should tell the story of a stable, growing construction company that’s ready for new opportunities and resilient in the face of challenges. From managing equipment depreciation to tracking retainage receivables, every line on the balance sheet helps guide smarter decisions.

At James Moore, we work closely with construction business owners and controllers to ensure their financial statements are accurate, clear and aligned with long-term goals. Whether you need help strengthening your working capital, preparing for a financing conversation, or simply making sense of what your numbers are saying, we are here to help.

Contact a James Moore professional today to review your balance sheet and build a financial foundation that supports your company’s next phase of growth.

 

 

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