Construction WIP and Revenue Recognition for Sydney Builders (2026)
Why a busy Sydney builder can look profitable and run out of cash at once. Work in progress, AASB 15, retentions, and the virtual CFO build that fixes it.
A mid-sized Sydney builder can be profitable on paper and still miss a payroll run in the same week. It is not bad luck and it is not mispricing. It is the gap between when you do the work, when you are allowed to bill it, and when the cash actually clears, multiplied across several live jobs, with retentions held back at the end. Most builders feel this gap rather than see it. The point of this piece is to make it visible.
Published: June 2026
Construction is a timing business. You buy materials and pay subbies and wages now. You bill in progress claims later. You collect later still. And a slice of every job, the retention, is held back for months after practical completion to cover defects.
So the profit on a job and the cash from a job arrive on completely different schedules. A builder who reads the P&L and sees profit, then checks the bank and sees a hole, is not looking at a contradiction. They are looking at the normal physics of the industry, with nobody translating between the two. A virtual CFO for construction in Sydney exists to do that translation, and the core tool is work in progress.
Work in progress is the difference, on each job, between the revenue you have earned and the amount you have billed. Earned more than you have billed, that is underbilling, and it is your money sitting uninvoiced. Billed more than you have earned, that is overbilling, and you are effectively holding the client's money against work you have not yet done.
Plenty of builders treat WIP as something the accountant works out once a year. That is backwards. Good WIP reporting, read monthly, tells you more about the health of the business than the year-end profit figure does. It shows you which jobs are underbilled and need a claim out the door this week, and which jobs are running on the client's cash and will hurt when the work catches up.
Under the Australian standard AASB 15, revenue is recognised as control of the work transfers to the customer, not when you send an invoice and not when cash lands. For most construction contracts the work transfers over time, so revenue is recognised progressively as the job is performed, commonly using a percentage-of-completion measure based on costs incurred against total expected costs.
There are a few things that follow from this that catch builders out:
A point worth flagging and then handing to the right person: the accounting treatment under AASB 15 and the tax treatment of long-term construction contracts are not the same thing. The ATO recognises income on its own basis, and the two require different adjustments. That is a question for your registered tax agent, not something to assume the books have handled.
Retentions are the quiet killer. A typical arrangement holds back a percentage of each progress claim, released part at practical completion and part at the end of the defects period, which can be months or a year later.
On the balance sheet, retentions sit as a receivable. They look like an asset, and they are. But they are not cash, and they cannot pay wages or the ATO. A builder with a strong balance sheet and a weak bank account is very often a builder with a large retentions balance and no plan for the gap between now and when it releases. The failure mode is not insolvency from losing money. It is a liquidity squeeze on a profitable business, caused by retentions treated as a bookkeeping detail rather than a financing reality.
Take a hypothetical Sydney commercial builder, around $9M turnover, several jobs running at once. The year-end accounts show a respectable profit. Through the year, cash is constantly tight.
A virtual CFO building the WIP and recognition position finds:
None of this was a profit problem. The builder was making money. It was a visibility and timing problem. Once the underbilled job was claimed, the WIP schedule was read monthly, the retentions were scheduled against the cash forecast, and the variations were locked in, the business stopped lurching from claim to claim. The numbers had been there all along. Nobody had assembled them into a picture the owner could act on.
WIP tells you what is earned and unbilled. A 13-week cashflow forecast tells you when the money and the obligations actually land. Run together, they let a builder see a squeeze coming six weeks out and do something about it, rather than discovering it on payday. For builders who also develop, the same discipline carries into the property development numbers, where the timing gaps are longer and the stakes are bigger.
The Australian virtual CFO market runs almost entirely on monthly retainers. We build this as a defined project instead. The 90-Day Number for a builder is typically a clean WIP schedule, a revenue position built correctly under the relevant standard, a retentions schedule mapped against the cash forecast, and a monthly reporting rhythm you can run yourself. Fixed scope, $17,850 plus GST in three instalments of $5,950, a deliverable on day 90. The work referenced is led by a Chartered Accountant (CA ANZ), which matters when the numbers need to stand up to a lender or a larger counterparty.
What is work in progress for a construction business?
It is the difference on each job between revenue earned and the amount billed. Earned more than billed is an underbilling, which is your uninvoiced money. Billed more than earned is an overbilling, where you are holding the client's cash against work not yet done.
Why does my building company show a profit but have no cash?
Because profit and cash arrive on different schedules. You pay for materials, subbies and wages before you can bill, you collect after, and retentions are held back for months. A profitable builder with a large retentions balance and slow progress claims will feel cash-poor despite the profit.
How does AASB 15 change construction revenue recognition?
Revenue is recognised as control of the work transfers to the customer, usually over time and measured by progress, rather than when you invoice or when cash arrives. This puts the weight on contract terms, variation approvals, realistic completion estimates and work-in-progress reporting.
Are retentions counted as income?
The retained amount is generally treated as variable consideration under AASB 15 and sits as a receivable. It is recognised as part of the contract revenue, but it is not cash until released, which is the source of much construction cashflow stress.
Is the tax treatment of construction revenue the same as the accounting treatment?
No. AASB 15 governs the accounting; the ATO recognises income on its own basis for long-term contracts, and the two require different adjustments. This is a matter for your registered tax agent rather than an assumption to make about the books.
How often should I review my WIP?
Monthly, as a trading report. Read regularly, WIP tells you which jobs to claim now and which are running on the client's money. Left to year-end, it becomes an accounting exercise that arrives far too late to change a decision.
What does a virtual CFO actually deliver for a builder?
Typically a clean WIP schedule, a correctly built revenue position, a retentions schedule mapped to the cash forecast, and a monthly reporting rhythm you can run yourself. The aim is a picture the owner can act on, not a report that sits in a folder.
Sydney Virtual CFO is a Sydney-based virtual CFO service for founders running $3M to $15M businesses across SaaS, ecommerce, professional services, construction, and other low-volume, high-value industries. We deliver fixed-scope CFO engagements with a named deliverable on day 90: a 13-week cashflow forecast, a fundraise-ready financial model, a unit economics build, or a board reporting pack you can run on your own.
Our front-door product, the 90-Day Number, is fixed scope at $17,850 plus GST, payable in three instalments of $5,950. We are one of the few project-based virtual CFOs in Australia, in a market built almost entirely on monthly retainers. No retainers without a deliverable. No 80-page reports. No theatre.
This content is general information only, written for Australian founders running businesses in the $3M to $15M revenue range. It does not constitute tax, financial product, investment, or legal advice and should not be relied on as such. The work referenced is led by a Chartered Accountant (CA ANZ), but Sydney Virtual CFO is not a licensed tax agent, not a licensed financial adviser, and not authorised to provide personal financial advice. Tax obligations, accounting treatments, fundraise terms, and statutory requirements depend on your individual circumstances. For advice specific to your business, contact the team directly or consult a registered tax agent, licensed financial adviser, or qualified lawyer. Information was current at the time of publication and may change without notice. We review and update guides periodically.
