Practical Balance Sheet Templates, Formats, and Financial Reporting Tips for Small Construction Companies
If you run a small construction firm and your balance sheet examples are giving you more anxiety than a scaffold inspection on a Monday morning, then pull up a hard hat and sit down — because we are about to fix that together, with numbers, laughter, and zero judgement whatsoever.
I am a trader and financial consultant who has worked with small construction businesses for over fifteen years. I have sat across tables from contractors who could build a hospital in six months flat but could not tell you the difference between a current asset and a current liability without sweating through their hi-vis jacket. And let me tell you — I get it. You got into construction because you love building things, not because you dreamed of staring at spreadsheets at eleven o’clock on a Tuesday night wondering why nothing adds up.
But here is the cold truth: if you do not understand your balance sheet, your balance sheet will bury you. And it will not even feel bad about it. Your balance sheet has no loyalty. Zero. It is like that one guy on site who always disappears at lunch and never comes back — every. single. time. You think maybe today is the day he stays. Nope. Gone. Vanished. Your balance sheet? Same energy.
This article is your comprehensive, deeply practical guide to balance sheet examples for small construction firms. We will cover what a construction balance sheet actually looks like, walk through real-world case studies, decode the jargon, and reference the peer-reviewed academic research that backs up everything I am telling you. And yes — we will have some fun along the way. Because life is short, concrete sets fast, and nobody said accounting had to be boring.
According to research published in the Journal of Construction Engineering and Management, financial distress in the construction sector is strongly linked to poor financial statement awareness among small and medium-sized contractors (Alaka et al., 2018). In other words, not knowing your numbers is not just embarrassing — it is genuinely dangerous for your business.
Let us get building. And I mean that metaphorically. For the actual building, please hire a qualified contractor. Which, hopefully, is you.
Section 1: What Is a Balance Sheet and Why Should a Builder Care?
A balance sheet is a financial snapshot of your business at a single point in time. It tells anyone who looks at it — your bank, your bonding company, your accountant, your anxious business partner who calls you at 7am on a Saturday — exactly what your company owns, what it owes, and what is left over for the owners after all the dust settles. Literally and figuratively.
The fundamental equation that governs every balance sheet ever created is this:
Assets = Liabilities + Owner’s Equity
That is it. Everything on a balance sheet orbits around this one equation. If it does not balance — and I mean perfectly, down to the last penny — then something has gone wrong. Badly wrong. Like somebody put the wrong mix in the concrete kind of wrong. Structural integrity: compromised. Financial credibility: same.
Now here is where construction gets interesting and a little spicy. Most industries have fairly standard balance sheets. Construction firms have their own flavour. We have Work in Progress assets sitting on the balance sheet like half-built extensions that you are not quite sure what to do with. We have retainage — money withheld by clients until project completion — showing up as receivables that you cannot actually spend yet. We have equipment that depreciates faster than your foreman’s patience on a Friday afternoon when someone loses the keys to the digger. Again.
According to a landmark study by Lisowsky, Minnis, and Sutherland (2017), published in the Journal of Accounting Research, small construction firms represent the vast majority of total employment in the construction sector, and most operate without mandatory audit requirements. This means many small construction business owners are essentially flying blind when it comes to financial reporting — trusting whatever their bookkeeper sends them without fully understanding what they are looking at (Lisowsky, Minnis & Sutherland, 2017).
That is the equivalent of reading the structural drawings upside down and hoping for the best. Spoiler: the best does not show up.
The Three Main Sections of Your Balance Sheet
Your construction balance sheet is divided into three parts you absolutely must understand:
1. Assets. Everything your business owns or is owed. In construction, this includes cash, accounts receivable, equipment, vehicles, materials inventory, and importantly, contract assets — the accountant’s fancy term for work you have done but not yet billed for, also known as underbillings. Think of it as money you have already earned but have not collected yet. It is sitting there, wearing a hard hat, waiting for you to send the invoice.
2. Liabilities. Everything your business owes to others. This includes accounts payable (what you owe your suppliers and subcontractors), loans, equipment finance agreements, and contract liabilities — overbillings, meaning you have billed clients for more work than you have actually completed. The liability version of getting paid to do homework and then not doing the homework. It feels great until the teacher calls.
3. Owner’s Equity. What is left for you after subtracting liabilities from assets. It represents the true net worth of your business and includes retained earnings, capital contributions, and the current year’s net income or loss. This is your number. This is the score on the board at the end of the financial year. Make it grow.
Now here is the kicker. A lot of small construction firm owners look at their bank account, see a decent balance, and think they are doing great. Meanwhile, their balance sheet is screaming like a smoke alarm at three in the morning. Cash in the bank does not mean financial health. You could have a hundred thousand pounds in the bank and still be technically insolvent if your liabilities exceed your assets. That is not a joke — though the look on contractors’ faces when I explain it certainly is. That is a tragedy I have watched play out more times than I care to count.
Section 2: A Real-World Balance Sheet Example for a Small Construction Firm
Let me introduce you to Brickhouse Build Ltd. This is a fictional but entirely realistic small UK-based construction contractor with annual revenues of approximately £1.2 million. They do residential extensions, loft conversions, and the occasional commercial fit-out. They have twelve employees including three subcontractors on long-term agreements. The owner — let us call him Marcus — is brilliant with a spirit level but had never properly reviewed his balance sheet before I sat down with him. He thought a balance sheet was something you bought at IKEA.
Here is what Marcus’s balance sheet looked like at the end of his financial year:
Brickhouse Build Ltd — Balance Sheet as at 31 March 2024
ASSETS
| Item | £ | Total £ |
|---|---|---|
| CURRENT ASSETS | ||
| Cash and Bank Deposits | 48,200 | |
| Accounts Receivable (Trade Debtors) | 112,400 | |
| Retainage Receivable | 23,750 | |
| Contract Assets (Underbillings) | 31,600 | |
| Materials Inventory | 14,300 | |
| Prepaid Expenses | 5,100 | |
| Total Current Assets | 235,350 | |
| NON-CURRENT ASSETS | ||
| Plant, Machinery and Vehicles (Net of Depreciation) | 187,500 | |
| Office Equipment | 8,200 | |
| Total Non-Current Assets | 195,700 | |
| TOTAL ASSETS | 431,050 |
LIABILITIES AND EQUITY
| Item | £ | Total £ |
|---|---|---|
| CURRENT LIABILITIES | ||
| Accounts Payable (Trade Creditors) | 67,800 | |
| Contract Liabilities (Overbillings) | 18,400 | |
| Short-Term Loan Repayments | 22,500 | |
| Payroll Taxes Payable | 9,700 | |
| VAT Payable | 6,300 | |
| Total Current Liabilities | 124,700 | |
| NON-CURRENT LIABILITIES | ||
| Long-Term Equipment Finance | 98,000 | |
| Directors’ Loan (Long-Term) | 35,000 | |
| Total Non-Current Liabilities | 133,000 | |
| TOTAL LIABILITIES | 257,700 | |
| OWNER’S EQUITY | ||
| Share Capital | 10,000 | |
| Retained Earnings | 124,650 | |
| Current Year Net Income | 38,700 | |
| Total Owner’s Equity | 173,350 | |
| TOTAL LIABILITIES AND EQUITY | 431,050 |
Beautiful, right? It balances. £431,050 on both sides. Marcus nearly cried the first time he saw it laid out clearly. He said — and I quote — “I had no idea I actually had money.” That reaction right there is exactly why this work matters. Also, Marcus, my brother, you need to be reviewing this quarterly at minimum. Not just when your accountant sends it over with a sticky note that says “sign here.”
Reading the Brickhouse Build Balance Sheet
The current ratio for Brickhouse Build is £235,350 divided by £124,700, giving us approximately 1.89. According to the Construction Financial Management Association’s 2022 Benchmarker survey, a current ratio above 1.3 is generally considered healthy for small construction firms (CFMA, 2022). Marcus is sitting comfortably above that threshold. His bank manager should be sleeping peacefully.
However, notice the contract assets and contract liabilities. Marcus has £31,600 of underbillings — work completed but not yet invoiced — and £18,400 of overbillings — work invoiced but not yet completed. The underbillings are the bigger figure, which means Marcus is working ahead of his billing cycle. He is funding work out of his own pocket before the client pays him. As a trader, I told Marcus directly: “You are giving your clients an interest-free loan with every week you wait to send that invoice. And your clients are not offering you the same luxury with their retention.” He looked at me like I had told him something personal. Because I had.
Section 3: Understanding Contract Assets and Contract Liabilities — The Construction-Specific Twist
Here is where small construction balance sheets get genuinely fascinating. The concepts of contract assets and contract liabilities — formally defined under IFRS 15 (or ASC 606 in the US) — are entirely unique to project-based industries, and construction is the poster child.
Traditional businesses sell a product or service and invoice for it immediately. You buy a sandwich, you pay for the sandwich. Simple. Clean. No drama. Construction is absolutely nothing like that. You commit to building something over weeks, months, or years. Money flows in and out in an irregular pattern that would give a cardiologist nightmares. You might bill forty percent of a contract in month one, complete only twenty percent of the work, and then spend the next three months trying to catch up while also running two other projects and wondering why you have no cash on a Wednesday.
This is all perfectly normal in construction. It is also exactly why your balance sheet needs to reflect this reality accurately.
Corrigan Krause explains that Costs in Excess of Billings (underbillings) and Billings in Excess of Costs (overbillings) are shown as asset and liability accounts respectively on the construction company’s balance sheet, and it is critical to make journal entries at the end of each reporting period to reflect the correct amounts (Corrigan Krause, 2023).
Here is my favourite analogy for explaining this to contractors who would rather be literally anywhere other than a financial discussion. Contract assets and liabilities are like a running tab at a restaurant. Sometimes the kitchen gets ahead of the orders — food arrives before you ordered it. Sometimes the waiter takes your payment before the food shows up. The balance sheet is just the tab at the end of the evening. The question is whether it reflects reality or whether somebody has been creative with the bill.
Case Study 1: The Underbilling Trap — Apex Roofing Solutions
Apex Roofing Solutions is a small roofing contractor based in the East Midlands with three active projects running simultaneously. The owner, Sandra, is phenomenally good at her trade. Her workmanship is flawless. Her invoicing, however, is about as timely as a bus in a snowstorm. A snowstorm in July. On a bank holiday.
At year-end, Sandra’s balance sheet showed contract assets (underbillings) of £67,400 against a total asset base of £198,000. That means over thirty-four percent of her assets were tied up in work she had done but not yet billed for. Her bank account showed £12,300 — just about enough to cover one payroll run and maybe a sad desk lunch.
When I sat down with Sandra and her accountant, we identified three specific invoicing delays:
- A £22,000 invoice that had been ready for six weeks but never sent because Sandra was too busy on site
- A £31,000 payment application waiting on a single signature from a site manager who had changed his phone number and apparently entered the witness protection programme
- A £14,400 retention release that Sandra had completely forgotten to chase
Total money sitting on the table: £67,400. The cure? A billing schedule implemented every two weeks, a dedicated part-time admin person to handle payment applications, and a very straightforward conversation with clients about payment terms. Within ninety days, Sandra’s cash position improved by over forty thousand pounds without winning a single new contract.
The lesson here is not just financial — it is operational. Your balance sheet is not just a record of the past. It is a roadmap to your future cash flows if you learn to read it properly.
Section 4: Equipment, Depreciation, and the Asset Side Nobody Talks About
Small construction firms are typically asset-heavy businesses. You have vans, excavators, scaffolding, power tools, site equipment, maybe a JCB or two if business has been good and you have been making sensible decisions. All of this lives on your balance sheet as non-current assets. But here is the thing that surprises a lot of contractors the first time they really look at their numbers.
That equipment depreciates. Every single year, it is worth less on paper than it was the year before. And that depreciation flows through your income statement as an expense, reducing your reported profit — even though you have not actually spent any additional cash. This is a source of tremendous confusion for small construction business owners who look at their balance sheet and wonder why their equipment is listed at a value that seems far lower than what they paid for it.
I had a client once — phenomenal guy, built beautiful houses — who called me furious because his accountant had told him his fleet of vans had a net book value of zero. He said: “Zero? I can see them from my office window right now. They are very much not zero.” Sir, your accountant is correct. The accounting has simply acknowledged that the asset has transferred its value into the work it has done for you. The vans still work. They just do not show up on the balance sheet anymore. Welcome to depreciation. Please enjoy your stay.
Simple example: you purchase a transit van for £32,000. You depreciate it on a straight-line basis over four years — that is £8,000 per year in depreciation. At year two, your balance sheet shows the van at £16,000 net book value. At year four, it shows £0 — fully depreciated. The van is still sitting in your yard, still running jobs. The accounting has done its job.
What IS a potential issue is when small construction firms do not account for equipment replacement costs in their financial planning. Your balance sheet might show fully depreciated plant with a net book value of zero, but replacing that plant will cost you very real money. I have seen firms report healthy-looking balance sheets that were actually ticking time bombs because all of their equipment was at end-of-life with no replacement provision anywhere. The balance sheet looked fine on paper. Reality looked like a skip fire.
Case Study 2: Redstone Civil Engineering — Equipment Planning Done Right
Redstone Civil Engineering is a small civil contractor in South Wales with five employees and a fleet of specialist equipment including a compact excavator, a tipper truck, and a concrete pump unit. The owner, David Rhys, came to me after his bank declined a modest equipment finance application. The bank’s computer had said no. David’s face said a lot of things I cannot print here.
David’s balance sheet showed total non-current assets of £89,000, all net of depreciation. His total liabilities were £143,000, giving him negative equity of approximately £18,000. On paper: not pretty.
However, when we sat down and looked at the detail, the picture was far more nuanced. David’s equipment had been over-depreciated using an accelerated method for tax purposes, which had artificially deflated his asset values. A certified used equipment appraisal placed the market value of his fleet at £134,000 — substantially higher than the net book value.
Once we prepared a management accounts pack with an asset schedule showing current market values alongside net book values — and once we articulated clearly why the accounting depreciation did not reflect commercial economic reality — David secured his finance within thirty days. Same business. Same equipment. Better story. The numbers had not changed. The presentation of those numbers had.
The lesson: your statutory balance sheet tells one story. Understanding the commercial story behind the numbers allows you to communicate your financial position accurately and confidently to lenders, sureties, and investors.
Section 5: Key Financial Ratios Derived from Your Construction Balance Sheet
Numbers on a page mean very little without context. Ratios give your balance sheet figures context by comparing them to each other and to industry benchmarks. Here are the most important ratios for small construction firms, with worked examples based on the Brickhouse Build balance sheet:
| Ratio | Formula | Brickhouse Build | Industry Benchmark |
|---|---|---|---|
| Current Ratio | Current Assets ÷ Current Liabilities | 1.89 | > 1.3 healthy |
| Quick Ratio | (Cash + AR) ÷ Current Liabilities | 1.29 | > 1.0 healthy |
| Debt-to-Equity | Total Liabilities ÷ Owner’s Equity | 1.49 | < 2.0 acceptable |
| Working Capital | Current Assets – Current Liabilities | £110,650 | Positive required |
| Equity Ratio | Owner’s Equity ÷ Total Assets | 40.2% | > 25% preferred |
The quick ratio for Brickhouse Build is calculated by taking cash (£48,200) plus accounts receivable (£112,400), divided by current liabilities (£124,700), giving us 1.29. Right on the edge of comfortable — above 1.0 but without a huge buffer. Marcus should be monitoring this monthly. Not annually. Monthly. I cannot stress that enough.
Research by Singla and Samanta (2018), published in the Journal of Financial Management of Property and Construction, demonstrates that construction firms with higher equity ratios consistently show better long-term financial performance, reduced financial distress risk, and greater access to financing (Singla & Samanta, 2018).
The debt-to-equity ratio is perhaps the most closely watched ratio by lenders. For Brickhouse Build, total liabilities (£257,700) divided by owner’s equity (£173,350) gives us 1.49. This means creditors have invested roughly one and a half times what the owner has in the business. Not alarming, but not something you want to see climb year over year. If Marcus takes on a large equipment loan without growing his equity through retained earnings, this number climbs, his risk profile gets worse, and his borrowing gets more expensive. This is the financial equivalent of adding floors to a building without reinforcing the foundations.
The Working Capital Turnover Ratio
One ratio that is particularly relevant for construction firms is working capital turnover — calculated by dividing annual sales by working capital. For Brickhouse Build with annual revenues of £1.2 million and working capital of £110,650, the working capital turnover is approximately 10.8.
A high working capital turnover ratio in construction indicates efficient use of available capital to generate revenue. However, it can also indicate that working capital is thin relative to the volume of business being undertaken. This is a crucial signal for small firms considering taking on a large new contract — you need to ensure your working capital can support the additional cash demands before the first progress payment arrives. Taking on a £500,000 contract when your working capital is £110,000 is like inviting twenty people to dinner when you only have food for eight. It feels exciting right up until the moment it does not.
Foundation Software’s guide to construction financial ratios provides excellent practical guidance on interpreting these metrics for small contractors (Foundation Software, 2025).
Section 6: The Work in Progress Schedule — Your Balance Sheet’s Secret Weapon
The Work in Progress (WIP) schedule is not technically required by accounting standards, but for construction firms it is absolutely essential. It is the document that ties your balance sheet together and explains why your contract assets and contract liabilities exist and what they represent in the real world.
Here is a simplified WIP schedule for Brickhouse Build’s three active contracts at year-end:
| Project | Contract Value | % Complete | Revenue Earned | Billed to Date | Under / Overbilling |
|---|---|---|---|---|---|
| Harrington Road Extension | £280,000 | 65% | £182,000 | £150,400 | £31,600 Under |
| St. Mary’s Church Renovation | £95,000 | 100% | £95,000 | £113,400 | £18,400 Over |
| Greenfield Industrial Unit | £420,000 | 30% | £126,000 | £126,000 | Balanced |
Notice how the underbilling on the Harrington Road project (£31,600) and the overbilling on St. Mary’s Church (£18,400) feed directly into the contract assets and contract liabilities on Marcus’s balance sheet. These are not random numbers — they are the financial fingerprints of his active projects. The WIP schedule and the balance sheet should reconcile perfectly. If they do not, someone has made an error — or someone has made up a number. Neither is acceptable.
According to JMCO’s overview of construction financial statements, the WIP schedule is especially important because sureties and financing partners use it to assess project progress and financial risk (JMCO, 2025).
Here is my favourite analogy for explaining the WIP schedule to contractors who are not finance people. Your WIP schedule is like a mid-project inspection report for your balance sheet. Your balance sheet tells you what the house looks like right now. Your WIP schedule tells you which rooms are finished, which ones are half-plastered, and which ones still just have a concrete floor and some very optimistic pencil marks on the wall. Without the WIP, you are guessing. And in construction, guessing is how you go bust.
Any project where overbillings or underbillings are growing rapidly should be flagged and investigated immediately. A rapidly growing overbilling might mean a project is in trouble — you have billed for more than you will ever earn because costs are running over. A rapidly growing underbilling might mean your billing cycle is broken or your client is finding creative reasons to delay approvals. Either way, you want to find out from your WIP schedule. Not from your bank manager.
Section 7: Retainage — The Money You Own That You Cannot Spend Yet
Retainage — sometimes called retention — is one of the most distinctive features of construction accounting, and it has a significant impact on how your balance sheet looks and how your cash flow actually feels in practice. Emphasis on feels. Because it feels deeply unfair. You built the thing. It is standing there. You can see it. The client can see it. But the money? The money is in financial purgatory for up to twelve months.
Retainage is typically five to ten percent of each payment that a client withholds until practical completion or the expiry of a defects liability period. From a balance sheet perspective, retainage receivable sits as a current or non-current asset depending on when you expect to collect it.
The problem — and it is a real problem for small firms — is that retainage can represent a substantial portion of your outstanding receivables. If you have been building for the same developer across multiple projects over two years, you might have tens of thousands of pounds tied up in retainage that you legally own but physically cannot access. It shows up on your balance sheet. It contributes to your equity calculation. But you cannot use it to pay your concrete supplier on Friday. Which the concrete supplier does not find as intellectually interesting as you might.
Case Study 3: Pioneer Construction — The Retainage Crisis
Pioneer Construction is a small groundworks contractor I worked with that had annual revenues of £780,000. The owner, James Patel, was a genuinely excellent operator — tight programme management, strong client relationships, excellent site discipline. But James had a retainage problem that was slowly strangling his business. He just did not know it yet.
At the point when James came to me, his balance sheet showed retainage receivable of £58,400 — representing approximately seven and a half percent of his annual revenues, all sitting in the hands of three different developers. His cash balance was £8,700. His current liabilities were £76,200. He was technically solvent on paper — current ratio of 1.1 — but in practical terms he was one delayed payment away from missing payroll.
The solution had multiple components:
- We reviewed all retainage provisions in James’s contracts and identified two projects where the defects liability period had already expired — meaning £27,600 of retention was immediately recoverable. James had simply not chased it. He looked at me like I had found money in his sofa cushions. Same energy.
- We introduced a formal retention schedule as a monthly management tool — every project, every amount, every due date, every responsible person.
- For new contracts, James began negotiating retention reduction clauses — where retention would reduce from ten percent to five percent at the halfway point of a project.
Over an eighteen-month period, James’s retainage exposure reduced by over forty percent and his average cash balance more than tripled. Same contracts. Same clients. Better financial management.
Your balance sheet does not just show you problems. It shows you solutions — if you know how to read it.
Section 8: Common Balance Sheet Mistakes Small Construction Firms Make
After fifteen years reviewing construction financials, I have seen every mistake in the book. Here are the most damaging ones, with enough detail that you will recognise them if they are happening to you right now.
Mistake 1: Not Updating the Balance Sheet Frequently Enough
Some small firms only look at their balance sheet once a year when the accountant produces the statutory accounts. This is like only checking your fuel gauge when the engine stops. You need monthly management accounts that include a balance sheet. Monthly. Without exception. The cost of producing monthly management accounts is far, far less than the cost of a cash flow crisis that could have been spotted six weeks earlier.
I say this with love: your accountant who only contacts you in January and then again at year-end is not serving your business. They are filing documents. You need a financial partner who produces meaningful monthly reporting. There is a difference. Find the difference.
Mistake 2: Confusing Profit with Cash
This is the most common and the most dangerous mistake in small construction. Your income statement might show a healthy profit. Your balance sheet might look reasonable. But if your debtors are slow payers, your overbillings are high, and your retainage is growing, you can have a profitable year that ends with you unable to pay your suppliers.
Profitable and solvent are two completely different things. I cannot stress this enough. I have told this to contractors who nod politely and then ring me six months later from a very difficult financial position. The nod means they heard me. It does not mean they changed their behaviour. Do not be that contractor.
Mistake 3: Misclassifying Assets and Liabilities
It matters enormously whether something is classified as current or non-current. Current means expected to be realised or settled within twelve months. Non-current means beyond twelve months. Getting this wrong distorts your ratios, misleads your bank, and can result in loan covenants being triggered on existing borrowing facilities.
If your three-year equipment loan has a twelve-month repayment instalment, that twelve-month portion must be shown as a current liability. Always. This is not optional. This is accounting rules. If your accountant is not doing this correctly, that is a conversation worth having over a cup of tea and possibly a significant review of your engagement arrangement.
Mistake 4: Ignoring Directors’ Loans
Many small construction firm owners move money in and out of their business through directors’ loan accounts without fully understanding the balance sheet implications. A large directors’ loan balance showing as a company liability reduces your apparent equity and can make your borrowing position look significantly worse than it is. Conversely, a directors’ loan shown as an asset — meaning the company is owed money by the director — is a number that your bank, your bonding company, and HMRC will all look at with great interest. And not the nice kind of interest.
Mistake 5: Forgetting About Committed Costs
If you have ordered £45,000 of materials for a project that are being delivered next month, those committed costs may not yet appear on your balance sheet. But they are real financial obligations that will impact your liquidity. Good construction financial management requires tracking committed costs — orders placed but not yet invoiced — alongside your formal balance sheet figures. A cash flow that does not account for committed costs is a fiction. A very expensive fiction.
Section 9: How Banks and Bonding Companies Read Your Balance Sheet
Understanding how your balance sheet looks through the eyes of people who have the power to fund or frustrate your business growth is genuinely transformative. Let me tell you what they are looking for — because knowing this changes how you present your numbers and how you build your financial strategy.
Banks focus primarily on three things: can this firm repay the money, what happens to the bank’s position if things go wrong, and does this firm’s management actually understand their own financials? Your balance sheet answers all three questions. The current ratio and quick ratio address the first. The equity ratio and asset coverage address the second. And the quality, accuracy, and timeliness of your balance sheet communicates very loudly about the third.
A construction firm that walks into a lending conversation with clean, monthly management accounts, a current WIP schedule, and a clear explanation of their contract assets and liabilities is having a fundamentally different conversation from the firm that shows up with a year-old set of unaudited accounts and a rough idea of what their current workload looks like. One of those firms gets the funding. The other one gets a polite letter and a suggestion to come back when they have “better supporting documentation.” Which is a nice way of saying “we do not trust these numbers.”
Surety bonding companies — who provide the performance and payment bonds required by many public sector and larger commercial contracts — are even more thorough in their balance sheet analysis. Research published in the ASCE Journal of Construction Engineering and Management demonstrates that balance sheet strength, and specifically equity ratio and working capital adequacy, are primary determinants of bonding capacity for small construction contractors (Alaka et al., 2018).
JMCO’s guidance confirms that frequent, accurate financial statements can build trust with sureties, reduce bonding costs, and increase a company’s bonding capacity (JMCO, 2025). Translation: a well-presented balance sheet is not just a compliance exercise. It is a business development tool. The firm that presents well, gets bonds. The firm that gets bonds, wins bigger contracts. The firm that wins bigger contracts, builds a bigger business. It all starts with a number that balances.
Section 10: Technology and Tools for Managing Your Construction Balance Sheet
We are in 2026. There is absolutely no reason why any small construction firm should be managing their balance sheet in a spreadsheet that lives on one laptop, gets emailed to the accountant once a year, and was last formatted by someone who left the company in 2019. The tools available today are remarkable, and the cost of cloud-based accounting software has fallen to the point where it is genuinely accessible for even the smallest contractor.
Purpose-built construction accounting platforms integrate your job costing, your WIP schedule, your billing, and your balance sheet into a single system where everything reconciles automatically. The days of spending three days at year-end trying to make the WIP schedule tie back to the management accounts are over — if you are using the right tools. If you are still using those days, please read this section again from the beginning.
The HH2 guide to construction financial management emphasises that technology plays a critical role in enhancing financial management for construction firms, particularly for tracking work in progress and understanding how costs are being financed across the balance sheet (HH2, 2024). This is not a luxury for large firms. This is table stakes for any construction business that wants to grow, compete for better contracts, and stop having panic attacks every time a client delays a payment.
My specific recommendations for small UK construction firms:
- Invest in cloud accounting software that produces monthly management accounts including a balance sheet. Xero, Sage, or a construction-specific platform depending on your volume and complexity.
- Engage an accountant who specialises in construction — not a generalist. The construction-specific knowledge around WIP accounting, retainage, and contract assets is genuinely specialised. A generalist accountant who does not understand these concepts will produce a balance sheet that is technically correct but operationally useless. It is like hiring someone who has never been on a construction site to manage your programme. They might read the documents correctly. They will not understand the reality.
- Produce a WIP schedule monthly — reconciled to your balance sheet. If these two documents do not agree, find out why before your bank or your bonding company does.
- Set up a retention tracking spreadsheet at minimum — ideally within your accounting system — with automatic reminders when retention due dates approach.
Section 11: Building a Stronger Balance Sheet — Practical Steps You Can Take Right Now
Theory is great. Action is better. Here is your practical action plan for strengthening your construction firm’s balance sheet, based on everything we have covered.
Step 1: Invoice Faster
Every week of delay between completing work and sending your invoice is a week of free finance you are providing to your client. That is your money, funding their cash position, at zero interest, while you sit wondering why your bank balance feels tight. Implement a bi-weekly billing cycle at minimum. For larger projects, consider weekly payment applications. The money you are owed for work already done is the lowest-risk, highest-return improvement you can make to your cash position and your balance sheet simultaneously. Get it done. Today.
Step 2: Chase Retention Actively
Create a retention schedule right now. List every active and recently completed project, the retention percentage, the total retention held, and the date when that retention becomes collectible. Assign someone the specific responsibility of chasing retention releases on a monthly cycle. In my experience, the average small construction firm has between five and fifteen percent of their annual revenue sitting in uncollected or unliberated retention. That is real money. Money you have earned. Money you have built. Chase it.
Step 3: Understand Your Equipment Position
Know the current market value of your key equipment assets — not just their net book value. Understand your depreciation policies. Plan for equipment replacement within your financial projections. An asset replacement schedule is not a complex document. It is a simple table showing each major piece of equipment, its net book value, its estimated remaining useful life, and the estimated replacement cost. This document alone can transform conversations with lenders. It says: we understand our assets. We have a plan. We are not guessing. That is a powerful statement.
Step 4: Produce Monthly Management Accounts
If you do not currently receive monthly management accounts including a balance sheet, make this your top financial priority for the current quarter. Monthly accounts allow you to spot trends while there is still time to respond. A deteriorating current ratio, growing underbillings, increasing creditor days — all of these are visible in your monthly numbers long before they become crises. Quarterly accounts are sometimes too late. Annual statutory accounts are almost certainly too late for anything except learning expensive lessons.
Step 5: Review Your WIP Regularly
Your WIP schedule should be updated monthly and should reconcile to your balance sheet every single time. No exceptions. No “we’ll sort it at year-end.” Any project where the overbillings or underbillings are growing rapidly should be flagged and investigated. A growing overbilling might mean a project is running over cost and you are heading for a loss that will hit your balance sheet when you finally acknowledge it. That is a problem you want to find now. Not in January when the accountant calls.
Conclusion: Your Balance Sheet Is Telling You Something — Are You Listening?
We have covered a lot of ground in this article. We started with the fundamental equation that underpins every balance sheet ever produced. We walked through a real-world balance sheet example for Brickhouse Build Ltd. We explored contract assets and liabilities, equipment depreciation, retainage, WIP schedules, financial ratios, and the most common mistakes small construction firms make with their financial reporting.
But here is the thread that runs through all of it: your balance sheet is a communication tool. It communicates the financial health of your business to you, to your lenders, to your bonding company, to your potential business partners. More importantly, it communicates to your future self — because the decisions you make today, the contracts you take on, the equipment you finance, the clients you extend credit to — all of these will show up on next year’s balance sheet. The question is whether that story will be one you are proud to tell.
I started this article by telling you that your balance sheet has no loyalty. That is true. But it also has no agenda. It does not wish you ill. It simply tells the truth about your business in numbers. Once you learn to read those numbers — once you stop being intimidated by the balance sheet and start using it as a management tool — you will make better decisions, attract better financing, win better contracts, and build a better business.
One last thing. I have a contractor friend who used to say that the best foundation is the one you never have to think about — because it was done right the first time. Your balance sheet is the financial foundation of your business. Get it right. Review it regularly. Understand it completely. And then build whatever you want on top of it.
Now go update your WIP schedule, chase that retention, and for the love of everything good in this world — send your invoices on time.
References
- Alaka, H. A., et al. (2018). Systematic review of bankruptcy prediction models: Towards a framework for tool selection. Expert Systems with Applications, 94, 164–184. ASCE Journal of Construction Engineering and Management. https://ascelibrary.org/doi/abs/10.1061/JCEMD4.COENG-13959
- Lisowsky, P., Minnis, M., & Sutherland, A. (2017). Economic Growth and Financial Statement Verification. Journal of Accounting Research, 55(4), 745–794. MIT Sloan. https://mitsloan.mit.edu/shared/ods/documents?PublicationDocumentID=5264
- Singla, H. K., & Samanta, P. K. (2018). Determinants of dividend payout of construction companies: A panel data analysis. Journal of Financial Management of Property and Construction, 24(1), 19–38. Emerald Publishing. https://doi.org/10.1108/JFMPC-06-2018-0030
- Construction Financial Management Association (CFMA). (2022). 2022 Construction Financial Benchmarker Executive Summary. https://cfma.org/articles/cfmas-2-22-construction-financial-benchmarker-executive-summary
- JMCO. (2025). An Overview of Key Financial Statements for Construction Companies. https://www.jmco.com/articles/construction/overview-of-financial-statements/
- Corrigan Krause. (2023). The Importance of Financial Statement Presentation for Construction Companies. https://www.corrigankrause.com/financial-statement-presentation-construction-companies/
- Foundation Software. (2025). 5 Key Financial Ratios for Your Construction Business. https://www.foundationsoft.com/learn/financial-ratios-construction-business/
- HH2. (2024). The Ultimate Guide to Construction Financial Management. https://www.hh2.com/construction-financial-management
- Emerald Publishing. (2025). Journal of Financial Management of Property and Construction (JFMPC). https://www.emeraldgrouppublishing.com/journal/jfmpc
- Ross, A., & Williams, P. (2013). Financial Management in Construction Contracting. New York: Wiley. Referenced in ASCE JCEM, Vol. 150, No. 3. https://ascelibrary.org/doi/abs/10.1061/JCEMD4.COENG-13959
Disclaimer: The information contained in this article is provided for general educational and informational purposes only and does not constitute professional financial, accounting, legal, or tax advice. While every effort has been made to ensure the accuracy of the figures, examples, case studies, and references presented, the author and publisher accept no liability for any errors, omissions, or outcomes arising from the use of this material. The case studies featured are fictional composites created for illustrative purposes and do not represent any specific real-world individual or business. Financial circumstances vary significantly between firms, and the ratios, benchmarks, and strategies discussed may not be appropriate for every construction business. Readers are strongly encouraged to consult a qualified accountant, financial adviser, or legal professional before making any financial decisions or changes to their business practices. References to third-party sources, publications, and websites are provided in good faith; the author cannot guarantee the ongoing accuracy or availability of external content.
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