Buried Profits: The Cost of Misclassifying GL Insurance
The Problem: Soft-Costing GL Insurance
GL insurance is a direct cost of putting people in the field. It’s tied to payroll, exposure, and project volume. But many CPA firms, or even internal teams, lump the premium into overhead — treating it like rent or office supplies.
On the surface, this makes jobs look more profitable because fewer costs are hitting COGS.
But in reality, it creates a distorted financial picture that hurts the company in two major ways:
It understates job costs, which limits how much revenue can be recognized on percentage-of-completion jobs.
It artificially inflates overhead, reducing net income and weakening financial ratios that matter to banks and sureties.
The Fix: Allocating GL Insurance to Job Costs
We implemented a straightforward, GAAP-compliant fix:
Allocated GL insurance premiums to jobs based on volume
Synced this allocation monthly through cost allocation entries
Adjusted revenue recognition through the cost-to-complete method accordingly
Here’s the key insight:
👉 Margins didn’t drop — they improved.
Why? Because cost-to-complete accounting allows higher revenue recognition when more cost is legitimately attributed to in-progress work. By reclassifying GL insurance into job cost, total COGS rose, allowing us to recognize more earned revenue, and in turn, reflect true, higher gross margins.
In addition, bonding capacity improved because:
Reported revenue per job increased
Margins were more accurate and favorable
Financials appeared cleaner and more aligned with industry norms
Why This Matters
Most construction owners want to know:
“Which jobs are making us money — and how can we do more of those?”
You can’t answer that if project costs are diluted by overhead. And you can’t scale bonding limits or secure financing when your revenue and profit are artificially suppressed.
Proper job costing — even for something as mundane as insurance — unlocks:
More accurate financial statements
Better cash flow forecasting
Increased capacity to bid and win bigger jobs
Smarter strategic decisions at the top
Final Thought
Don’t let your CPA or internal bookkeeper bury direct costs in overhead just because it’s easier. As a fractional CFO, my job is to elevate the accuracy and strategic value of your numbers — because margins aren’t just about what you make, but what you can prove.
If your GL insurance or other “gray area” costs are living in the wrong place, let’s fix it — and get credit where it’s due.
