How's your backlog right now? In Part 6 of the Construction Accounting Series, Eric sits down again with CPA Kathe Barrington to unpack what backlog really is, and what it isn't. They dig into why committed-but-unstarted jobs belong on your WIP the day you're awarded, how to use backlog to forecast labor, equipment, and cash, and why a backlog that looks great in aggregate can still leave you with a nine-month hole in the schedule.
Kathe lays out the ideal backlog-to-revenue ratio, the red flag of growing backlog with compressing gross profit, how client and project-type concentration creates fragility, and who needs to be in the room for the monthly backlog review. If you want backlog to function as a real planning tool, not a vanity number. This conversation is the blueprint.
What backlog actually is - remaining contract, remaining cost, and remaining gross profit to complete
Why letters of intent and verbal awards should NOT count as backlog
Why unstarted-but-committed jobs belong on your WIP the day you're awarded (and what bank & bonding are looking for)
How to translate a WIP snapshot into a month-by-month forecast of labor, equipment, and cash
How far out you should be forecasting labor (hint: 6–12 months minimum)
The ideal backlog-to-revenue ratio - and why 3–6 months makes Kathe nervous
How backlog profiles differ between GCs and subs, and what that means for planning
The aggregate-number trap: why jobs bunched up at the same finish line signal trouble
When you can tighten margins as you scale - and when compressing gross profit becomes dangerous
Client and project-type concentration risk - diversification as insurance
How often to review backlog (monthly, with the financials) and who belongs in the room
The questions that should drive the conversation beyond the numbers
How to use backlog data when the market shifts - lessons from 2008 and COVID
The three questions Kathe asks first when she takes on a new client's books
LinkedIn: Kathe Barrington, KB CPA
Facebook: Kathe Barrington / KB CPA
This is Part 6 of an ongoing series. Catch up on the full run:
Part 1 — Ep. 357: WIP Reports Made Simple: The Key to Stopping Hidden Job Losses
Part 2 — Ep. 359: How to Use Your WIP to Protect Cash and Grow Profitability
Part 3 — Ep. 364: Why the Field and Accounting Are Both Right (Physical Progress vs. Financial Reporting)
Part 4 — Ep. 368: Underbillings Bad. Overbillings Better: The Cash Flow Truth Construction Owners Can't Ignore
Part 5 — Ep. 377: Why Your Jobs Look More Profitable Than They Are: Indirect Allocations and Overhead in Construction