HOW BUSY YOU'LL BE
AND HOW PROFITABLE YOU'LL BE
ARE TWO DIFFERENT QUESTIONS.
Backlog is the total value of contracted work not yet complete. Most subcontractors track backlog as a revenue number — how much work is ahead. What they don't analyze is backlog quality: what is the projected margin on each job, when does cash come in, and what are the execution risks? High backlog with low-margin or difficult-to-collect work is worse than moderate backlog with clean, high-margin projects.
A $4M backlog looks healthy. But if three of those four projects have 8% gross margins, one GC who pays at net 90, and two are in markets where you've never worked — the financial picture is very different from four $1M projects at 24% margin with GCs who pay on time. Backlog quantity tells you how busy you'll be. Backlog quality tells you whether you'll make money.
THE FOUR DIMENSIONS
OF BACKLOG QUALITY.
What Is the Projected Gross Margin?
Every project in backlog should have a projected gross margin at the estimate. If a project was bid at 18% and material prices have moved since bid, the actual margin at execution may be 12%. Backlog margin should be reviewed quarterly against current costs — not just at bid time.
When Does Cash Come In?
A $1M project starting in March with a 90-day collection cycle and 10% retention requires $150K+ of working capital before you see cash. If three projects start the same month, the cash demand stacks. Backlog analysis should include a cash timing model by project.
Who Are You Working For?
A $500K project with a GC who pays at net 75 is worth less than a $400K project with a GC who pays at net 30. Owner financial strength, GC payment history, and contract terms are backlog quality factors. Chase the first one out of market desperation and the cash cycle gets worse.
What Could Go Wrong?
New geographic market, new GC relationship, new scope type, aggressive schedule, or unusually tight contract terms all represent execution risk. Projects with multiple risk factors should be underwritten differently — higher margin threshold, higher mobilization, more conservative schedule of values.
HOW TO RUN
A BACKLOG QUALITY REVIEW.
The CFOS standard: Backlog quality is reviewed every month as part of the 24-month cash flow forecast. Projects are weighted by execution probability, margin, and cash timing. The owner knows not just how much work is ahead but whether it will produce the cash and profit the business needs.
HIGH BACKLOG,
TIGHT CASH — HERE'S WHY.
The most common confusion in subcontracting: "We have $6M in backlog — why are we tight on cash?" Because backlog is future revenue, not present cash. The projects in backlog require mobilization capital before they produce billing. If three large projects start in the same month, the cash demand on mobilization alone can exceed $300K–$400K — all before the first pay application is approved.
Backlog quality analysis solves this by mapping the cash demand and cash inflow from each project over time, giving the owner a clear picture of whether the current cash position can support the projected workload — or whether additional working capital needs to be arranged before the work starts.
