How to Read Your Backlog Like a Banker: Timing, Diversification, and Gross Profit Discipline

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 You'll Learn 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