A full backlog doesn't guarantee a healthy business

RCS Influencer John Kenney says revenue doesn't pay the bills, cash does.

One of the biggest misconceptions I see in the roofing industry is the belief that a full backlog automatically means a healthy company. I've heard contractors proudly tell me they're booked six or eight months out, yet when we sit down and review their financials, they're struggling to make payroll, delaying vendor payments or drawing on their line of credit to keep projects moving. 

I've learned over the years that backlog and cash flow are two very different measurements. Backlog tells you what work you've sold. Cash flow tells you whether your business can afford to perform it. 

That's an important distinction because I've seen profitable companies fail, not because they ran out of work, but because they ran out of cash. 

One lesson I've carried throughout my career is this: revenue doesn't pay the bills, cash does. You can have millions of dollars under contract and still find yourself in financial trouble if the timing of your cash inflows doesn't match the timing of your cash outflows. 

That's where many contractors get caught. 

As production ramps up, so do expenses. Materials often have to be purchased before the first payment arrives. Payroll continues every week regardless of when invoices are paid. Equipment costs, insurance, fuel and overhead don't wait for the owner to release a draw or approve a pay application. 

Then retainage enters the picture. 

Many contractors forget that a portion of every contract may remain unavailable until substantial completion, or even final closeout. On paper, that money belongs to the company. In reality, it may not be collected for months. If you're depending on retainage to fund current operations, you're putting unnecessary pressure on your cash position. 

Payment timing creates another challenge. Few projects follow a perfect billing cycle. Owners review invoices at different speeds. General contractors process payments on their own schedules. Change orders may sit unresolved for weeks while the work has already been completed and paid for by the roofing contractor. 

I've seen companies with excellent production teams struggle simply because their billing process wasn't disciplined enough. Delayed invoices become delayed payments and delayed payments quickly become cash flow problems. 

One thing I always encourage contractors to do is stop looking at backlog as a single number. Instead, break it into a production schedule tied directly to projected cash flow. 

Ask yourself: 

• When will this work actually be performed? 
• When will materials need to be purchased? 
• When will payroll increase? 
• When should the first invoice go out? 
• When do we realistically expect payment? 

Those answers tell you far more about the health of your business than the total backlog sitting on your board. 

Production planning should also support cash management. It may seem logical to start every available project immediately, but that's not always the smartest financial decision. I've worked with contractors who improved their cash position simply by sequencing projects more strategically. Starting work when materials, workforce and billing milestones align creates a much healthier financial rhythm than chasing every available start date. 

Overhead deserves attention as well. During periods of strong backlog, companies often expand quickly by adding office staff, equipment and facilities. Sometimes those investments are necessary. Sometimes they're based on optimism instead of actual cash flow. I've seen contractors build overhead around anticipated revenue only to discover collections couldn't support the increased expenses. 

The companies that consistently perform well financially understand the relationship between operations and accounting. Estimating, production and finance don't operate independently, they support one another. The production schedule influences billing. Billing drives collections. Collections fund the next round of production. When those departments stay aligned, cash flow becomes far more predictable. 

I've often said that cash flow is the heartbeat of a construction company. You may not think about it every minute, but when it becomes irregular, the entire business feels the effects. 

Backlog will always be an important measure of future opportunity, but it should never create a false sense of security. The contractors who build lasting businesses aren't the ones with the biggest backlog. They're the ones who understand how to convert that backlog into consistent, healthy cash flow. 

Because at the end of the day, the goal isn't simply to stay busy. 

The goal is to stay profitable, financially stable and in control of your business while you're busy.